Debt Deal: the right measuring rod can make anything look like an improvement.

Prof. Dwight Drake explains why the spending reduction measures in the debt deal will not meaningfully reduce our national debt and why it will continue to spiral out of control.  It is all about the CBO's measuring rod. 

This article must be read by all Americans.   

Prof. Dwight Drake is a professor of law at the University of Washignton School of Law and hosts Drake's PlainTalk Planning. 

Taxes under the debt deal are going up.

According to a post by Scott A. Hodge at the Tax Foundation, taxes for virtually every working American will go up on January 1, 2013 under the debt deal.  

How you ask?  The deal assumes that all Bush-era tax laws will expire at the end of 2012.  That expiration will increase tax revenues by $3.5 trillion (i.e. 10%) over ten years than would otherwise be collected under an extension of current policies.  From the post:

They can do so by assuming what is known as the "current law" baseline that assumes that all of the Bush-era tax laws expire as scheduled at the stroke of midnight on December 31^st 2012. This means that all income tax rates will go up across the board, the child credit will fall from $1,000 to $500, the marriage penalty will return. Moreover, the current law baseline also assumes that the AMT will not be "patched" and will affect tens of millions of unsuspecting taxpayers. Under this baseline scenario the federal government is estimated to collect $39 trillion in tax revenues over the next ten years. So by assuming taxes have already gone up lawmakers can say that they have not "technically" increased taxes.

Call it what you will, but Americans would still pay more in taxes than they would if all of the tax policies that are currently in place were simply extended for the next ten years. As the chart below shows, if all of the Bush-era tax laws were extended, along with the AMT patch, this "current policy" baseline would still be expected to raise roughly $35.5 trillion in revenues over the next ten years.

Thus, the budget deal's current law baseline assumes $3.5 trillion more in tax revenues over ten years than what would otherwise be collected under current policies. That's a 10 percent tax increase over current policies.

By contrast, federal spending is expected to total nearly $46 trillion over the next ten years. Under the most optimistic scenario, the compromise plan would "cut" $2.4 trillion in spending, which would amount to an overall spending cut of 5.2 percent. Of course, this assumes that none of the spending cuts are gimmicks - which considering the games they have already played with the revenue baseline, is a pretty big if.

Graduate student loans at risk in debt ceiling debate...

According to this Forbes article, under both the Boehner and Reid plans no new subsidized loans would be issued for graduate students after July 1, 2012. 

From the article:

The competing deficit reduction/debt ceiling increase plans proposed by House Speaker John Boehner (R-Ohio) and Senate Majority Leader Harry Reid (D-NV) would both cut off subsidized Stafford student loans for graduate and professional students.

Currently, graduate and professional students can take out up to $20,500 a year in federal  loans, and up to $8,500 of this amount can be in subsidized loans if they’re found to have financial need.  (Details here, at the government’s student aid web site.)  With the subsidized variety of loans, Uncle Sam pays the interest due while students are in school and during a six month “grace period” after they’ve left school and before repayment begins.  With the unsubsidized variety,  interest accrues while students study and during the grace period, adding to the amount they must pay back when they graduate.

Under both the Boehner and Reid plans, no new subsidized loans would be issued to graduate students after July 1, 2012.  The savings would be used to help fund the Pell Grant program, which provides lower income undergraduates with grants of up to $5,500 a year. (More explanation of  how the Pell program would be funded is at the Ed Money Watch blog here.)

So, for any Graduate student readers out there, hurry up and finish! 

2010 Federal Revenue Sources: a surprising amount came from payroll taxes.

According to the Office of Management and Budget, Fiscal Year 2010 Federal Revenues break down as follows.  The graph is courtesy of factcheck.org.  These numbers can be found on Table 2.1 at the OMB. 

Of particular note is the fact that Payroll Taxes (which are paid by employers and employees) brought in as much revenue (40.0%) as Individual Income Taxes (41.5%).  Corporate Income taxes brought in 8.9% and the Estate & Gift tax brought in 0.9% (it is part of the "other" category).  By way of contrast, in 2000, the Individual Income Taxes brought in 50% and Payroll Taxes brought in 32%.  See Table 2.1. 

Listen carefully to the upcoming tax debates in Congress and see how many times Payroll taxes are discussed.  Even though Payroll Taxes tie as the single largest revenue producer for the Federal government, chances are low that meaningful discussion or reform will occur. 

Washington State's credit rating: stable

According to July, 2011 reports from Moody's and Standard and Poor's, Washington State’s rating outlook is "stable."  Although "stable" may not be stellar, it sure beats the Fed’s current outlook.