Rep. David Obey (D-Wisc.), the chairman of the House Appropriations Committee, warned that if President Barack Obama decides to send additional troops to Afghanistan, it should be funded with the new tax.

“If we have to pay for the healthcare bill, we should pay for the war as well,” Obey told ABC News in an interview, “by having a war surtax.”

Obey said his proposed tax would be a “graduated” tax on income that would help offset the roughly $40 billion in new costs needed to send 40,000 more troops to Afghanistan, a cost estimated by Office of Management and Budget (OMB) Director Peter Orszag.

Previously, Obey had expressed his concerns over war financing as more of a pointed question. But Tim talked to his spokesman and it appears to be a rather robust proposal:

Essentially, below the $150,000 level, the 15 percent bracket for a family, there would be an increase of one percent of your current level, so for most people that would be 15.15 percent. Separate changes would happen between the $150-$250,000 income level and above $250,000, which would be set by the president depending on his eventual decision on what to do in Afghanistan; currently, the war costs about $68 billion a year, but that could increase if the White House decides to send more troops or spend more money on development projects.

Tim writes that it will be hard for Obey’s inevitable critics “to argue against this bill in good faith.” Just wait!

With Democratic leaders hoping to bring up legislation to fix, once and for all, the formula to pay doctors who treat Medicare patients, a great deal of attention is being paid to the inconvenient fact that Democrats have not presented a plan to pay for the bill’s $245 billion price tag. Newspaper editorials are attacking the plan as disingenuous; Republicans are blasting it as a bait-and-switch; and even some Democrats are vowing to withhold their support unless the bill is offset with spending cuts elsewhere.

The Washington Post’s Dana Milbank this morning summarizes the GOP reaction:

Republicans, who had been losing traction in their effort to fight a health-care overhaul, could hardly believe the gift the majority had given them.

“I have never witnessed something more sinister!” an agitated Sen. Bob Corker (Tenn.) declared on the Senate floor Tuesday morning. Citing a report that the “doc fix,” as the $250 billion measure is called, was created to buy the American Medical Association’s support for the main health-care bill, Corker accused the AMA of prostitution. “We all know that the selling of one’s body is one of the oldest professions in the world,” Corker said. “The AMA is engaged in basically selling the support of its body.”

It wasn’t supposed to happen that way. When Sen. Debbie Stabenow (D-Mich.) introduced the bill hastily last week, Democratic leaders hoped to pass the proposal quickly, so as to disassociate it from the larger health reform proposal also moving through the chamber.

“We’re doing the doc fix first so as not to get it confused with health care reform,” Sen. Tom Harkin (D-Iowa) told reporters last week. “We’re going to try to pass it as an emergency-type of spending so that it doesn’t … connect to the health care reform bill and figure in as a cost of it.”

The reasons are clear: President Obama has vowed not to sign a health reform bill that adds to deficit spending, and divorcing Stabenow’s doc-fix bill from the larger effort means the White House can make good on that promise. It doesn’t hurt that the move would likely bring the American Medical Association — the nation’s largest physician organization — on board as an influential supporter of the later-to-be-tackled health reform bill.

Still, adding a quarter of a trillion dollars to the debt is no minor occasion. Why Democrats thought they could do it without attracting either media attention or Republican criticism remains a mystery.

Tausch has been reluctant to talk about much beyond his thoughts on government. He has not responded to multiple interview requests from the Monitor in recent weeks; his staffers didn’t even respond to requests to confirm information about him. Tausch reportedly also avoided talking to a reporter from Union Leader this month.

Tausch has actually been able to buy lots of free, uncritical media attention; see this Wall Street Journal column that suggests Tausch would be a good U.S. Senate candidate based solely on his willingness to spend money to yell to voters about spending. But Tausch seems pretty politically naive — he was a Mike Gravel supporter, for some reason — and his messaging consists of stuff like “Imagine it: the same people who were in charge of responding to Hurricane Katrina could soon be making health care decisions for you—with your tax dollar.” If Tausch represents anything, it’s a small strain of the electorate who voted for Barack Obama because they were angry about deficits. Not exactly a surging political movement, but buy enough ads and you can get covered that way.

When you think about the current economic conditions, do you feel that this is a situation that Barack
Obama has inherited or is this a situation his policies are mostly responsible for?

Situation Obama inherited – 72 percent (-12)
Situation Obama’s policies mostly responsible for: 14 percent (+6)
Some of both: 10 percent (+4)

And:

Which ONE of the following groups do you feel is most responsible for the federal budget deficit?

The Bush administration: 46 percent
The Democrats in Congress: 21 percent
The Republicans in Congress: 7 percent
The Obama administration: 6 percent
ALL: 13 percent

Something to keep in mind when you read an analysis of “the return of Ross Perot.” There’s a lot of wiggle room here and the White House must know it.

“As estimated by CBO and the Joint Committee on Taxation, the President’s proposals would add $4.8 trillion to the baseline deficits over the 2010–2019 period,” CBO Director Douglas Elmendorf wrote on his blog this afternoon. “CBO projects that if those proposals were enacted, the deficit would total $1.8 trillion (13 percent of GDP) in 2009 and $1.4 trillion (10 percent of GDP) in 2010.”

On a conference call just now with reporters, Office of Management and Budget Director Peter Orszag explained how the higher projected shortfall came about.

“As expected, it reflected a worsening of both the economic and fiscal picture since the CBO’s January report,” Orszag said. “I think one thing that’s often underappreciated is how sensitive the budget is to small changes in assumptions.”

As a hypothetical example, he said, if initial projections had spending at $1,050 and revenue at $1,00,  and then revenue decreased 10 percent, the deficit would rise from $50 to $150 — a 200 percent increase.

But he insisted that the new projections will have no impact on the administration’s commitment to its four top priorities in the budget: health care, education, clean energy and cutting the deficit in half by the end of Obama’s first term.

Asked about the possibility of using the controversial budget reconciliation process to circumvent a possible GOP filibuster of cap-and-trade legislation, Orszag said, “With regard to reconciliation, I’ll again say, it’s not where we want to start, but it would be premature to take it off the table.”

The budget will now head to Congress, where Orszag anticipates there will be significant adjustments.

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TWI’s Twitter feed is also underappreciated. Please follow it here.

Their recent tax woes — by which we mean their getting caught not paying their (or their spouses’) taxes — mean that the IRS is probably right about (or even underestimating?) the extent to which Americans — both individuals and corporations — cheat on their taxes. (In its latest tally, the IRS estimates that the 2001 tax gap — the chasm between taxes owed and taxes actually collected — was $345 billion.)

Why is that good news? Because much of that could be retrievable.

As Te-Ping Chen at The Center for Public Integrity points out this week, every dollar the IRS spends on tax enforcement returns five dollars. Chen also offers a few reasons why the IRS hasn’t closed the gap in recent years:

One reason is a slump in IRS staffing. Over the past decade, the number of agents that perform audits has dropped by over a third. Meanwhile in 2007, in what the Syracuse University-based Transactional Records Access Clearinghouse calls a “historic collapse,” only 26 percent of corporations holding at least $250 million in assets had their books inspected — compared to more than 70 percent in 1990. (The fact that Congress outsourced debt collection to private agencies in 2004, costing the government $37 million more than such agencies manage to collect, hasn’t helped either.)

Sen. Kent Conrad (D-N.D.), who chairs the Senate Budget Committee, has been screaming from the rafters for years about how Congress needs to find some way to close the tax gap. Daschle & Co. might just provide the impetus for lawmakers to start trying in earnest.

Speaking at George Mason University in Fairfax, Va., he warned of the hard times to come and emphasized the urgent need for decisive action, even as Republican leaders have indicated that they will not agree to a major spending increase without careful deliberation.

“For every day we wait or point fingers or drag our feet, more Americans will lose their jobs,” Obama said. “More families will lose their savings. More dreams will be deferred and denied. And our nation will sink deeper into a crisis that, at some point, we may not be able to reverse.”

He also warned that his plan, which is expected to cost upward of $750 billion, will increase the $1.2 trillion deficit the country is already facing.

“There is no doubt that the cost of this plan will be considerable,” he said. “It will certainly add to the budget deficit in the short-term. But equally certain are the consequences of doing too little or nothing at all, for that will lead to an even greater deficit of jobs, incomes, and confidence in our economy.”

In a possible indication that he will seek to change the dialogue on the role of government, Obama dismissed the virtues of small government and pressed the need for strong and steady intervention in the economy.

“Only government can provide the short-term boost necessary to lift us from a recession this deep and severe,” he said. “Only government can break the vicious cycles that are crippling our economy –- where a lack of spending leads to lost jobs which leads to even less spending; where an inability to lend and borrow stops growth and leads to even less credit.”

He also channeled President John F. Kennedy, albeit a bit less eloquently, insisting “that the first question each of us asks isn’t ‘What’s good for me?’ but ‘What’s good for the country my children will inherit?’”

Congress will soon begin hammering out the details of the recovery plan, which Obama hopes to sign into law within weeks of taking office Jan. 20.

UPDATE 12:10 PM: House Minority Leader John Boehner (R-Ohio) and Senate Minority Leader Mitch McConnell (R-Ky.) just responded to Obama’s speech. They were generally supportive, although they expressed some reservations about the details of the plan. Boehner insisted on “striking the right balance” between economic stimulus and fiscal restraint, while McConnell maintained that aid to states should be in the form of loans, not grants. McConnell said that at least two states don’t need any aid, and “it hardly makes sense to give money to states that don’t need it.”

Clearly, the Republicans find themselves in a tough spot. Obstructing the passage of a stimulus plan in a time of dire economic need would make them easy scapegoats for the country’s struggles. But they need to gain bargaining power in negotiating the details of the plan so that they can turn it to their ideological favor. It’ll be interesting to see how they pick their battles in the weeks to come.

Unfunded tab of government liabilities projected to reach $53 trillion over next 75 years. (flickr)

Think the $700-billion bailout package was expensive? Well, you ain’t seen nothin’ yet.

Over the next few decades, promised federal spending threatens to drown the economy to a degree that would make the recently enacted financial bailout plan seem cheap, David M. Walker, the former comptroller general, said Wednesday. Including Medicare, Social Security, veterans programs and myriad other financial obligations, the tab over the next 75 years is projected to reach $53 trillion — with a “T.” All unfunded.

Yet despite this projected gaping hole in the budget — one that threatens to consume all the economy in just a few decades — Congress has shown little appetite to rein in spending. While party leaders came together with startling urgency to pass the Wall Street bailout, they’ve done almost nothing to confront the much larger problem of the looming budget crisis.

Illustration by: Matt Mahurin

“That’s not just fiscally irresponsible,” said Walker, now president of the Peter G. Peterson Foundation, a group promoting fiscal sobriety. “It’s morally reprehensible.”

His thrashing — delivered during a gathering of leading economists in Washington on Wednesday — comes during a dark time for the nation’s economy. Risky, mortgaged-backed securities have collapsed in value, leading to a freeze in the flow of the cheap credit that fuels businesses. The freeze has destroyed storied investment firms, bankrupted others, sent home prices plummeting further and foreclosure rates leaping. On Wall Street, stock prices are in a tailspin; on Main Street, unemployment is rising, and no one seems to know when it will end.

In a coordinated effort to make that day come quicker, the Federal Reserve, in coordination with central banks around the world, lowered interest rates half a percentage point Wednesday. The Dow Jones Industrial Average responded with an upward blip, but ended the day down 189 points.

Many experts, including Walker, agree that Congress had to do something to re-instill investor confidence in the financial system. But the bailout, the former comptroller general is quick to point out, constitutes less than 1 percent of the country’s long-term spending obligations.

“My question,” he said, “is when are they going to start dealing with the bigger problem?”

There is good reason for Walker’s alarm.

The nation’s mandatory spending commitments — a combination of interest on the debt and entitlement programs that run on autopilot — account for more than 62 percent of the federal budget, up from 33 percent 40 years ago. And they’re climbing.

The oldest baby boomers will become eligible for Medicare in a few years, adding to the burden. More important, medical inflation is a force unto itself: Medicare alone is projected to grow at three times the rate of the rest of the economy over the next 25 years.

To slow that growth, Congress would have to pass legislation. Yet the surest reform options — raising taxes or cutting benefits — are both political landmines. Lawmakers don’t want to be remembered for doing either.

Walker claims there are “disturbing parallels” between the current financial mess and the nation’s looming budget crisis. Many Wall Street decision-makers, for example, who made out handsomely from their high-risk investments have never been held to account, even as thousands of homeowners have suffered from their choices. In Congress, Walker points out, lawmakers are often rewarded with reelection for their overspending, rather than being punished for tipping the nation’s balance sheets off-kilter.

Another example: Wall Street firms used off-the-books accounting to hide many dubious transactions from regulators. In Congress, the annual budget almost always buries real expenses — emergency funding for the wars in Iraq and Afghanistan, for example, and long-term obligations like Medicare — to create the illusion that overspending is less severe than it is.

In fact, Walker claimed, only two major differences distinguish the current financial mess from that facing the nation’s budget. First, the government crisis is far larger. Second, no one can bail out the U.S. government.

The lack of initiative among policymakers has caused some experts to question the quality of leadership on Capitol Hill. Tim Adams, a former Treasury official under the Bush administration who is now managing director of the Lindsey Group, an economic consulting firm, said the current financial crisis should be the country’s “call to arms to get our fiscal house in order.” To do it, though, the country needs strong leadership, “and right now we don’t have it.”

Election-year politics has contributed partly to Congress’s inaction. Without voters pushing for entitlement reform, few lawmakers have stuck their necks out to make it an issue. In this political environment, some experts say, change will come only when the public is better informed about the problems.

“It’s clear that our dysfunctional Congress is not going to act unless pressured by the voters,” said Rudolph Penner, a former director of the Congressional Budget Office who is now a scholar at the Urban Institute.

The entrenched partisanship of recent years hasn’t helped. With Democrats controlling Congress and George W. Bush occupying the White House, the environment in Washington has been one in which “winning is more important than governing,” according to Leon Panetta, former chief of staff for President Bill Clinton and now professor of public policy at Santa Clara University. As a result, entitlement reform has been close to impossible, even as experts have warned of looming trouble.

On Tuesday, that trouble become more pronounced when the Congressional Budget Office announced that the deficit for fiscal year 2008 (which ended Sept. 30) will be $438 billion — up $276 billion from the year before. In July, the CBO projected the 2009 deficit will reach $482 billion. That’s the largest dollar figure on record, though several deficits under President Ronald Reagan were far higher as a percentage of gross domestic product. The 2009 estimate does not consider the $700-billion bailout, so the real figure will likely top $500 billion.

Earlier this month, the federal debt hit the double-digit trillions — a figure large enough that Manhattan’s celebrated “debt clock” could no longer contain it. The mammoth sum has real budget implications: In 2007, the interest on the federal debt was $237 billion, or roughly 9 percent of the total budget.

Washington observers predict Congress will have to take further steps to treat the ailing economy. There remains disagreement, though, over what form another stimulus package should take.

A $56-billion proposal, passed by the House last month, would fund infrastructure projects, expand unemployment benefits and increase spending on such social services as Medicaid and food stamps. Senate Republicans defeated the measure. It’s unclear if Democratic leaders will try again when the Senate returns to Washington after the elections.

The next president will have no easy time inheriting the mess. Despite the claims of Sens. Barack Obama and John McCain, experts contend that many campaign-trail promises will have to be abandoned as a result of the current economic squeeze. “Most of their initiatives will not be able to be accomplished,” Panetta said.

Some economists are less pessimistic. Mark Zandi, chief economist of Moody’s Economy.com, maintained that, despite its troubles, the United States remains attractive in the eyes of foreign investors. As long as those investors continue to buy Treasury bills, he said, there’s reason to believe the recovery will come soon. “We are still the place you go when there’s a problem,” Zandi said, “even when the problem is here.”

Also a source of optimism, some experts predict that rebalancing Social Security will be easier in the middle of the financial crisis than it was previously. That’s because the major sticking point has been Republicans’ insistence that private accounts be included in any reforms — an insistence that seems absurd as the market continues its stunning fall.

“That’s not going to fly in this atmosphere,” said Alice Rivlin, former head of the Congressional Budget Office and now a Brookings Institution scholar. “Nobody’s going to turn their accounts over to Wall Street.”

As the economic debate rages, some observers see the financial trouble as an opportunity for everyone, not only Washington’s politicians, to try a hand at introspection. Adams of the Lindsey Group suggested the crisis has something to do with all Americans — eager consumers who bought things they didn’t need to fill houses they couldn’t afford.

“Maybe,” he said, “this is a period when we reconnect with what’s real in life.”