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The mortgage interest deduction mostly benefits wealthier people with larger mortgages who need it least, and who are likely to buy homes regardless of the deduction, say experts. Both the Brookings Institution and other experts such as Moody's chief economist, Mark Zandi, see the deduction as part of the negotiations for deficit reduction. The Brooking Institution's Ted Gayer, says the deduction subsidizes acitvity such as borrowing large amounts of money to buy larger homes which the U.S. should not want to subsidize in the current state of the country's finances. The Simpson-Bowles plan and the Feldstein-Romney plan sought to put unnecessary tax expenditures and deductions on the table for negotiation. The deduction was not part of the last tax reform in 1986 under president Reagan. Zandi says any changes should be phased in over a number of years so that housing sales ar not affected in the current recovery. David Stephens, CEO of the Mortgage Bankers Association says any changes should be implemented gradually. ...

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Rep. Paul Ryan tells Bill Keller that his ideas on Medicare and Social Security are not "the last word" but a way to start an "adult conversation." Keller describes what a Romney administration might look like with Ryan, Dan Senor, and Glenn Hubbard.

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About 63% of respondents in a Washington Post/ABC poll conducted in July 2011 say they would look for new faces in Congress in the 2012 elections. There is serious public discontent with the lack of compromise by Republicans and Democrats in the debt ceiling and deficit reduction talks.

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Krauthammer says it has become a cliche for people to say "politics is broken" in the U.S. John Beers, head of the Standard & Poors sovereign ratings committtee, also cited a broken political system in his rationale for the U.S. credit downgrade to AA+. This happened even as S&P repeatedly emphasized the triple A rating for France during this weeks (early August 2011) tumult in the markets over French credit risks. But in reality when you look closely and have a sense about the serious changes being discussed, says Krauthammer, something exceptional has happened, and the system is working. For the U.S. Congress and the government to come to grips with an ever expanding debt -with 39 cents of every dollar spent being borrowed as Alan Simpson of the Simpson-Bowles Commission never tires of pointing out- when both branches of government have ignored or shunted off the question with a "deficits are ok" attitude for decades- is a significant achievement. When one looks closely contrary to what S&P's and other opinion says there is actually a political process that is working in the U.S. compared to the process in Europe. In difficult situations when strong opinions are bare knuckling it with each other this process can be boisterous, but it only suggests an effort to wrap ones hands around the problems in a serious way. This is actually one of the strengths of the U.S. system with its checks and balances and its spirited dialogue. In business management Intel's Andy Grove called it "constructive confrontation," and he described this as positive and essential for business institutions to survive and grow....

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The Obama tax deal pushes tough decisions on spending into the future. It will put more money in people's pockets and as a result give a short term boost. Experts do not see long term benefits to the economy. It does not do what spending on much needed infrastructure and investment in other parts of the economy would do to give a long term lift to the economy.

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Krugman questions the Paul Ryan U.S. budget proposal on several grounds. He says the Ryan proposal depends on projections by the Heritage Foundation for its assumption that the tax cuts would generate higher revenues by creating a booming economy. The Heritage Foundation projection is for revenue increasing by $600 billon over the next 10 years as a result of tax cuts. Krugman cites a different view from the Congressional Budget Office estimate for the Ryan proposal, which shows assumed savings from spending cuts will go not to reduce the deficit but to pay for tax cuts, with bigger deficits in the next decade. He says the spending cuts excluding Social Security, Medicare and Medicaid- but including defense- go down from 12% of GDP in 2011 to 6% of GDP in 2022- meaning that cuts in public services will need to cut to the bone. The Medicare part of Ryan's proposal does not say how spending on medical care will be reduced. The voucher or premium support Ryan envisages is estimated by the Congressional Budget Office to cover only one third of the cost of insurance premiums for Medicare equivalent care by 2030. Krugman cites the Center on Budget and Policy Priorities, which says the Ryan proposal achieves two thirds of its $4 trillion in spending cuts over the next decade by cutting programs that primarily serve low-income Americans. ...

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This New York Times editorial describes the impact on lower income Americans of spending cuts that are part of the Romney-Ryan plan.

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Michael McConnell, was Assistant General Counsel of the Office of Management and Budget from 1981-1983. He is now a professor of constitutional law at Stanford University. Here he tries to throw light on how the budgetary process that is required by law, and which makes the formal budget proposed by the president available for public scrutiny, was circumvented through a sequence of events starting in February 2011. The Budget Act of 1974 sets specific deadlines and a process for generating revenue, setting spending priorities, and setting the debt limit. The President first submits his administration's budget by the first Monday in February. The Congressional Budget Office has until Feb. 15 to score the budget using identical metrics for all proposals for a consistent scoring. The budget President Obama put forward in February did not take into account the growing deficit and was rejected by the Senate 97-0. The President proposed a new plan in April 2011, but the proposed budget was so vague that CBO Director Douglas Elmendorf said he could not score it. The subsequent efforts in June and July 2011 were carried out in closed door negotiations between senior Republican leaders and the Obama White House. This subverts the original intention of the law. The Budget Act says that both the House and Senate hold hearings on the proposal, with testimony from the administration, "national organizations" and the "general public." Transparency, openness and accountabilility are key aspects of a proper process that is democratic and prevents the parties from engaging in blame and competing claims. The closed door negotiating sessions and the lack of a concrete written budget proposal from the President has turned the current budget process into an effort by each side to see how it can best position itself for the 2012 presidential election. ...

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US president Biden's $2 trillion infrastructure spending plan is being compared to the New Deal infrastructure plans of Franklin Delano Roosevelt in the 1930's. FDR was preceded by Republican administrations under Hoover and other presidents who followed policies that can be compared to the Reagan administration policies when public sector spending was not seen to be as efficient as private sector spending. By the time of the economic collapse in the 1930's it had become clear that only the federal government could save the country in the depression. During the pandemic and collapse of the health systems it was clear that only the federal government could save the country. It is now also evident that infrastructure building led by the government can rebuild America. In the 1930's and during other periods in American history such as the building of the Erie Canal and other public sector infrastructure projects in the 19th century it was the federal government that led the way to building America. ...

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Tax cuts initiated by the Bush administration and to a smaller degree by the Obama administration account for $6.3 trillon of the $10 trillion deficit in 2011. This is about half the $12.7 trillion gap between the $2.3 trillion surplus predicted by the CBO a decade ago for the year 2011 and the current deficit of $10.4 trillon. Two wars and higher defense spending add another $2 trillion. The Stimulus added $700 billon. The Prescription Drug Benefit for seniors $272 billion. This is based on new analysis of CBO data by the Pew Fiscal Analysis Initiative. The record shows unrestrained spending by both parties has led to the current mess. Pete Domenici who chaired the Senate Budget Committee at the time of the first tax cuts in 2001 says "in the end the floodgates were opened." This also shows how quickly the situation can change if sound fiscal practices are abandoned. Two wars were financed entirely with borrowed money for the first time in U.S. history.

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Romney picks seven term Wisconsin Congressman Paul Ryan as his running mate for the 2012 U.S. presidential election. It is a daring pick because Ryan has clear ideas about reducing the U.S. deficit which are in sharp contrast to the approach taken by Obama and Biden, offering American voters a clear choice. This is similiar to the contrasting choices between Reagan-Bush and Carter-Mondale during a period of high unemployment and inflation in the 1980 presidential election. The contrast was also made clear by the release of the Shultz memo to President Reagan and the comparisons with the Reagan election by Romney economic advisor Glenn Hubbard, both recently published in WSJ.

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A new study by the Washington Post and the Kaiser Family Foundation shows partisan politics will affect the new president in the U.S. in 2013, to the point of making it difficult to govern.

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The U.S. Senate voted 51 to 49 on a Democratic party measure for further reductions in 2012 Social Security payroll taxes for workers and employers, including a surtax on incomes over $1 million. A measure supported by the Republican party to pay for the payroll tax cut by reducing the Federal payrolls was defeated, with half the Republicans voting against it. Democrats hope to use this issue to show Republicans favor the rich over the middle class, as the payroll tax cut benefits most Americans. Polls show Americans by a large majority see Republican policies favoring the rich. A New York Times/CBS poll in October showed 7 of 10 Americans feel this way. Pollster Geoff Garin says the income inequality issue is beginning to override other issues including antigovernment feeling. This is one way in which the Occupy Wall Street Movement's slogan of "the 99 percent" has resonated with U.S. public opinion. The Democratic party sees this as an opportunity to define the campaign issues for 2012, with Republicans running for reelection cautious about being seen this way....

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This editorial in the WSJ tells readers not to confuse the spirit of a pro-growth initiative in the CEO statement of Oct. 2012 with a simple tax increase. The CEO's are doing this as a part of a larger effort for a strong recovery in the U.S. economy and not simply to increase taxes. For the first time CEO's are backing tax increases to break the influence of what the Journal calls Republican deadenders who flatly oppose any tax increases period leading to unacceptable deadlock and uncertainty that prevents business from investing and hiring. This is part of a broader set of tax reforms to lower rates overall, reduce tax expenditures and support the Simpson-Bowles commission recommendations framework to reduce the deficit.

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U.S. presidential candidate Romney's plan to limit deductions to $25,000 leaves the taxes deductions of middle and lower income earners intact and hits high income earners with large deductions hardest.