This presidential campaign has developed its own lexicon.
What happens if you dial 9-9-9? Who’s Ponzi? How do you get a
tax holiday? What’s a permitorium? Want to dance the Operation Twist?
Here’s a viewers’ guide to 25 words and phrases likely to be heard at Tuesday night’s Bloomberg/Washington Post Republican presidential debate at Dartmouth College in Hanover, N.H. Coverage begins at 7 p.m. New York time on Bloomberg Television, and the debate will be streamed live
beginning at 8 p.m. on Bloomberg.com and washingtonpost.com.
This debate will focus on the economy, debt, deficits, taxes, trade and jobs.
CRONY CAPITALISM: Critics on both ends of the political spectrum
have decried what they call government’s penchant for helping favored companies. On the political left, the criticism is that the government propped up financial institutions such as Citigroup Inc. during the financial crisis of 2008, while doing little to buffer homeowners and workers suffered. Some Republicans have seized on that term and used it against President Barack Obama, arguing that his 2009 economic-stimulus plan poured funds into politically connected companies, especially in renewable-energy technology and the auto industry.
CURRENCY MANIPULATION: Former Massachusetts Governor Mitt Romney has said he would officially label China a “currency manipulator” and impose duties on its goods until that nation raised the value of its currency to “fair value.” China takes steps in the market to hold down the value of its currency, giving its exporters a cost advantage over companies in other countries and contributing to the U.S. trade deficit. The U.S. Treasury Department releases a report twice a year in which it is supposed to identify any country that it believes is manipulating its currency. Treasury hasn’t labeled any country a manipulator since 1994. Under current law, there are no consequences for a country named a manipulator.
DEBT LIMIT: The debt limit is the total amount of money the federal government can borrow to meet its obligations, including interest on the debt, Social Security and Medicare benefits, military salaries, tax refunds and other payments. The debt limit allows the government to finance existing legal obligations that Congress and presidents have made in the past.
Since 1960, Congress has raised the threshold 78 times, including 49 times under Republican presidents and 29 times under Democrats. On Aug. 2, Obama signed into law a bill to instantly give Treasury $400 billion in additional borrowing power.
DEFICIT: Deficits are the government’s total expenditures that
exceed the annual revenue it receives. Deficits differ from debt, which is the accumulation of yearly budget shortfalls. At 8.5 percent of gross domestic product, the $1.3 trillion budget deficit that the Congressional Budget Office projects for 2011 will be the third-largest shortfall in the past 65 years. This year’s deficit stems in part from the financial crisis and its effect on the economy, according to CBO. Although economic output began to expand again two years ago, the pace of the recovery has been slow and the economy remains in a “severe slump,” the CBO said.
DOUBLE-DIP RECESSION: This is informal shorthand to describe the shape of an economic slump. Economists often use letters, such as V, U, L and W, to describe recessions and their ensuing recoveries. A W-shaped recession and recovery is one in which a brief period of growth is followed by another contraction, giving rise to the term “double-dip.” The recessions of 1980 and 1981-82 are the ones most commonly linked to a W, or double dip. The term is used today to describe the risk that the economy will again tip into a recession because the recovery that started in June 2009 has been so weak.
FLAT TAX: A flat tax is a system of taxation that features a constant tax rate for all income, whether it is wages or corporate profits. Candidate Herman Cain’s 9-9-9 plan (see below) could be considered a flat-tax proposal. Critics of a flat tax contend it’s regressive because it disproportionately hurts lower-income households.
JOBLESS RECOVERY: This is a phrase used to describe an economy that is growing without generating employment, usually during the early stages of a recovery from a recession. The term was widely used following the 1990-1991 recession, when employment in the U.S. stagnated for more than a year after the contraction ended in March 1991. It was an even more apt description of the circumstances following the 2001 recession, when the economy lost an additional 1.1 million jobs in the 21 months after the slump ended. The term also was used to describe the current job environment, when it took nine months to generate sustained gains in payrolls after the recession ended in June 2009.
MANDATE: Most Americans will be required to purchase health-care
coverage as part of the 2010 health-care law, or else pay a fine. The so-called individual mandate in the law is the target of lawsuits from 27 states asserting that Congress exceeded its powers with the requirement. The Obama administration and states have asked the U.S. Supreme Court to rule on the requirement’s constitutionality in its current term, meaning a decision could come during the 2012 U.S. presidential election campaign. Romney instituted a coverage mandate when he was governor of Massachusetts.
MEANS-TESTING: Some Social Security overhaul proposals would save money by using means-testing to provide smaller benefits, or end them altogether, for senior citizens with higher incomes. Proponents say those are the people who least need the benefits, while opponents say that would change Social Security from an insurance program into a welfare plan and weaken public support. Under current law, higher-income retired people must pay taxes on part of their Social Security benefits. That tax money goes into the trust fund.
MEDICARE/MEDICAID: Medicare, the federal health program for the
elderly and disabled, covers 47 million people and spent an estimated $525 billion last year, according to the Centers for Medicare & Medicaid Services. Medicaid, the joint federal-state health insurance program that spent $401 billion last year, covered about 50 million low-income Americans as of June 2010, Kaiser Family Foundation data shows, with the U.S. paying more than half the costs. Medicaid is one of the biggest expenses for states.
MILITARY ADVENTURISM: Texas Governor Rick Perry and Representative Ron Paul of Texas have said U.S. “military adventurism” should end and the money spent on foreign conflicts be kept at home. Romney has said troops must be brought back from Afghanistan as soon as U.S. commanders say “conditions on the ground” permit it. The Obama administration has brought home troops from Iraq with a goal of withdrawing all of them from the country, except for those training the Iraqi military, by the end of the year. In Afghanistan, the U.S. is also beginning to reduce the number of troops following a surge designed to defeat the Taliban. The U.S. has 46,000 troops in Iraq and 98,000 in Afghanistan. According to the latest government figures, the two operations cost taxpayers about $11.6 billion a month as of July 30, up from $9.7 billion at the end of April.
OBAMACARE: A derisive reference, often used by Republicans, to describe the health-care law that Obama lobbied for and Congress passed last year without a single Republican vote. The law would expand coverage to an estimated 32 million uninsured Americans and extend the government’s role in health-care delivery, partly by setting up regulated insurance marketplaces where the uninsured may buy policies. The law will reduce the federal deficit by $143 million from 2010 to 2019, the CBO said in March 2010. The agency said in January 2011 that repealing the law would add $230 billion to the deficit through 2021.
OPERATION TWIST: This is the term given to the Federal Reserve Board’s plan to lower long-term interest rates in an effort to spur borrowing either for major purchases like homes or for mortgage refinancing. Operation Twist entails pushing down longer-term yields by using the proceeds from sales of debt with maturities of three years or less to buy securities maturing in the next six to 30 years. The strategy was dubbed Operation Twist after a similar action in 1961 that got its name from a hit song, “The Twist,” by Chubby Checker. Since the program’s announcement, the gap between yields on 10-year and 30-year Treasuries has shrunk to its lowest since June 2010.
PAYROLL TAX: Obama has proposed reducing the portion of the payroll tax that employers pay as a way to help boost job growth and the economy. The portion of the tax that employees pay was reduced to 4.2 percent from 6.2 percent as part of December’s tax bill. Economists generally concur that this cut boosted economic growth by about 0.25 percent. Research conducted by the nonpartisan Tax Policy Center indicates that the payroll tax cut probably helped a bit, but at a cost of $240 billion in revenue to the Treasury.
PERMITORIUM: This phrase represents the Republican contention
that Obama is standing in the way of oil and gas development, costing jobs and maintaining U.S. dependence on foreign oil. The administration banned all deepwater drilling after the BP spill in April 2010. It lifted the ban in October. Republicans say the
administration has delayed new drilling permits ever since, hence the new word “permitorium.”
PONZI SCHEME: Perry has described the Social Security system as a “Ponzi scheme,” by which he means that the system relies on payments from future beneficiaries to pay current ones. The
Social Security system does run on a “pay as you go” basis, where payments by current workers pay for the benefits to today’s retirees. Social Security is unlike a Ponzi scheme in that the federal government has the ability to compel payment into the system. The CBO reported that in 2010, for the first time, Social Security payouts were greater than the revenue brought in. The phrase is named after Charles Ponzi, who used the technique before being exposed in 1920.
QUANTITATIVE EASING: During quantitative easing, the Federal Reserve Board buys assets, like notes and bonds, to inject a predetermined amount of cash into the economy in a bid to lower borrowing costs. The Federal Reserve announced such actions, dubbed QE1 and QE2, in November 2008 and again in November 2010.
Since the central bank couldn’t lower the target interest rate to less than zero, it had to rely on other measures to try to spur a recovery.
REPEAL: Republican opponents of the health-care overhaul vowed to repeal, and in some cases replace, its provisions as soon as Obama signed it into law last year. Democrats have vowed to block repeal as long as they control at least one branch of Congress and the White House. The Obama administration is implementing the law by issuing rules and regulations even as it faces challenges in federal court. While Republican governors oppose the law in states such as Mississippi, Arkansas and Indiana, they have tried to keep from ceding control of insurance provisions to federal authorities.
SIMPSON-BOWLES: In December 2010, Republican former Senator Alan Simpson and Democratic former White House Chief of Staff Erskine Bowles, the co-chairmen of Obama’s fiscal commission, issued a report recommending $3.8 trillion in savings to cut the deficit.
They recommended trimming Social Security and Medicare, reducing income-tax rates and eliminating tax breaks, including the mortgage-interest deduction. The report, which fell short of the votes needed to go to Congress for consideration, is among the plans the new congressional supercommittee is reviewing as it seeks agreement on a $1.5 trillion debt plan.
SOLYNDRA: The California solar panel company filed for bankruptcy protection on Sept. 6, two years after receiving a $535 million loan guarantee from the U.S. Energy Department.
Republicans have used Solyndra LLC to discredit Obama’s promotion of clean energy as a way to create jobs. Obama visited the Solyndra plant built with U.S. tax dollars in May 2010. By then, his own advisers and supporters outside the White House were warning the company was in trouble.
SUPERCOMMITTEE: The legislation Obama signed into law in August
raising the debt ceiling also created a bipartisan committee of six Republican and six Democratic lawmakers charged with finding
$1.5 trillion in savings on the national debt. The panel must reach an agreement by Nov. 23 and both chambers of Congress must vote on the plan by Dec. 23. If either fails, $1.2 trillion in automatic spending cuts, divided equally between domestic and defense programs, will be triggered. They wouldn’t take effect until 2013, giving Congress time to override them.
TAX HOLIDAY: The repatriation tax holiday refers to the proposal
to allow U.S. multinational companies to bring back profits from their overseas operations at a reduced rate, to just below 6 percent from the 35 percent that currently would apply. Congress enacted a one-time holiday in 2004 during which many major corporations brought back more than $360 billion in foreign profits. Independent studies have shown that when that tax holiday was offered, the lower tax rate for returning profits spurred little hiring or domestic investment. Most of the money was used to buy back stock. A coalition of about 40 corporations, including Pfizer, Inc., Apple, Inc., and Cisco, Systems, Inc. known as WIN America, is lobbying for another tax holiday.
TRADE DEFICIT: The difference between the amount the U.S. exports and the amount it imports. The U.S. runs a large trade deficit with the rest of the world. Last year, the deficit was almost $635 billion. The trade deficit has been blamed for unemployment, slow economic growth and the decline of American manufacturing. The largest contributors to the deficit are imports of oil and imports from China. Last year, oil accounted for 29 percent of the trade deficit and China alone accounted for 43 percent.
TRUST FUND: This fund keeps track of Social Security payroll taxes and invests them in special-issue Treasury securities until the money is needed to pay benefits. It was valued at $2.6 trillion at the end of 2010. Because of interest earnings, the fund is projected by its trustees to grow through 2022 even though Social Security costs have begun exceeding non-interest income. After 2022, the fund is expected to begin shrinking until it is exhausted in 2036. From that time, current Social Security payroll tax rates will provide enough money to pay three-fourths of scheduled benefits through 2085, trustees say.
9-9-9: Cain’s 9-9-9 Plan calls for a 9 percent tax on businesses, individuals and national sales. The business tax is a tax on gross receipts, rather than on net income as under the current corporate tax. Deductions would be allowed only for investment spending, purchases from other businesses and dividends. The individual tax would apply to gross income, less charitable deductions. The 9 percent national sales tax would apply to all purchases of goods and services. The U.S. doesn’t have a national sales tax. Cain would largely eliminate all other taxes, including the estate tax, Social Security payroll taxes, and capital gains taxes.
--Bloomberg News, with assistance from Laurie Asseo, Adriel
Bettelheim, Robin Meszoly, Mark Drajem, Jim Snyder, Gopal
Ratnam, Muir Macpherson, Alex Wayne, Heidi Przybyla, Steven
Sloan, Joann Weiner, Jodi Schneider, Timothy Franklin and Joe
Winski in Washington and Steve Walsh in Chicago. Editors:
Franklin, Mark McQuillan