Fiscal Fracas: It's a Deal!

Well, it seems congressional Republicans and Democrats have struck a deal to raise the U.S. borrowing limit and cut spending (sort of). President Obama presumably supports the agreement, since he announced it earlier this evening from the White House briefing room. No votes are expected to be cast until tomorrow (because the legislation has to at least be drawn up and brought to the floor of both houses for a vote), so only time will tell if this compromise becomes law. I'll hold off on analyzing the content of the deal until then. Tonight, however, I ask the question that a lot of people are (or will soon) be asking: is this a good deal? To answer that question, I use an objective three-part test that can be applied to just about any compromise, regardless of the details:

1. A good compromise leaves everybody mad.

I first saw this expression used in a Calvin & Hobbes comic strip. Like many expressions, it's generally applicable if you don't interpret it too literally. I suppose the political version of this may be, "Both sides walk away feeling like they caved." That was certainly the case of the last two grand compromises to come out of D.C. (the agreement on taxes last December and the budget deal this past spring). From what I've heard said by members of Congress on this agreement, this criterion has definitely been satisfied.

2. The far left hates it, and the far right hates it.

The major blogs were already abuzz this evening, and from a sampling of left-wing and right-wing forums, I can safely say that this deal has very much angered the extremes. Far-left members of Congress are already attacking the deal. The Congressional Black Caucus, which has only one Republican member, reportedly called the deal a "sugar-coated Satan sandwich," and out-and-proud socialist Sen. Bernie Sanders (I-VT) said it was "grotesquely immoral."

3. A majority of the electorate voices at least tacit support for it.

Here, we'll have to wait and see what the American people say, but I expect a majority of those polled about this big debt deal to express relief (or some positive reasction) that a huge crisis was averted but react unfavorably to the content of the legislation.

Well, that's all I've got for y'all tonight. I'll be adding more posts to this blog and updating my web site quite frequently in the next few weeks, so check back often, and spread the word!

Fiscal Fracas: My Solution to the Debt Ceiling Problem

For a couple of weeks now, I’ve been trumpeting a four-part deficit-reduction package as a comprehensive, center-right accompaniment to any debt ceiling increase. Reactions have been mixed, and I know that it has no chance of passing, but it’s not like anyone in Washington would actually take it up, so why should I bother trying to come up with something that could actually make it to the president’s desk?
As I've said repeatedly, whatever compromise ends up averting a crisis, it will be far from the best possible solution. Any plan that would garner enough votes to pass both houses of Congress and the president's signature will contain less-than-adequate curbs on spending and changes in the tax code that fall well short of the real tax reform needed to make this country's tax system simpler, fairer and more productive. So, today I'd like to elaborate on the four pieces of legislation that should be attached to any debt-ceiling increase.

1. A Balanced-Budget Amendment




This was a major sticking point in the past couple of weeks. Boehner couldn't get a debt-ceiling increase through the Republican-dominated House without attaching a BBA, and the Democrat-controlled Senate wouldn't vote for any bill that included the BBA. I've listened to and read up on the arguments for and against amending the Constitution to require a balanced budget—the debate is far from new—and, on balance, I have to say it's not only a good idea but possibly a necessity. In the first place, it would provide the strongest possible restraint to guard against future spending sprees by Congress that always occur whenever revenues increase. At some point, our economy will recover, and God willing, the federal government's coffers will once again be flooded with cash. History has taught us that, no matter what the composition of Congress, there comes a point where all that additional money is just too much to resist. If we're ever going to balance the federal budget, then nothing short of a BBA will provide the requisite bulwark against fiscal irresponsibility.
At the risk of pointing out the obvious, voting for a BBA carries virtually zero political risk. Multiple polls indicate that between 60 and 70 percent of Americans who participate in these surveys support it, which makes congressional Democrats' near-unanimous opposition to it somewhat confusing. Consider also that getting it through Congress is only the first step. No less than thirty-eight states must ratify any change to the Constitution, so what we're really talking about here, inasmuch as Congress is involved, is submitting an amendment to the states.
As for the logistical problems associated with such an amendment, we could start with the language of S. J. Res. 1, the 1997 version of a BBA that won approval from 66 Senators (including the current Vice President), one short of the requisite 2/3 needed to submit a Constitutional amendment to the states. Then there are the arguments about how deficit spending is necessary in times of great economic strife and inevitable in times of war. These are all good arguments, but I'm going to ignore them right now so that I can get to the rest of my plan.



2. Full Repeal of Obamacare



I'm aware of the "Repeal & Replace" mantra that the GOP has largely adopted, but an adequate replacement to the so-called "Patient Protection and Affordable Care Act" is not something that can be crafted and properly evaluated, debated and sold to the American people in a matter of days or even weeks. Besides, since our country and its health-care system would be better off without Obamacare than it is with the law in place, whether or not we replace it with anything, just repealing the damn thing is arguably an improvement in and of itself.
The House already passed a bill to repeal the Act in toto; the Senate voted down a similar measure in April. As far as I'm concerned, the language of H.R.2 is satisfactory. All we need now is a Senate with enough reasonable people to approve it.



3. REAL Spending Cuts



When we talk of spending CUTS, it's important to distinguish between reductions in spending and reductions in the projected growth of spending. Put a different way, are we actually going to spend less than it is now or just less than it had planned to spend? (In some cases, the answer is both. But don't be fooled. Spending less than the "baseline" is often characterized as a "cut," even if it still amounts to a net increase over the current budget.) Ideally, we would actually reduce total outlays by enough to bring government spending down to less than 19% of GDP by ... let's say 2016. That's five years from now, plenty of time for the economy to adjust and Washington to ease a public that's frankly been spoiled for years now on government largesse into a new era of austerity. I say 19% of GDP because it's still more than what the government normally collects in tax revenues but low enough to shrink the deficit down to a manageable size so that we're on track to balance our budget by the time the Constitution is amended to require it.



4. REAL Tax Reform



It's been 25 years since our government last overhauled the entire federal tax code. We're about due for another comprehensive reform. The basic scheme is not that complicated: eliminate/reduce a lot of these costly deductions and tax credits, and lower income tax rates. Some people may end up with a slightly higher effective tax rate, but a lot of households and individuals would pay less, and the best part (arguably) is that the resulting increases/decreases in the tax burden wouldn't be skewed toward one particular group of people.
There are so many deductions and credits in the Internal Revenue Code that it hardly seems worth it to list which ones should be eliminated/reduced. It may be simpler to list which ones should be preserved as is. The only two that come to my mind are the deductions for charitable contributions and education expenses. (The latter group really ought to be expanded.) As far as I'm concerned, there is no argument for reducing or eliminating these types of deductions that is less persuasive when used to justify reducing or eliminating any other deductions. Even the wildly popular Home Mortgage Interest Deduction ought to be phased out. Deductions for state and local taxes are fair and helpful but difficult to justify given the current fiscal mess we're in. Ditto the deductions for work-related expenses (travel, meals, lodging). As for credits, you've probably heard a lot of criticism directed at these green-energy tax credits and wasteful boondoggles like Cash for Clunkers, but there are some others that have been around for a long time but do a lot more harm than good. The Earned Income Tax Credit, for example, should have gotten the axe a long time ago. It's basically welfare for people who have a job. I'd keep the child tax credit, but don't increase it for a while. , remember how Obama & the big spenders in Washington tried to sell us on the "stimulus" bill of 2009 by claiming that something like 40% of it was "tax cuts"? Well, to the extent that's true, all of the tax cuts in the Act ought to be repealed, if they're not going away automatically. Here's why: according to an AP article I claim to have read, "many taxpayers are seeing their bills drop under Obama because of more generous tax credits for college students, working families, homebuyers and the working poor. Many of the changes were enacted as part of the big economic stimulus package passed in 2009."
I should point ut that, in explaining what I think "real tax reform" would entail, I've mainly focused on individual income taxes. That's because, if we want to be fair and, most importantly, smart about this, then we need to devote much more attention to detail when making changes that affect individual income taxes (as opposed to corporate income taxes). This rather simplistic notion of "closing tax loopholes" and lowering rates is much easier to apply to taxes on corporate income for many reasons that I won't go into right now.

Of course, the current president wouldn't sign off on any part of this, and there's no way you'll find a supermajority (2/3) in each house to approve all four parts. But, as I said, I'm not burdened with having to conjure up something that has a realistic chance of becoming law. This article is about what should be done, not what will get done. That's just one of the few small pleasures of being a columnist and not a legislator.

Fiscal Fracas: Much Ado About the Debt Ceiling

Moments ago, the U.S. House of Representatives passed a bill touted by Speaker John Boehner as a compromise to raise the country's debt ceiling and cut spending by trillions over the next decade. All 218 "Yea" votes came from GOP members. 22 Republicans joined 188 Democrats in opposition to the bill, which would raise the debt limit by about $900 billion, necessitating another increase in about six months.

According to FOX News, Boehner rallied skeptics in his own party around the plan in a passionate speech on the House floor that drew "roaring applause" from Republicans:

"I stuck my neck out a mile to get an agreement with the president of the
United States," he said. "It's time for the administration and time for our colleagues across the aisle to put something on the table. Tell us where you are!"

Instead of promptly voting down the proposal (like they did with Cut, Cap & Balance), the Senate put the House bill “on hold” while they tweak an alternative proposal by Sen. Harry Reid (D-NV), who should have been voted out of office months ago but was somehow re-elected by a bunch of people who were either idiots, fools or villians out to destroy the U.S. and our way of life.

Anyway ... we seem to be at an impasse, which is where we've been for weeks (actually, months) now. Neither the Reid plan nor the Boehner plan sound palatable, and neither has any chance of becoming law. Both combine less-than-adequate spending cuts with a debt-ceiling increase that almost nobody wants but nearly everyone acknowledges we need.

I've said repeatedly that I think both sides will cobble together some half-assed bill at the last minute and then rush it through Congress to the president's desk. He'll sign it, averting a crisis but once again kicking the proverbial can down the road. The far-left and far-right will rave against the compromise, but most of America, having long tired of this nauseating debate, will ignore them.

As for me, I'm going to keep blogging, posting columns that no one will read and videos that ... sorry. It's supper time. I have to go!

Fiscal Fracas: Now It's Getting Serious.

By now, you've probably gotten sick of all this fuss about the debt limit without anything substantial being accomplished. I know I have. Things came to a head Friday when it came out that House Speaker John Boehner (R-OH) had given up on trying to negotiate a "grand bargain" with the White House. Apparently, Boehner sent a letter to Republican House members saying that he had "decided to end discussions with the White House and begin conversations with the leaders of the Senate in an effort to find a path forward."

Then, a visibly angry President Obama called a press conference and spent more than half an hour at the podium, explaining his version of what had happened and answering questions from the press corps. Shortly thereafter, Speaker Boehner took to the airwaves and said that talks with the White House had collapsed for two reasons:

First, they insisted on raising taxes. ... secondly, they refused to get serious about cutting spending and making the tough choices that are facing our country on entitlement reform.

Obama claimed Republicans walked from an "extraordinarily fair" deal, while Boehner said the President "moved the goalposts" after a deal had been reached. Despite this apparent stalemate, however, both men met at the White House earlier today, along with House Minority Leader Nancy Pelosi (D-CA), Senate Majority Leader Harry Reid (D-NV), Senate Minority Leader Mitch McConnell (R-KY) and, for some reason, Joe Biden. I wasn’t there, so I can’t say for sure what transpired, but this photo should tell the tale:

Unsurprisingly, no deal was reached.

So, where do we go from here? I'm no soothsayer, but it looks like each side is going to present their own proposals for what to do going forward, and their surrogates in the media will argue about it while the country moves closer and closer to the brink of chaos.

Few things are certain in life, let alone in politics, but I think it's fair to say that the nation's debt limit will only be raised if the legislation authorizing it is attached to significant curbs in spending. Without getting into the complexities of the federal budget and the CBO scoring criteria, I'd like to offer my take on a few of the plans that have been put forward:

The "Gang of Six" Proposal

We still don't have all the details of this underwhelming product of months of negotiations between three U.S. Senators from each party; you can read their own thumbnail report on it here. Frankly, I think G-6 is a good start. It reduces or eliminates a lot of costly deductions and reduces individual and corporate income tax rates, much like the Tax Reform Act of '86. However, it needs some major tweaks. First off, the reductions in spending should be much greater (but I understand there's only so much a group of six men that includes the notoriously fiscally irresponsible Kent Conrad and Dick Durbin can agree to). Also, this concept of scrapping deductions and tax credits and lowering rates works much better with corporate income taxes than the individual income tax. For one, the charitable deduction should not be altered (even though it benefits higher-income taxpayers more). To make up for this, the Mortgage Interest Deduction, which the G-6 plan reduces but does not eliminate, ought to be phased out.

Cut, Cap & Balance

So far, this is the only package both the House and Senate have voted on. It passed the House late Tuesday evening and was rejected by the Senate, in a party-line vote, on Friday. I read through this bill (It's only 12 pages), and I have to say, while it's a good, straightforward way of tackling this impending debt crisis, I'm not sure I would like to have seen it become law. For one, it places too much power in the Executive Branch (an especially dangerous thing to do with this administration in charge). Title II of the bill–the "CAP" in "Cut, Cap, and Balance"–caps government spending as a specified percentage of GDP for each fiscal year through FY2021, but it defines "GDP" for any fiscal year as "the gross domestic product during such fiscal year consistent with Department of Commerce definitions." What's more, § 319, entitled “Enforcing GDP Outlay Limits,” calls for using the OMB estimates for projected GDP. In other words, the entire “CAP” part of the bill would be executed using the Commerce Department's definition of GDP and the OMB's projections of what that GDP will be! This and the next administration would be in a position to manipulate the numbers and undermine the spirit of the law.
Another problem with H.R.2560 is the Balanced Budget Amendment. In Friday's Wall Street Journal, Yale Law School Prof. Peter H. Schuck points out a downside to amending the Constitution to require a balanced budget, as many states have done: it would empower judges to exercise more political and policy-making discretion than any other law. He lays out a persuasive argument, but getting thirty-four state legislatures to approve a federal BBA is such a hurdle that it's hardly worth having this discussion right now, and at any rate we know it won't even get out of Congress with the current Senate.

McConnell's Debt Ceiling Fix

This is a crafty way of shifting the power/responsibility to raise the debt ceiling from Congress & the president to just the president. Essentially, McConnell's proposal would allow the president to raise the debt limit by $2.5 trillion, provided he does it in three installments through the end of next year. The president would request each debt-limit increase, which would be subject to what McConnell called "a resolution of disapproval." Then, all the president would have to do is veto that resolution, and if Congress didn't override his veto (which it wouldn't do), then Presto! He's got his debt-ceiling increase.
Do I even have to explain why this is a bad idea? Maybe I do, seeing that unimpeachably conservative commentators such as George Will and Ann Coulter have voiced support for it. Like Cut, Cap & Balance, McConnell's plan places too much power in the hands of the president. Also, it doesn't include any spending cuts. But Harry Reid seems to like it, so maybe it can pass the Senate. Just don't count on it making it through this House of Representatives.

Whatever solution they come up with, it won't be the optimal one. There are too many unreasonable people in Washington. I have more to say - much more - but I'm finding it very hard to think stragiht and focus. Maybe it's because it's late, and I'm tired. Or, maybe it has something to do with that third Gin & Tonic I downed half an hour ago. Either way, good night, and God bless.

Fiscal Fracas: The Austan Goolsbee Trilogy

In light of the pervasive discourse over our country's fiscal policy, I am republishing three articles I wrote earlier this year and posted on my web site. The first was prompted by a bunch of stuff Austan Goolsbee said during his May 18, 2011 appearance on The Colbert Report. I wrote a follow-up column after watching Colbert's “unedited, extended interview” with Goolsbee online. Then, somebody posted a comment to that column under the name “GladYouWrote”, and I noticed that (s)he sounded a lot more erudite than Austan Goolsbee, so I posted a lengthy reply to his/her comment.
Hopefully those of you who haven't seen these posts before will find them interesting and informative. I also hope you'll share them with people who need to learn more about our fiscal situation.

Fiscal Fracas: “Morning Joe” Panel Confused About Debt, Deficits, History

Usually, “Morning Joe” is too boring to draw my attention. Then, last month, Mark Halperin said something interesting (and, in my opinion, spot on) about President Obama, and I decided to pay the show a little more mind.

On Friday, one of the shows guests was Rep. Jeb Hensarling (R-TX), Chairman of the House Republican Conference. Now, Jeb is not my congressman, but he does represent an area I'm very familar with—namely, the northeastern suburbs of Dallas. (It's a very nice place to live.) Anyway, you can watch the full segment here:

I was very glad to hear Hensarling make a point that more Republicans really ought to be driving home to the spectators in this debt debate—to wit: that President Obama expects Republicans to agree to tax hikes in order to pay for spending that they opposed. How can any Democrat justify making Americans pay more in taxes to pay for spending that many taxpayers didn’t want and knew wouldn't work? (If any of you have an abnser to that, then PLEASE let me know.) Anyway, before, after and during the congressman's appearance on the show, I caught several curious comments by the panel that gave me pause. I'd like to address three of them now.

When Hensarling chided President Obama for not offerring a budget plan since his last proposal was rejected by the Senate in a humiliating 97-0 vote, Mika Brzezinski seemed to think she had something relevant to say and chimed in. If Republicans aren’t willing to “give on everything,” she asked, then “why should the president lay out a plan?”

I think that question is absurd enough on its face, so I didn’t bother to transcribe Hensarling’s response, but I also want to call attention to Mika’s apparent surprise when her co-host noted that, in his budget plan, Paul Ryan got rid of a lot of costly loopholes in the tax code. Evidently, she didn't know that Republcians were willing to close up those "tax loopholes" our president keeps talking about. How about that? Months before Obama started talking about "tax loopholes," Republicans had already laid out a tax reform plan that included eliminating a bunch of these deductions and credits that allow corporations to avoid paying their fair share.

I'd advise Mika to make sure that she knows what she's talking about before she asks a serious person like Jeb Hensarling a question about such an important topic from now on, but since she seems to think that listening to everything Obama says is tantamount to being well-informed, I don't think my words would have any positive effect on her. Also, she doesn't read my blog.

On to something that Joe Scarborough said. Frankly, I was surprised to hear this from Joe, who served as a Republican member of the House from 1995 to 2001:

"George W. Bush and Republicans took a $155 billion surplus, turned it into a $1.4 trillion debt, took a $5.7 trillion national debt, turned that into an [$11.5-trillion-dollar debt]."

The Morning Joe Staff actually excerpted that statement, along with the question by Rep. Jeb Hensarling (R - TX) that preceded it, and posted it on the show's blog. Here’s the problem: I’m not sure what Joe Scarborough is talking about (Also, when Hensarling stated that he thought Republicans were “rank amateurs compared to the president and the previous democratic Congress,” Joe said “That’s not true ... as a matter of math, that is not accurate.”)

So, what do the numbers say? Well, since he said “George W. Bush and Republicans,” we can start with the numbers for FY2001, when the federal budget ran a $128.2 billion (not $155 billion) surplus, even though I think Joe Scarborough did Republicans (many of them his former colleaguse) and his viewers a disservice by not acknowledging that Republicans first took us from a $164 billion deficit to that $128.2 billion surplus. Well, assuming Joe meant to say “a $1.4 trillion deficit” and not “$1.4 trillion debt” (a charitable assumption, to be sure, but I think the context warrants it), that’s not even close to true. In fact, there are no objectively true facts to support such a claim. True, during George W. Bush’s first term, the surplus turned into a deficit that peaked at $412.7 billion in FY2004. Then it came down. By the time Democrats took over Congress and control of the federal budget, the deficit was down to $160.7 billion. So, it’s fair to say that George W. Bush and Republicans took a $128.2 billion surplus and turned it into a $160.7 billion deficit. But, where on earth did Joe get the $1.4 trillion number from? Even while George W. Bush was still in charge, the deficit went up to $458.6 billion for FY2008, but by that time, Republicans & Democrats were @ least equally culpable for the mess. When Bush left office, the deficit for FY2009 was somewhere between $500 and 600 billion. (It’s difficult to calculate because the federal government only gives us month-to-month numbers; also, no one can say for sure what would have happened before the fiscal year ended had Bush still been president.) As for the debt, Joe’s numbers are pretty much accurate.

Then, towards the end of the segment, I heard John Heilemann say this:

"What Republicans are saying is that they will not accept any net increase in revenues, and the truth is, as we know, over the long haul, the only way to address ... the deficit and the debt is to have a net increase in revenues ... ."

Before I dissect his remarks, I just want to express my dismay that Heilemann had to shout over the other talkers on the panel to get his thoughts out. I know what it's like to be in the company of people who claim they want to hear your opinion and then don't let you get a word in edgewise, but anyway, like John Heilemann, I don't know what Congressional Republicans are thinking, but he's not claiming to know what the GOP wants; he's interpreting what he's seen and heard them say. I have no doubt that congressional Republicans want to see an increase in revenues. throughout this debate, Many of them have repeated the conservative mantra on how to increase revenues: we don't need more taxes; we need more taxpayers. And, while I can't speak for anybody in Congress, I can tell you that some republicans, including me, would like to see people who are gainfully employed but currently have no federal income tax liability start paying their fair share. Everything I've heard from congressional Republicans throughout this debate leads me to believe that most of them would like to see the government collect more in tax revenue; the question is how best to achieve that. Bottom line: the totality of the circumstances should lead a reasonable person to believe that GOP members of Congress would agree to changes in the Tax Code that would result in more money being collected by the federal government.

Fiscal Fracas: What To Do About the Debt Ceiling

Now that the Casey Anthony trial is over, the cable news media can redirect its attention to much more important matters. Lately there's been a spike in coverage of/relating to the debate over raising the debt limit and the larger issue of how to get our fiscal house in order. This has given me a lot to talk/write about, and even when I pare it down to what people need to hear and what I think their actually interested in, I'm still left with far to much material for a single post. So, today I am starting a new series about the federal budget. In addition to providing my personal analyses of things I pick up on, I'll be offerring some of my own ideas for dealing with the fiscal challenges that confront us. As usual, I'll be careful to only speak authoritatively about things where such a confident and assertive tone is justified.

Right now, the hottest issue in the fiscal arena concerns the national debt ceiling/limit. Before I get into specifics, there are a lot of questions that Americans are asking (or should be) about this topic:

What is the Debt Limit?
The debt limit or "debt ceiling" is an arbitrary number limiting the amount of money our federal government can borrow. If the national debt ever exceeds that limit, then planes will fall out of the sky mid-flight, crops will be burnt or devoured by locusts and our rivers will run red with the blood of children and the disabled ... or not. I don't know.
Why is it so important that we raise the Debt Limit?
Don't ask me that. Everybody seems to have a different answer. There are plenty of answers to that question out there right now, so if you don't like what you hear, then just look for a different response.
Will our nation default on its loans if we don't rate the debt ceiling?
It doesn't have to. Basically, as long as the U.S. continues to pay the interest owed on our debt, we will never default. Even according to the most dire predictions, the federal government would still have enough money (from tax revenues) to make these payments on time.

Now that I've gotten the basics out of the way, everybody listen to Paul Ryan. He always knows what he's talking about:

Visit msnbc.com for breaking news, world news, and news about the economy

A Reply to Someone Far More Well-Versed Than Austan Goolsbee

Yesterday, I was delighted to discover that someone had posted a lengthy reply to one of my recent columns. Because the commenter, identified as “GladYouWrote”, sounded much more informed, erudite and honest than Austan Goolsbee did in last week’s interview on The Colbert Report, I felt I could do no less in the way of a response than a new article on my home page.

First of all, I did not mean to attribute the growth in tax revenues under George W. Bush “singularly to lowering the top income tax rate,” but the federal income tax is the government’s main source of revenue; in any given year, individual income taxes alone account for between 45 and 50% of the government’s haul. Also, consider that, because some other major sources of revenue–such as payroll taxes–are (supposed to be) set aside for specified purposes, when the gov’t thinks we need more revenue, it’s only logical to focus first and foremost on the income tax.

GladYouWrote also took issue with my statement that “clearly, the government took in more revenue per annum under George W. Bush than it did under Bill Clinton,” saying, “without context that claim is disingenuous. As a proportion of GDP, 1992-1999 saw 18.7% return in the form of federal revenues, contrasted with only 17.6% return during the years 2001-2008.”

As the graph I displayed in one of my posts shows, tax revenues as a percentage of gross domestic product did hit a historic a historic high in 2000, while the old income tax rates were still in place, but this was obviously an unsustainable level of tax revenues, no matter what the rate structure. Notice that, even before the first round of tax cuts (EGTRRA) was enacted, revenues started to decline because of the recession. Perhaps this graph from OMB, which shows revenues and spending as a percentage of GDP over the past 60 years, may shed some more light on the historical levels.

GladYouWrote also says that I should “include significantly more analysis” to validate their success of the Bush tax rate cuts “than general unemployment and GDP growth.” I think that’s fair, but this suggestion was followed by somewhat of a non-sequitur: a series of references to a report by the CBO entitled “Policies for Increasing Economic Growth and Employment in 2010 and 2011.” I checked out this report, and, I have to say, I almost ended up forgoing this blurb in favor of a much more in-depth article critiquing the CBO’s report. (I have a tendency to get sucked down rabbit holes, which is one reason I prefer this to an in-person debate where one’s opportunities to make effective arguments & counter-arguments are undermined by cumbrous time restraints.) Thankfully, I was able to control myself, and at the risk of interrupting the flow of this column, let me make 3 quick remarks before I resume my reply to what GladYouWrote actually said:

• The report was mostly well-written, and I realize that the CBO is meant to provide objective analysis and not to author normative policy statements, but as I was reading this, I couldn’t help but wonder who, if anyone, edited it? For example, it began “After the most severe recession since the 1930s, the U.S. economy appears to be recovering.” What? Look, I’m not going to claim that an entire report is worthless just because the author made a few mistakes, but this particular report contained several highly suspect obiter dicta that could just as easily have been typos as evidence that whoever wrote the report is a very poor student of history.



• In the report’s Introduction and Summary, the CBO states that it is measuring the cost-effectiveness of the analyzed policies “by the cumulative effects on GDP and employment per dollar of budgetary cost and in the time patterns of those effects,” so it seems odd that that GladYouWrote would suggest that I use more ”than general unemployment and GDP growth” to evaluate the success of fiscal policies and then cite to a report that does just that.



• I can’t remember the last time I heard/saw someone who wasn’t an economics professor, gov’t-employed bean counter or policy analyst @ a think tank refer to the tax acts of 2001 and 2003 as EGTRRA and JGTRRA, respectively. I stopped using the terms myself years ago in favor of the commonly understood, if technically inaccurate, “Bush tax cuts.” Most people don’t seem to care about the distinction(s) between “tax cuts”/”tax rate cuts”/”tax relief”/”tax reform”/etc. This is a really minor point, but I think I’m glad to see there’s someone out there who is familiar with the correct names of the legislation.

Now then, back to the matter at hand: I could not find anything in the entire report stating that “EGTRRA and JGTRRA tax decreases produce less than 40 cents of economic output over five years for every dollar spent, as opposed to increased aid to the unemployed and low-income earners and direct government investment in short-term infrastructure and job creation, both of which produce an average of 75 cents more than straight-up tax relief.” The closest thing I could find to such a conclusion anywhere in the report was this statement: “CBO estimates that a two-year AMT patch and one-year deferral of the EGTRRA and JGTRRA tax increases would raise output cumulatively between 2010 and 2015 by $0.10 to $0.40 per dollar of total budgetary cost.” As for the part about “increased aid to the unemployed and low-income earners and direct government investment in short-term infrastructure and job creation” (which some of us prefer to refer to sardonically as “welfare & waste”), the CBO analyzed what the impact might be of, inter alia, “increasing aid to the unemployed” (from March 2010 until July 2011), “providing additional refundable tax credits for lower- and middle-income households in 2011,” and “investing in infrastructure.” In addition to “cost-effectiveness,” the CBO identified “timing” and “consistency with long-term fiscal objectives” as the key criteria for judging policy options. Before I go any further, I should just point out that the post GladYouWrote replied to was meant to be a repudiation of what Goolsbee said on Colbert, not a pitch for any particular policy going forward. I supplemented it with historical facts to prove that many of Goolsbee’s arguments lacked merit, and in doing so I suppose I ended up defending the soundness of EGTRRA and JGTRRA.

As I said, I don’t want this to become a deconstruction of the CBO report, so for now, let’s just remember that, like many other CBO reports, this was a policy analysis based on predictions/projections of what it thinks will happen if certain policies are implemented. My previous posts on this subject concerned the actual effects of past and current policies. To what extent the economic circumstances, as indicated by the various facts and figures I included, are/were attributable to those policies is not something I profess to know. Finally, I’ve never been one to begrudge wealthy individuals for their (legally compliant) success, which I suppose explains my political affiliation. It’s fair to say that many of these individuals don’t care to distribute the fruits of their labors to people who don’t need/deserve it, but GladYouWrote’s assertion that “the rich (despite what conservatives want desperately to believe) care little about distributing their acquired wealth to the overall economy” is too dubious to simply stand by itself, unsupported by any stated premises. Before I rebut that assertion, I’d like to know what the author meant by that.

Austan Goolsbee: Leading the Charge in the Obama Administration’s War on Reality

Okay, so I watched what Colbert billed as his “unedited, extended interview” with Austan Goolsbee online, and not surprisingly, he continued to make specious claims, this time focusing much of his time on deceiving the audience about Republican policies. He pitched that favorite old saw of the Left: that high-income tax cuts don’t work. Let me make this about as clear as I possibly can while still relying on specific, objectively verifiable facts: under the rate structure that was in place from 1993-2001, we never collected more than $2.03 trillion in one fiscal year. Under George W. Bush, the top income tax rate was lowered from 39.6% to 38.6% in 2001, then to 35% in 2003. In 2007, federal receipts totaled $2.6 trillion. The government actually saw an increase in revenues in 2008, but it made the ill-advised decision to give about $150 billion back as part of the first misbegotten stimulus. So, clearly, the government took in more revenue per annum under George W. Bush than it did under Bill Clinton. That is beyond dispute. So, when Austan Goolsbee says “the high-income tax cuts did not work the first time we passed them,” I wondered what he was thinking. I wish I could ask him what he meant by that. Unfortunately, it’s not as much fun refuting someone when I’m not sure what he means. If he’s talking about the Bush tax cuts, then let’s remember that there were actually 2 separate tax acts passed and signed into law by President Bush. Ostensibly the purpose of these tax cuts was to stimulate an economy that was reeling from the impact of a dot-com bust, the 9/11 attacks and a series of corporate scandals. In that regard, the tax cuts were an enormous success: the unemployment rate never went above 6½%, our GDP increased from $10.1 trillion in 2001 to $14.4 trillion in 2008, and federal revenues increased by 44% (from a low of $1.78 trillion in 2003 to nearly $2.6 trillion in 2007). Now, as for jobs, there are different ways to measure employment, and the Labor Department changes the controls with some frequency. (You can see ten years’ worth of raw data on the BLS’s web site here.) The standard measure–the figure you usually hear people refer to when they say the economy added/lost so many jobs–is what the Bureau of Labor Statistics calls the “seasonally-adjusted” employment level. By that standard, not only did the economy add 10 million jobs after the end of the recession; it added jobs every month for 52 consecutive months, a first in recorded history. By contrast, using the same metric, our economy has lost a net of 2.5 million jobs since Obama took office. This is important because when Goolsbee boasted about the “2.1 million jobs” that he claims were created in the “last 14 months,” he’s neglecting to mention the 4.2 million jobs that were lost during Obama’s first year in office. Now, is it fair to blame Obama or his policies for the loss of all those jobs? Of course not. But nor is it fair to blame George W. Bush or his policies. Like Bush, Obama inherited a bad economy, but unlike Bush, Obama has made things worse.
I also heard Goolsbee say that, during the last decade, “middle-class incomes fell by $2,000.” I’m not sure what, if anything, he’s basing that claim on or how he defines “middle-class,” but nearly everyone I know who was gainfully employed (and is willing to discuss their salary openly) saw their incomes increase from 2001 to 2008. Also, this is another example of Goolsbee using vague, ambiguous language so that it’s difficult to prove or disprove his claims. Is he talking about household income or per capita income? Is he going by the mean or the median? Stay tuned; I have more to say on this matter.

Austan Space (Sorry, I couldn’t think of a better pun.)

Last night, I saw Austan Goolsbee on The Colbert Report. If you don’t know who Austan Goolsbee is, then he’s the Chairman of the Council of Economic Advisers. As far as I can tell, his job consists primarily of explaining this administration’s economic policies to the American public in a way that disguises how destructive and ideological these policies are. I’ve read some of his writings and watched several of his media appearances, and not surprisingly, he attempts to sell his policies the way most people on the Left do—by lying about them. He also misleads his audience when talking about Republican ideas and policies. Lest anyone think I’m just attacking someone with whom I disagree and not providing any evidence to back up my assertions, here is the video of the interview as it appeared on TV:

The Colbert Report
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Apparently, the full interview lasted sixteen minutes, according to Colbert, and had to be edited down to the video embedded above, which is just under seven minutes. I’ve included the link to it in this post because I want to call attention to three specific things he said during the interview I saw, and this way, no one can fairly accuse me of taking his words out of context.

1. “The high-income tax rates are the lowest they’ve been in some 60 years.”

First of all, that’s not true. Second … well, there really is no need for a second point; just look at the facts. Right now, the highest federal individual income tax rate is 35%. 60 years ago, the highest federal income tax rate was 94%. That rate stayed in effect until 1954, when it was dropped to 91%. Since then, the federal tax rate on the highest individual income bracket was changed several times and ultimately dropped to 28% under the Tax Reform Act of 1986 (TRA86). One novel feature of TRA86 was the so-called “bubble rate.” The rate structure included four individual income tax brackets, and the rates were 15%/28%/33%/28%. The Omnibus Budget Reconciliation Act of 1990, which was passed by a Democratic Congress and signed into law by Pres. George Bush, did away with this “bubble rate” and established a new surtax on the highest-income-earners, effectively raising the top tax rate on individual income to 31%. Maybe Austan misspoke, or maybe he just flat-out lied. Either way, there’s no disputing that what he said was false.

2. “The president has said he doesn’t think we can afford to keep rates at these historically low levels, and I think he’s totally right.”

OK, if Mr. Goolsbee had said that we can’t afford to keep taxes at these historically low levels, then I would agree, but he didn’t say “taxes;” he said “rates.” Look, I’m not prepared to admit that Austan Goolsbee is a smart guy, but I believe he’s the sort of person who chooses his words carefully. Of course, I don’t know what measure he has in mind when he says “levels,” but the rest of his statement sounds pretty clear. We already know that tax rates are not at a historical low, but what could be an objective measure of tax “levels”? How about total tax revenues as a share of the nation’s economy? According to the Congressional Budget Office, as a share of the nation’s GDP, the government’s take this year will be the lowest since 1950. Now the CBO projects that “total federal revenues will be about $2.2 trillion in 2010, a 3.3 percent increase from 2009,” when tax receipts were only 14.8% of GDP, but “total federal revenues will rebound sharply from the current historically low amounts relative to GDP starting in 2011.” (See this.) I’d just like to point out that an AP article I saw in February said that, in George W. Bush’s “last year in office, tax receipts were 17.5 percent of GDP, just below their 40-year average.” What this all boils down to is that taxes are too low, but the problem is that the people who aren’t paying their fair share are not the same people who Obama and the Democrats want to pay more taxes. The AP’s Stephen Ohlemacher explains the problem thusly:

Income tax rates remain unchanged. But many taxpayers are seeing their bills drop under Obama because of more generous tax credits for college students, working families, homebuyers and the working poor. Many of the changes were enacted as part of the big economic stimulus package passed in 2009.

So even if we can afford to maintain the current schedule of tax rates, I doubt a majority of the electorate will accept the kind of budget cutbacks that will be needed to balance the budget if we do that. Look, I’m a conservative (Actually, I prefer to call myself a classical liberal, but whatever.), but I’m also a pragmatist, and there’s no good reason why so many people pay little or nothing in federal taxes. If you’re making $50,000 a year, then I don’t care what your personal situation is: you should be feeding the kitty, even if you’re only paying $1,000 in income taxes. So, let’s keep the current rates where they are and get rid of a bunch of these costly deductions and tax credits. That would mean a higher effective tax rate for some people, but if Goolsbee is serious about deficit reduction, then he has to concede that those individuals should pay more.

3. “Let’s return to tax revenues from high-income people that are more like the historic norms.”

That line got a big round of applause. Once again, I believe that Austan Goolsbee choose the words he used here carefully and deliberately, so when he said, “Let’s return to tax revenues from high-income people that are more like the historic norms,” I thought, Yes, let’s. I don’t know how he defines “high-income people,” but this graph shows total tax revenues as a percentage of gross domestic product over the last four decades: As you can see, the CBO pegs the federal government’s average annual tax collection at just above 18% of GDP for the period shown in the graph above, so let’s call that the historic norm. So, what would a return to the historic norm mean, and what would it accomplish? According to the most recent numbers available, current-dollar GDP just topped $15 trillion in the first quarter of 2011. (You can read the “advance” estimate on the BEA’s website here.) Of course, that’s going to be revised, but for now, let’s just say that if real GDP totals $15 trillion for 2011, then based on “the historic norms” as shown, we should be collecting about $2.7 trillion in tax revenues, but Austan just said he wants to “return to tax revenues from high-income people that are more like the historic norms.” So, using Austan’s benchmark, that sounds like he’s content with the current levels of tax revenue the government is collecting from all other individuals, which would mean running the government on less than $2.7 trillion. (For the record, we haven’t done that since FY2006.) Now, if you’re the sort of person (as I am) who’s not content to deal with this in the abstract, then let’sat least agree that, for the budget to balance, total revenues must match or exceed total spending. So, assuming we can all agree on that point, it must follow that, to get our fiscal house in order, if we can somehow get tax revenues back up to a level that’s ”more like the historic norms,” then we must necessarily reduce federal spending to equal or lower levels. The problem with returning to “the historic norms” is that, historically, the U.S. government has run huge budget deficits. Thus, if we want to “return to tax revenues … that are more like the historic norms” and still balance the budget, then we should cap spending at a level below the historic norm. (Nick Gillespie & Veronique de Rugy of Reason Magazine have written extensively about this; they call it The 19 Percent Solution.)

As to these ”high-income people,” look, I don’t know what Austan’s thinking; I can only listen to what he’s saying and compare it to objectively verifiable facts. So, for simplicity’s sake, let’s talk about the top 5% of wage earners (since Obama’s fond of saying he “cut taxes for 95% of Americans”). What share of federal tax revenues, historically, has the government collected from the top 5%? Well, according to the CBO, in 2001, the last year we had a budget surplus, the share of the total federal tax burden shouldered by the Top 5% of households was 38.5%. That share hit a record high of 44.7% in 2006. Perhaps even more impressively, the Top 5%’s share of individual income tax liabilities increased from 55.2% to 60.9% during the same time period, and it hit an even 61.0% for 2007, the most recent fiscal year for which the CBO provides this data. (My source on the CBO web site can be seen here.) Bottom line: returning “to tax revenues from high-income people that are more like the historic norms” would likely mean collecting less tax revenue that one would think Mr. Goolsbee wants to see the government collect.

Tying all this together, if Austan truly believes that we can balance the budget just by raising taxes on a small minority of income earners and accomplish the rest through spending cuts, then he should explain: (1) what incomes are “high” enough to warrant an increase in the marginal rate; (2) how will you cut the budget down to a level that does not exceed total revenues; and (3) given that individuals in the highest income tax brackets are making more money, paying more in taxes and paying a larger share of the total tax bill than they were when the higher tax rates were in place, why should we return to the old rate schedule? I’d also like to hear him explain why he only thinks people at a certain income level should pay more taxes, but that’s more a question of fairness and not crucial to the policy goals he’s laid out.