If the Dems got a backbone
by Linda Beale
Yesterday I urged the Democrats to develop some backbone in response to the continuing right-wing extortion demands for military spending increases, tax cuts and entitlement program changes.
How should that backbone be used? Not an easy question to answer and likely my answer will upset many economists and tax professionals. So I propose that we consider going over the fiscal cliff. What do readers think, and why?
Here’s the argument I think can be made. Given that the “fiscal cliff” deal doesn’t require cuts to social welfare programs, it might be advisable to let the fiscal cliff occur. Let the spending cuts go through and let the Bush tax cuts expire. The result will be that we will have taken a much needed first stab at cutting back on the exorbitant military spending that provides rentier profits to the military-industrial complex. And we will have moved the game back to “start” regarding the appropriate kinds of tax cuts to enact.
But there are spending cuts that may not make sense (cuts to public employee pensions) and definitely some tax cuts (and programmatic stimulus) is needed to deal with the continuing slow economic growth. What if the President and Democrats in Congress provided a clear and transparent plan for dealing with those issues by announcing–at the same time that they refuse to go along with the GOP extortion demands, that they will press for passage of a reinvigorated tax code and modified spending reduction plan.
In January, Congress can start with a clean slate and quickly enact [ah, I know, this is the weak point–can the highly partisan Congress change its ways?] a much more judicious (and limited) set of tax cuts targeted to those with incomes under $100,000 and to industrial policies that make sense for today rather than 100 years ago (such as continuing subsidies for alternative energy while finally ending the various subsidies for the extractive industries like gas and oil and coal). That should be accompanied by additional reforms to the tax code to simplify it and eliminate unreasonable preferences that favor the rich. Elimination of the preferential rate for capital gains should be the first priority (and carried interest should be treated as what it is–delayed payment of compensation). Reform of the corporate and international tax provisions to eliminate the ability of multinationals dependent primarily on intellectual property to avoid taxation on their profits by transfers to offshore affiliates and similar problems in the tax code related to the globalization of business should be the second one.
Those tax policies would be enacted in tandem with appropriate spending policies: it is what we want to spend our taxes on, after all, that should decide what our taxation policies are. We know we need to raise money to repay debt, to build and maintain our long-neglected public infrastructure (highways, bridges, government buildings, high-speed passenger rail, etc.) and to fund needed research and education (NIH, NSF, Pell grants, etc.). In particular, we need to address the infrastructure and other changes that are necessary to address climate change–both defending ourselves from its effects to the extent possible (surge protection for New York, for example) and regulating ourselves to reduce the amount of change. We know we can and must reduce the demands of the military industrial complex through spending cuts.
What might Congress accomplish, if it would approach the budget of the United States from the perspective of considering what we should be doing to make this a better nation, a more prepared and educated people, and a more sustainable economy?
cross posted with ataxingmatter
Yeah, I can’t wait for my pony!
A title like that is about what the upside could be for the people you’re talking about.
Yeah Linda, it would be good. Unfortunately, Obama is using the echo chamber of the MSM to push what he believes will get him on Mount Rushmore: The Grand Bargain.
Bill Moyer’s was good tonight. I wonder how many from congress watched?
suggested alternative title “If Pigs Grow Wings”.
But really I comment to express my 100% agreement with “my answer will upset many economists.” I am upset for 2 reasons.
First you propose a dramatic reduction of the deficit starting in 2 months. I think this would be terrible policy and that congress should instead deliberately increase the deficit with another stimulus. The economy is still in a liquidity trap with 7.9% unemployment. The problem with the 2013 deficit is that it is much too low. Now insane 2013 deficit reduction will no doubt be implemented, but better less than more.
Second it isn’t exactly true that the sequester won’t affect social welfare programs — the sequester won’t hit entitlements, but there are important discretionary social welfare programs which will be hit hard.
In conclusion. I agree with your proposal 100% .
The costs and benefits of compromise with Republicans might be hard to calculate, but it doesn’t matter, because it is impossible to compromise with Republicans. The choice are fiscal cliff or some horrible surrender to their insanity.
Beverly, you are right. Sometimes the only move is to a lose-lose result. Otherwise you can get bullied a lot.
The failure of Congress to raise the debt ceiling is irresponsible, and being a deficit hawk without raising taxes for the rich is hypocritical. It is a sham, intended to gut social programs. The Dems need to call the Reps on that.
President Obama made a good move by saying, let’s pass what we agree on and extend the tax cuts for everyone but the top income group. When the Reps refuse, the Dems can point out their hypocrisy and obstructionism.
Sorry for getting you confused, Linda and Beverly.
OC, you are both right. 🙂
Unless I am mistaken, the Sequester does require cuts in non-defense and nondiscretionary/discretionary programs.
“Under the assumptions required by the STA, the sequestration would result in a 9.4 percent reduction in non-exempt defense discretionary funding and an 8.2 percent reduction in non-exempt nondefense discretionary funding. The sequestration would also impose cuts of 2.0 percent to Medicare, 7.6 percent to other non-exempt nondefense mandatory programs, and 10.0 percent to non-exempt defense mandatory programs.”
Other than Medicare and quite possibly Medicaid;
“programs that benefit the middle-class, seniors, and children. Education grants to States and local school districts supporting smaller classes, afterschool programs, and children with disabilities would suffer. The number of Federal Bureau of Investigation agents, Customs and Border Patrol agents, correctional officers, and federal prosecutors would be slashed. The Federal Aviation Administration’s ability to oversee and manage the Nation’s airspace and air traffic Control would be reduced. The Department of Agriculture’s efforts to inspect food processing plants and prevent food borne illnesses would be curtailed. The Environmental Protection Agency’s ability to protect the water we drink and the air we breathe would be degraded. The National Institutes of Health would have to halt or curtail scientific research, including needed research into cancer and childhood diseases. The Federal Emergency Management Agency’s ability to respond to incidents of terrorism and other catastrophic events would be undermined. And critical housing programs and food assistance for low-income families would be cut.” http://www.whitehouse.gov/sites/default/files/omb/assets/legislative_reports/stareport.pdf
It is not quite as easy as it appears to play chicken as I wrote below in my earlier post, “Will The Reign of Witches end January 1?” It is an opportunity to break the back of the Republicans as I doubt they will hold hostage tax breaks for the middle class and child credits besides funding for education, border patrol, etc. Their salaries are also on the line as well as every Govenment worker besides the military.
If Obama is in a Bipartisan mood, he may indeed offer up SS and other programs as well to get his tax increases. We will see which president arises.
for some clarification, here’s a couple links:
note that two minor tax provisions benefiting the poorest also expire; the child tax credit and earned income tax credit, which were initiated by the 2009 stimulus package…
http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/09/14/the-sequester-cuts-in-one-graph/ (note it’s on the administration to decide how to impliment the sequestered cuts…)
generally, i agree with linda’s premise…and so does krugman…
my initial reaction is that i agree with you entirely, but i got a little confused reading the comments.
ending the (Bush) tax cuts for the rich without ending them for the “poor” is bad politics and bad mental hygiene.
second, there would be nothing wrong with reducing the deficit, despite the economy, if the deficit is reduced by raising taxes on those who are not spending the money they have anyway, and the tax money was used to honestly stimulate the economy with real spending by the government on real jobs that really need to be done.
but definitely if the R’s called for the damn fiscal cliff they should not be allowed to use it to blackmail the D’s into hurting “entitlements” which have nothing to do with the deficit in the case of SS and should have nothing to do with the deficit in the case of Medicare… which would work exactly like SS if it had not been “welfareized.”
coberly: “ending the (Bush) tax cuts for the rich without ending them for the “poor” is bad politics and bad mental hygiene.”
Well, it would be better to raise the top marginal tax rate to 75%. Fat chance. This is one way to restore some progressivity to taxes.
I don’t think that it is bad politics, because even Tea Partiers, when polled, say that they would favor taxing the rich in order to save Social Security. That is the kind of scenario we are talking about.
FWIW, I do not think that any tax increases are a good idea right now. However, if this is what it takes to make taxes more progressive, c’est la vie.
that brings to mind something economist karl smith once suggested, min; with interest rates as low as they are now, we could eliminate all federal taxes today & borrow 30 years out, & make a profit on that borrowing if the country grows 1.1% annually or more over that 30 year stretch…
We already did similar in the past. Lets see if I get it right as I lived through it. I can not remember exactly when; but, I believe it was when mortgages soared to 12+% when one could borrow money and loan it out again to make a profit. It was nuts.
i recall that too, run; i got my home mortgage at 6 3/4% in ’72, and CD rates at the same bank that held my loan were up to several percent higher for the whole next decade…
sorry i am not getting through.
the tea party does not make policy. appealing to them may help win elections sometimes, but they do not make policy.
the rich do.
the rich are not going to be very amused by your calling for raising taxes on the rich while reducing your own.
even us poor folk can see the bad faith in that.
yes, progressive taxes, but with some concept of fairness. many of the rich actually do earn their money.
and SS does not need ANY tax raises, except an increase in what is called the “payroll tax” but is actually a “Federal Insurance Contribution.”
I”d be willing to call it a tax if it would help you ask the rich for a similar 4% increase in their tax. difference being the 4% on the rich needs to happen right away. the 4% increase on FICA can be phased in over eighty years.
by which time the poor will have more than twice as much real money as they have today.
Many thanks. 🙂 Let’s blow the top off of the debt ceiling. 😉
If the rich make policy (and I am not denying that they do), then it is high time to call for higher taxes on the rich. We can stop when the inflation rate for luxury goods is the same as the CPI. 😉 (Get it? Inflation on luxury goods is a tax on the rich. Why shouldn’t we tax the rich instead? 😉 Small joke.)
i’m not much into “high taxes drive the rich to…. “
but i would imagine that high luxury taxes would drive the rich to buy their luxuries overseas.
my point… hate to keep repeating it… is that as a political “slogan”, which is what we have here, it falls on deaf ears. and as a way to think about the important things in life it is utterly destructive to your soul.
the rich need to pay more taxes. so do we. progressive is fine.
so the way to say it is “WE need to raise our taxes until WE have solved the country’s problems,” whether it is war or unmanageable deficit. Then you can hope to get people focused on paying the bills instead of the endless arguments about taxes killing jobs…. etc etc
and while i am beginning to see that “we” can’t live without our hated enemies, i think it’s bad for us.
coberly, by throwing that karl smith “borrow instead of tax” link out there, i certainly wasnt implying that the rich should pay less taxes (ya gotta watch me, sometimes i just toss out ideas to expand the overton window)..
under the socialist eisenhower administration, the top bracket was 95%, & i dont recall the rich fleeing the country in droves…
We should definitely go over the cliff. We know for a fact that the tax increases will drive economic growth by cutting the savings glut, even ever so slightly. We saw this in the 90s as well as the 30s. The growth may not perfectly balance the spending cuts, but a lot of those cuts will be in military spending which has a small multiplier which means limited overall impact. The civilian spending cuts will be more serious, but they all have powerful constituencies.
The Democrats and Republicans agreed on this course of action a while back. It’s bipartisan. Let’s go for it. We aren’t all going to climb trees and shy coconuts at each other.
P.S. Poor people shouldn’t feel guilty about soaking the rich. The rich never think twice about soaking the poor. That’s one reason they’re rich.
“P.S. Poor people shouldn’t feel guilty about soaking the rich. The rich never think twice about soaking the poor. That’s one reason they’re rich.” Kaleberg
I understand that you seem to think that asking the rich to pay their fair share is the equivalent of “soaking the rich,” but that would only be so if the rich were already paying their share. They don’t and they haven’t for nearly a dozen years now. The Bush tax cuts and the Obama continuation of those cuts have resulted in a long term tax holiday for the very wealthy. Requiring the payment of a fair share is not a soaking issue. It is an issue of fairness. The rich get the most out of our economic structure, therefore, it is appropriate for the rich to carry their proportionate share of the expense of taxation within that economy. Don’t fight the battles of your antagonists. The rich do very well without your help.
I wish people could read, or I could write better.
I have said repeatedly that I have nothing against taxing the rich in general, or progressive taxation.
I have said, repeatedly, futilely, that the rhetoric of taxing the rich is self-defeating, particularly when it is accompanied by “don’t tax me, i’m not rich.”
Jack, just to be clear… I beleive the rich need to pay “most” of the taxes, mostly because they are the only ones with enough money to pay the country’s bills, and it is generally true that they get “most” out of what the government does. I was pretty sure I had said that repeatedly, also. Don’t attack me for making arguments I have not made. It’ not that you hurt my feelings, it’s that you make me want to give up trying to make any sense out of all this.
rjs, i was specifically addressing the “luxury” tax. I am not sure there were many places the rich could go during the Ike years to buy their luxuries… but I am sure they did. and that tax avoidance probably had something to do with it. the rich are like that. they will spend ten dollars to save ten cents in taxes. i don’t have a very high opinion of them either. but i do keep searching for some clarity of thought on our side.
similarly, i am fairly sure the high top marginal rate is not the same as “high taxes.”
let me say it again, the rich need to pay more taxes, at least until the deficit is no longer a political issue. but the attitude of “tax the rich” is self defeating, in more ways than one.