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Who foots the "grand deal (no capitalization on purpose)" costs.

by run75411

Who foots the “grand deal (no capitalization on purpose)” costs.

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Everything You Need to Know about the Fiscal Cliff Deal “Wonkblog” Zachary Goldfarb

This was the model to describe what would happen if the Grand Deal increase in taxes fell upon those Household Taxpayers making greater than $200,000 (individual) and $250,000 (family) (Tax Policy Center) . Slight error in the chart also, the 20-60% should be 20-40% of Household Taxpayers. The impact should be similar.

The Bill Itself: ‘‘American Taxpayer Relief Act of 2012’’ I have not had time to go through this bill with a fine tooth comb yet. Amazing how they can write 157 pages of strike this and insert this in a matter of days. While it does not look that alarming, Obama has again displayed his feet are made of sand which wash away with the tides of adversity. An abbreviated cheat sheet can be found here: “Your fiscal cliff deal cheat sheet” Wonkblog Suzy Khimm

The big winner of the day? Milk subsidies will continue.

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There are no "per se" tax or spending caps: lame duck negotiations no place for Medicare/Medicaid cuts

 by Linda Beale

There are no “per se” tax or spending caps: lame duck negotiations no place for Medicare/Medicaid cuts

When George W. Bush got reelected with a minority of the popular vote and contested state counts, the GOP claimed a mandate to keep going with the fiscally irresponsible program of high military spending combined with tax cuts particularly advantageous for their wealthy and corporate-owning supporters.
When Barack Obama got reelected with a clear majority of the popular vote and a resounding majority in the electoral college, the GOP says Obama has no mandate because the GOP managed to retain the House though Democrats in the House got more votes than Republicans in the House.
Anybody notice the partisan inconsistency there?

What we do know is that a majority of Americans–even lots of those Republicans who voted for Romney–want this Congress to preserve Medicaid and Medicare.  There is a huge effort by some–like the Peterson Institute, the Simpson-Bowles comedy tour, and right-wing propaganda tanks–to cast Medicare as impossible to sustain because of the current trend in health care costs.  The argument goes this way:

  • health care costs in the US are rising
  • the population that is eligible for Medicare in the using is rising as baby boomers age
  • Medicare costs will therefore inevitably increase
  • even though Medicare costs are rising less rapidly than non-Medicare health care costs (because of the ability of the government to mandate certain cost controls), those increases will eventually require significantly higher government outlays
  • the US has unprecedented levels of debt and annual budget deficits
  • the US spends too much compared to its tax revenues (the tax take is several percentage points less of the GDP than the spending percentage)
  • therefore the US can’t afford to pay those increasing amounts for Medicare health care costs
  • therefore we should cut back on eligibilty for, and benefits from, Medicare.

But this argument has several fatal flaws that include the following:

  • debt is extraordinarily cheap right now
    • if you can borrow at very low rates, it is better to borrow now than later
    • if you can borrow at very low rates and there are important projects on which to spend the money, the borrowed money acts as a stimulant to the economy
    • if the economy is stimulated by the borrowed money, the GDP growth will likely support continued low interest rates and faster revenue growth that will repay the debt faster
  • deficit spending by the government is vital when there isn’t private spending
    • and if the economy grows, private spending will grow and deficit spending can pull back
  • spending priorities have to be determined: 
    • there is no per se rule that higher spending is necessarily bad (though the right-wing in this country presupposes that there is and based almost all policy prescriptions on that presupposition, because the right-wing ideologically wants to divert public spending to its private pocketbooks)
    • there is no arbitrary and fixed percentage of GDP that is the “right” amount to be spent by the government on government programs
    • we spend too little now on public infrastructure ( public transporation, national roadways, electrical grids, and sewage systems are badly deteriorated), basic research (we have cut back on funding for NIH and NSF, major drivers of advancements in scientific and medical knowledge), and major priorities like combatting global warming/ supporting renewable energy
    • we spend too much now on the military (the military-industrial complex constitutes about 60% of the federal government)
    • we should support continued spending on Medicaid and Medicare, because those programs fill a vital need and serve the population well–we should not reduce benefits but rather increase them, at least for those who rely on Medicare/Medicaid as their primary or only health care plan
  • We’ve already built in various cuts to the spending for Medicare and Medicaid (possibly too much) and the question of what the costs will be ten years down the road depend in part on what else we do along those lines and how those things work out. See Editorial, Health Care Entitlements, New York Times (Nov. 29, 2012); Yves Smith, Naked Capitalism.
  • tax policy should be based on fairness in the way we raise revenues and spending priroities in the amount of revenues we raise
  • An equation that says “X (health care costs) is increasing and Y (Medicare coverage of health care costs) is increasing (because the number of people needing the program that pays for health care costs is increasing) and Z (taxes for coverage of health care costs) is increasing” and then concludes “therefore we must reduce Y” is using false logic: 
    • to maintain a relative constant, there are more options than “reduce Y” since the country could:
      • reduce X (move to single payer, as every other advanced nation has done, and halve the cost of health care)
      • increase Z (increase the tax support for Medicare, because it is a high priority that a majority of the citizens of our democracy support)

What we have to do is get away from the kind of thinking that seems to permeate so much of the discussion in Congress and in the media–that there are pre-set limits to how much we should borrow, how much we should spend, or how much we should raise in tax revenues.

The deficit hawks want us to think that the countnry will be just another Greece if we don’t rein in spending and debt and keep taxes low.  Traditionally our spending has ranged around 21% of GDP, but there is nothing magical about that number–it could rise to 24% or 26% without harm.  And we are not Greece, because we remain a powerful economy, one that can print our own money and one that commands interest from the global economy, so our debt (mostly caused by the Bush tax cuts combined with the Bush wars, and the Reaganomics deregulatory mania) is not an unbearable yoke around our necks.  We should be discussing the real needs of the country for infrastructure and provision of public goods and then figuring out how to pay for them with a combination of taxes and debt.

cross posted with ataxingmatter

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The Media’s Role in Driving the "Fiscal Cliff" Imagery

by Linda Beale

The Media’s Role in Driving the “Fiscal Cliff” Imagery

The mainstream media has been fed a steady diet of releases from interested parties (like right-leaning propaganda tanks) about the need to adopt austerity measures, often cast as needing to save the country from out-of-control spending and unprecedented deficits and debt.

At the same time, the mainstream media has generally given up investigative journalism to engage in sports-like “he said-she said” journalism:  it treats most fiscal issues as a contest between left-leaning and right-leaning groups to be described by each side’s post position–i.e., as a merit-based race between equally valid positions.  Without the investigative wherewithal for in-depth research, there’s much less information about whether and how the facts may support one side and not the other.

We see it on climate change, where a scientific consensus is treated as just another opinion contrasted with the wishful opinions of anti-environmental corporatists.  We see it on evolution, where belief-based creationism is taught in schools alongside fact-supported scientific theory, with the two sides reported in the news as though they represent equally valid educational positions.  

It shouldn’t be surprising, therefore, that this approach surfaces in spades when it comes to the so-called “fiscal cliff”.

One is hard pressed to find articles that give credence to the position of progressives on Social Security (it is not bankrupt), Medicare (we can solve the long-term problem of financing of reasonable universal health care without cutting benefits by learning from the facts and experiences about controlling medical care costs through single-payer systems like those adopted in every other advanced nation), or even taxes.  The possibility of using the end-of-year changes as a fresh-start, “sweep the house clean” foundation for immediate action early in the new term is often ignored and, if mentioned, is generally given short shrift and inadequate explanation.

It’s easy, though, to find forecasts of return to recession outcomes if the sequester and end of the Bush tax cuts are allowed to take place as currently enacted.
  
Take, for example, the rhetoric of Mark Johnson in a KTVB.com report, A Fiscal Cliff primer (Nov. 18, 2012, updated Nov. 19).
If Congress cannot come up with an agreement on the Simpson-Bowles ratification, and then cannot come up [with] enough compromises to pass a plan of their own, and the President refuses to extend the current January 1st deadline, it’s over the cliff for Uncle Sam.
And, straight into the tax increases, unemployment jump, deep federal cuts and probable recession; A rough landing for the country and a scenario neither side wants.

The article adds to the crisis drumroll by quoting political scientist David Adler.

“And all the progress that Idaho families made in getting out of the recession will have gone by the wayside if in fact America’s politicians in Washington are not able to put our fiscal house in order.” Id.

In a similar vein, Jonathan Weisman in the New York Times reports today that “negotiators” have agreed on the parameters for a deal in which they will agree on fixed amounts of revenue to be raised (without tax rates increasing) and fixed amounts of cuts to social programs (and other federal programs like farm subsidies).  Jonathan Weisman, Seeking Ways to Raise Taxes but Leave Tax Rate as is: Negotiators Float Ideas to Appease Both Parties, New York Times (Nov. 23, 2012), at A12.

The article contains a good bit of information (or speculation, it isn’t completely clear) about what “negotiators” are considering in order to “pacify” the Republicans without permitting tax rate increases.  There’s no specific source attribution other than to “”aides involved in the negotiations” and a “Republican aide involved in the current talks.”  Id.  Predictably, it also includes a description of the slated legislative changes as a “crisis” when the “‘fiscal cliff’ would squeeze hundreds of billions of dollars out of the fragile economy next year and, many economists say, send the country back into recession”.  Id.

There’s not a single hint that it may not really be a “cliff”.  That it merely cuts back INCREASES in military spending.  That the sequester, with its cuts to the military, leaves the government with more options for funding NEEDED stimulus spending.  That Congress has all the power it needs to undo any truly harmful components of the sequester.  That Congress can instead consider targeted cuts to lower-income taxpayers to prevent a renewal downward recession trend.  That Congress can instead target spending cuts (and spending) on stimulation of the economy.  That Congress, in other words, has it in its power to help lower-income taxpayers pay for needed consumption and thus to create tax cuts and controlled spending cuts to benefit the lower and lower-middle income classes whose consumption is most needed to drive economic growth.

A little better is Evan Soltas, A Gentler Slope for the ‘Fiscal Cliff’, Bloomberg.com (Nov. 19, 2012), in which he admits the siren-call of the term to journalists.

The vivid imagery and false urgency of the [fiscal cliff] term transformed budget arcana into a national Wile E. Coyote moment. The words lent themselves to media overexposure and political opportunism. Despite efforts by Chris Hayes, Ezra Klein and Suzy Khimm to rebrand it the “fiscal curb” or “austerity crisis” — either of which would be more consistent with reality — Bernanke’s original phrasing has held fast.  Id.
Soltas at least explores the benefit of avoiding drastic austerity measures and even considering an “alternate” path of increasing the tax take beyond the “historic” measures of 18-19% of GDP.  Remember, we are currently at all-time lows in the perecentage of GDP taken in federal taxes, due especially to the enormously preferential rates to the super-elite through taxation of capital gains, dividends and private equity compensation (that is, “carried interest”) at less than half the top rate on ordinary compensation.

A reasonable solution might be a combination of spending cuts and revenue increases which stabilizes both at 18 or 19 percent of gross domestic product. That would be in line with their 50-year historical average. Increases or decreases beyond this level demand larger arguments about the proper size and role of government.

Alternatively, one could contend that demographic shifts — namely, the growing elderly fraction of the population — or rising health care costs justify greater public resources without any moral claims about government’s proper size. There is merit to this argument, but it neglects the revenue side of the historical consensus on the taxes paid to the federal government.
The relevance of any “historical consensus” on the percent of GDP that should be paid to the federal government, however, is questionable.  The times are extraordinarily different, with the years of low tax intake from the Reagan tax cuts through the Bush tax cuts, coupled with the unprecedented problem of the Bush preemptive wars being fought without the historical use of wartime increases in tax cuts (especially on the rich) to pay for them.
Maybe one of the better articles is a pre-election discussion at Fidelity.com on the “Fiscal Cliffhanger“, Sept. 26, 2012.  Here at least there is a good graphic demonstrating just how significant the Bush-era tax cuts are in our deficit problem ($221 billion) and how little the cut to support for Medicare payments to providers is ($11 billion).  Perhaps this kind of graphic can get the upper-middle class Americans to consider their fair-share obligation. (That means couples, like most professionals such as myself, who make more than $100,000 a year but less than the $250,000 or more a year that Obama has taken as his targeted income level for reintroducting pre-Bush era taxes.)  Further, the article acknowledges that gridlock in the lame duck is quite possible, but goes on to note that there will likely be a resolution–with compromise on both sides–early in 2013.
Many progressives–in which group I include myself– do think that a clean sweep start to the new session could allow Congress to act more reasonably on our long-term fiscal needs without compromising measures needed to continue moving us out of the Bush recession. 
Once the Bush tax cuts are gone and the sequester starting to take effect, Congress could  enact piecemeal legislation.  It could pass new, better targeted tax cuts for the lower-middle and lower income distribution.  Hopefully Obama, now in office and not needing to protect his electoral future, will recognize the reasonableness of allowing some tax increases to take place in four-or five- years for those couples in the $100,000 to $250,000 taxable income set. 
Once the sequester is starting to roll in, Congress could move to reinstate public pension support.  It could consider long-term support for Medicare through gradual adoption of a single-payer, Medicare-for-all system that meets the real needs of the future rather than using an artificially created fiscal crisis to destroy the New Deal programs.  It could accept the sequester’s limited spending increases for the military.  It could even finally act to reduce the tax-and-spending subsidies for Big Banks (get rid of the active financing exception to Subpart F), Big Pharmacy and Big IT (legislate new international tax rules that undo the tax evasion that current  “affiliated sales” of intellectual property permits while reining in the ability of MNEs to locate their profits in offshore tax havens with sophisticated tax planning like the “Dutch sandwich” techniques), and Big Oil and Big Agribusiness (outright subsidies built into well-lobbied tax and spending provisions).  
http://ataxingmatter.blogs.com/tax/2012/11/media-role-in-driving-the-fiscal-cliff.html

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What the Fiscal Cliff Means for the Middle Class

by Kenneth Thomas

What the Fiscal Cliff Means for the Middle Class

Now that the election is over, it seems like all the politicians and pundits can talk about is the so-called “fiscal cliff.” But the chatter around the fiscal cliff is deeply weird, so in this post I will explain what it is and what the issues involved mean for the middle class.
 
Just what is the fiscal cliff? It is the combination of spending cuts and tax increases set to take place on January 1 based on several different laws. Estimates of the consequences run as high as $800 billion next year, or 5.2% of the country’s $15.29 trillion gross domestic product in 2011. Yes, that would mean a recession, with obvious consequences for the middle class. But this is only true if we did nothing after January 1, and that’s not going to happen.
 
To put it another way, $800 billion is a 72.7% cut in the government’s budget deficit for the just ended 2012 fiscal year. You would think this would make the people calling for an immediate cut in the deficit happy, but nooooo. Just the opposite, which is the weirdest aspect of the entire debate. I’ll come back to that in a minute; first, let’s look at the main components of the fiscal cliff.
 
The biggest chunk is $426 billion from the final expiration of the Bush tax cuts, according to a Bloomberg analysis in July. Of this, $358 billion is for the first $250,000 of all taxpayers’ earnings, and the remaining $68 billion is for the tax cuts for income above $250,000 ($200,000 for a single person) that President Obama wants to get rid of. Both Republicans and Democrats want to retain the tax break for 98% of households, but Republicans will try to hold it hostage to the cuts for the other 2%. Since the Bush tax cuts expire if nothing gets done (because they were originally passed through the Senate’s reconciliation procedure, which gave them a 10-year lifespan; then renewed for 2 years in 2010), on January 1 the Republicans will have no more leverage on this. Thus, I expect that the middle class tax cuts will be made permanent and, by early January at the latest, the $68 billion will be all that will have expired. Since the wealthy spend less of their income than do the middle class or poor, this tax increase will have little contractionary effect on the economy.


Another set of tax provision affecting couples with over $250,000 and individuals over $200,000 is contained in the Affordable Care Act. These folks will have to pay an extra 0.9% tax on earnings over the thresholds for Medicare, and an extra 3.8% on investment income, starting in 2013. According to an Associated Press estimate, this will raise $318 billion over 10 years, so we’ll call it $30 billion for 2013. Since this is part of the funding for Obamacare, the President is highly unlikely to budge on this. Again, as a tax hike on the top 2%, it will have relatively little contractionary effect.
 
There are $110 billion in automatic spending cuts scheduled in 2013 due to the so-called “sequester.” These were triggered last year when no deal was made on long-term deficit reduction. With unemployment still at 7.9%, government spending cuts are definitely harmful to the middle class. To the extent that the $55 billion cut from the defense budget comes from overseas spending, there will be little contractionary effect in this country. That is, if we closed a military base in Germany, it would have more of an effect there than here. In any event, since the United States spends 41% of the world’s total military expenditure,* we could afford to redirect quite a bit of this $711 billion annual expenditure (China is a very distant second at $143 billion) to other uses. Nation building at home, as the saying goes.
 
The other $55 billion would come from domestic discretionary spending, so the middle class would bear the full brunt of this. Of course, neither party wants to see “their” favorite budget items cut, so there is a good chance that these spending cuts will be delayed, which would be a good thing, though not as good as shifting some military spending into the domestic budget.
 
There’s more, of course, but the basic outline is clear: we are seeing a replay of last year’s debt ceiling “deal,” in which Republicans are trying to pass austerity measures the public does not support and did not vote for in the just concluded election. Indeed, a majority voted not just for a Democratic President and a Democratic Senate, but for a Democratic House of Representatives as well, with Republicans maintaining a majority only due to gerrymandering and compliant Republican courts. As Paul Krugman points out, the self-proclaimed “fiscal hawks” are tying themselves up in knots on why going over the cliff is bad when it achieves their goal of debt reduction. The answer, of course, is that they want to cut “low-priority spending,” by which they mean programs benefiting the middle class. As Linda Beale argues, the right course for Democrats is to do nothing until January, when the Bush tax cuts will be gone and we can pass tax cuts more targeted to the middle class as well as redirecting spending from our bloated military to domestic programs.
 
* Source: SIPRI (Stockholm International Peace Research Institute) Military Expenditure Database 2011, http://milexdata.sipri.org
http://middleclasspoliticaleconomist.blogspot.com/2012/11/what-fiscal-cliff-means-for-middle-class.html

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Is it a fiscal cliff or merely a bump in the road?

by Linda Beale

Is it a fiscal cliff or merely a bump in the road?

Sixty percent of American voters in exit polls indicated that they supported higher taxes for the wealthy, see here.  Even some arch conservatives are acknowledging that some tax increases won’t do terrible harm.  Id. (noting that the Wall Street Journal’s Stephen Moore acknowledged that Obama “can claim that he’s got a voter mandate to do that [raise taxes on the rich].” Even Conservative Weekly Standard Editor Bill Kristol counseled Republican leadership to get real.

You know what? It won’t kill the country if Republicans raise taxes a littlbe bit on millionaires.  It really won’t, I don’t think.  …  Really? The Republican party is gonna fall on its sword to defend a bunch of millionaires, half of whom voted Democratic, and half of whom live in Hollywood and are hostile to Republicans?  Nicole Flatow, Weekly Standard Editor Bill Kristol: Raising Millionaires’ Taxes ‘Won’t Kill the Country’, ThinkProgress (Nov. 11, 2012).

Nonetheless, the House and Senate Republican leadership (Rep. Boehner and Sen. McConnell) are insisting that they will not allow tax rates to rise.   McConnell told Breitbart.com the following:

One issue I’ve never been conflicted about is taxes. I wasn’t sent to Washington to raise anybody’s taxes to pay for more wasteful spending and this election doesn’t change my principles. This election was a disappointment, without doubt, but let’s be clear about something: the House is still run by Republicans, and Republicans still maintain a robust minority in the Senate. I know some people out there think Tuesday’s results mean Republicans in Washington are now going to roll over and agree to Democrat demands that we hike tax rates before the end of the year. I’m here to tell them there is no truth to that notion whatsoever.  Annie-Rose Strasser, Senate Minority Leader: We Won’t Raise Taxes At All, ThinkProgress (Nov. 9, 2012).

President Obama Friday invited Congress to sign off on a tax cut for the middle class right away– noting that just extending the Bush tax cuts for those who make less than $250,000 would give a tax cut to 98 percent of Americans and 97 percent of small businesses.

“While there may be disagreements in Congress over whether to raise taxes on people making *over* $250,000 a year, nobody — not Republicans, not Democrats — want taxes to go up for folks making under $250,000 a year,” Obama said. “So let’s not wait.”  Adele M. Stan, Obama throws down gauntlet on fiscal cliff, Salon.com (Nov. 10, 2012).

Robert Reich, now at the University of California at Berkeley, writes that the game of chicken is on.
So who blinks first? Democrats who don’t mind going over the cliff because they’ll get a better final deal – and the deal will be retroactive to January 1st so it’s not really a cliff at all but more like a little hill? Or Republicans who want to extend the Bush tax cuts beyond January 1st, until we get sufficiently close to the debt ceiling that they can once again threaten the full faith and credit of America?

As I said before, I had naively assumed the election would put an end to these games, but obviously not. Yet Obama and the Democrats are holding most of the cards now. Let’s hope they use them.  Robert Reich, Get ready for an economic game of chicken, Salon.com (Nov. 9, 2012).

cross posted with   ataxingmatter

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Lost Decades

Mike Konzcal reviews Lost Decades by Menzie Chin and Jeffrey Friedan at New Deal 2.0:

What caused the housing bubble?

This is a different, though related, question from what caused the collapse of the financial sector or why unemployment is sky-high right now. Why did housing value skyrocket and then collapse? More broadly, why did all kinds of consumer debt expand so greatly over the past decade?

there’s another argument, which looks at the explosion of international lending and the indebtedness of the United States by foreign investors. Normally capital runs from rich countries to poor countries, but something changed where it reversed as capital went rushing to the United States. This exposed the United States to the same kind of risks developing nations usually face. And the new book Lost Decades by Menzie D. Chinn and Jeffry A. Frieden, economists at the University of Wisconsin, Madison and Harvard, is the best book-length treatment of this argument.

(italics mine)
Menzie Chin writes about Lost Decades at Econbrowser:

…Jeffry Frieden and I conclude in our book, Lost Decades:

America’s prosperity requires fiscal responsibility. The phrase “fiscal responsibility” has been used so much that it is something between an obligatory buzzword and a code word for cutting government spending. In our view, true fiscal responsibility involves a willingness to raise sufficient tax revenue, over the longer term, to pay for the programs the government implements. Fiscal responsibility should not be equated with a small government, but rather with a commitment to pay for the government services provided. If the nation affirms that enhancing national defense and improving health care for the poor are legitimate goals, fiscal responsibility entails raising the revenue to fund these programs, rather than borrowing for them.

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Long term fiscal problems 2007…PGL

Angry Bear PGL wrote this post in 2007 reflecting the shape of politics and media soundbites of this current and constant election campaigning over the current two years to 2012 elections:

In case Mr. Romney hasn’t seen my question. let me restate it. How will you address the long-run fiscal problem, that is, will you raise income taxes or will you impose that backdoor employment tax increase known as “entitlement reform”, which really means cutting Social Security benefits? Until Mr. Romney answer this question clearly let’s not pretend he has a serious position paper on taxes.

The whole post is below the fold. (hat tip Daniel B)

Stephen Dubner says Mr. Romney does and points to a NYTimes oped written by Greg Mankiw as that position paper:

But perhaps the very most interesting thing about the Mankiw piece is the lead: “Do the rich pay their fair share in taxes? This is likely to become a defining question during the presidential campaign.” This is a classic in winking understatement, for Mankiw was not only an advisor to Bush, but is also (as duly noted in the bio on his piece) an advisor to Mitt Romney on Romney’s current campaign. I applaud Mankiw, the Times, and Romney for having the courage to produce what is essentially a position paper on taxation in the pages of the Times. As long as everyone’s cards are on the table, which they are here, I see no harm. But I sure would have liked to see the e-mails back and forth between the Mankiw and the Romney camp as the Times piece was being edited; and it sure will be interesting to see how this trenchant piece of tax commentary plays out in Romney’s campaign. I can just imagine one of his opponents whipping out the Mankiw article a few weeks or months from now and waving it in his face – “So the rich pay too much tax, huh?”

Doesn’t the suggestion that the rich pay too much in taxes imply that the middle class and the working poor pay too little? It does unless one thinks we ought to slash the budgets of things like the Defense Department – which is not going to happen if Mitt Romney has his way. The claim that Mr. Romney was courageous in producing a position paper on taxation is absurd on so many levels. Greg noted one:

No emails. No phone calls. No smoke signals. I am not an employee of the campaign. I am a Harvard professor, expressing my own views, sometimes publicly, sometimes privately to a candidate for President. After listening to a variety of advisers with various perspectives, Romney decides on his own what positions to take.

The other levels on which this statement about Romney’s courage is absurd goes to a couple of critiques of Greg’s “super-compelling” oped both noted by Brad DeLong. While I think Mark Thoma had a more compelling discussion of the fairness issue, my contribution, which Brad was so kind to highlight, goes to the simple arithmetic of the long-run budget constraint that Mr. Romney has yet to address:

And by looking at 2004, he is forgetting that the budget is not exactly in balance. Yes, the General Fund deficit was rather large so current tax obligations do not capture the cost of government as in all those deferred tax bills thanks to the Bush tax “cuts”. But one might try Greg did that the unified deficit is not that large … Greg leaves out the fact that we have a large Social Security surplus, which is the reason why he can argue that the “deficit” is not that large. Implicit in the use of this figure is the proposition that those payroll “contributions” we are making are NOT to become our retirement benefits down the road. As long as we are posing questions for political candidates, let’s pose this one for Mitt Romney (as Greg is one of his advisors): do you intend to slash Social Security benefits in the future as you continue to impose these employment taxes? After all, you want to maintain the Bush tax “cuts” and still have a large defense department.

In case Mr. Romney hasn’t seen my question – let me restate it. How will you address the long-run fiscal problem, that is, will you raise income taxes or will you impose that backdoor employment tax increase known as “entitlement reform”, which really means cutting Social Security benefits? Until Mr. Romney answer this question clearly – let’s not pretend he has a serious position paper on taxes.

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Simon Johnson on the apparent new deal in politics

Baseline Scenario links to Simon Johnson’s thoughts on current practice of politics. Well worth the time to read and comment.

Delusions Of Fiscal Grandeur
by Simon Johnson

If you honestly believe that investors will happily buy up any amount of US government debt (at low interest rates) for the indefinite future, then relax.  The tax deal passed yesterday should make you happy.

But if you fear that the US will soon be tested by financial markets – just as the eurozone is being tested today – then please read my column,”Voodoo Economics Revisited“, which is now on the Project Syndicate website.  There is a well-established tradition in the Republican Party of thinking that tax cuts cure all ills; many in the Democratic leadership have apparently now fallen into line.  We need to think hard about what our fiscal crisis will look like – and who will end up being hurt the most.

Another link to the column: http://www.project-syndicate.org/commentary/johnson15/English

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Nearing agreement says NYT

Nearing agreement says NYT

An administration official said that in the emerging deal, the “Making Work Pay” credit would be replaced with a one-year reduction in payroll taxes for workers.

In addition to a two-year extension of the income tax rates enacted under President George W. Bush, the deal includes a one-year extension of jobless aid for the long-term unemployed. Officials said negotiators were also close to an agreement to restore the federal estate tax, which lapsed at the start of this year, with an exemption of up to $5 million per individual, and a maximum rate of 35 percent.

(bolding mine)

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