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Republicans on Thursday received President Obama’s proposal on how to avoid the “fiscal cliff” and reduce the deficit. They didn’t like it—not one bit. House Speaker John Boehner said Obama was not serious about spending cuts. Senate Minority Leader Mitch McConnell “burst into laughter,” according to the Weekly Standard's Fred Barnes, because Obama was not offering anything he hadn’t already offered before.
Actually, McConnell was right about the novelty, or lack thereof. Obama’s new proposal is more or less a summary of proposals he’s made previously, via his spring 2012 deficit reduction plan and his proposal for an American Jobs Act. But Republicans have refused to put forward a new plan of their own, so why should Obama be the one to give ground first? He tried that strategy during his first term, in the hopes that shows of good faith would help produce compromises with the Republicans. For his troubles, Obama got obstruction and opposition, on everything from the stimulus to his jobs plan. Not much has changed since that time, except for the political environment and the leverage. Obama just won an election, and got more popular votes, following a campaign in which he promised to raise taxes on the wealthy and protect programs like Medicare from cuts in benefits. In addition, Republicans probably have more to fear from an impasse, since rates on all taxpayers go up on January 1 unless the GOP and Democrats agree on a new tax plan.
But let’s focus on this claim, from Republicans, that Obama only wants to raise taxes and isn’t serious about spending cuts. Here’s an analysis from one senior Republican aide, as relayed to ABC News’ Jonathan Karl:
The White House keeps saying it wants a ‘balanced approach’ but this offer is completely unbalanced and unrealistic. It calls for $1.6 trillion in tax hikes – all of that upfront – in exchange for only $400 billion in spending cuts that come later. Plus, the only entitlement changes they proposed come from the exact proposals in the President’s budget.
The trouble with this analysis is that it ignores history: As part of the 2011 Budget Control Act, Obama agreed to spending reductions of about $1.5 trillion over the next ten years. If you count the interest, the savings is actually $1.7 trillion. Boehner should have no problem remembering the details of that deal: As Greg Sargent points out, Boehner at the time actually gloated about the fact that the deal was "all spending cuts."
And now, with this latest offer, Obama is proposing yet more spending reductions, to the tune of several hundred billion dollars. Add it up and it’s more than $2 trillion in spending cuts Obama has either signed into law or is endorsing now. That’s obviously greater than the $1.6 trillion in new tax revenue he’s seeking. (And that doesn't even take into account automatic cuts from the 2011 budget sequester, which Obama has proposed to defer, or savings from ending the wars in Afghanistan and Iraq.) So, yes, Obama’s proposal is unbalanced—but not in the way Republicans seem to think. If Obama were proposing a truly balanced plan, he’d be calling for even more tax revenue or even less spending reduction.
Yes, I'm serious. As Richard Kogan of the Center on Budget and Policy Priorities has explained, those cuts from the Budget Control Act will take discretionary spending (spending on agencies and programs that Congress must reauthorize every few years) as a share of gross domestic product down to its lowest level since early 1960s, when government first began keep tracking of it. You don’t have to believe government is a model of efficiency to believe that cuts of that magnitude are bound to reduce spending to the point that government services suffer. Meanwhile, solving our long-term fiscal problems will probably require even more revenue than Obama is seeking now. That is why some of us have suggested the ideal solution to the fiscal crisis would be to let all of the tax cuts lapse, allowing middle-class tax relief to continue only on a temporary basis, until the economy is stronger. (Kevin Drum recently floated a new and interesting proposal for how that could be done.)
Is that going to happen? Probably not. Obama’s offer represents the outer boundaries of what’s possible. The final deal will almost surely include fewer tax increases, more spending cuts, or some combination of the two. Still, it’s heartening to see Obama refusing to cede ground pre-emptively—and, by the way, calling explicitly for measures like extended unemployment insurance that will promote growth and alleviate the insecurity so many Americans still feel. This is not how Obama operated in 2011. But conditions have changed a lot since then—and maybe Obama has, too.
Today's columns by Krugman and Brooks reflect the gulf between right and left on tax policy, Krugman arguing that Obama and the Democrats won the election and should not make major concessions, and Brooks, ignoring the election entirely, arguing for tax reform that would exempt most wealthy investors from being taxed (savings and income from savings would not be taxed) and instead would tax only wages. Brooks claims "most economists" favor this method of taxation, although "most economists" certainly would not include Krugman. I appreciate that investment is the key to economic growth and a rising standard of living, but with a glut of savings and trillions of dollars sitting mostly idle, ... view full comment
Today's columns by Krugman and Brooks reflect the gulf between right and left on tax policy, Krugman arguing that Obama and the Democrats won the election and should not make major concessions, and Brooks, ignoring the election entirely, arguing for tax reform that would exempt most wealthy investors from being taxed (savings and income from savings would not be taxed) and instead would tax only wages. Brooks claims "most economists" favor this method of taxation, although "most economists" certainly would not include Krugman. I appreciate that investment is the key to economic growth and a rising standard of living, but with a glut of savings and trillions of dollars sitting mostly idle, I don't understand the obsession with savings. To Brooks' credit, his proposal (a modified consumption tax) is offered as an alternative to what he refers to as another 1986 style tax reform (the Reagan tax reform) with lower and fewer rates offset with fewer exclusions and deductions (so-called tax expenditures). As reflected in many of my comments, I don't understand the obsession with lower rates and fewer exclusions and deductions since the 1986 tax reform failed so miserably (unless endless deficits are considered success); it failed because tax rates, once cut, require an act of God to increase whereas tax expenditures grow like kudzu. Defenders of the 1986 style tax reform (Bowles-Simpson among them) say we will just have to be more disciplined this time and not let the tax code be decorated like a Christmas tree with tax expenditures. Sure. That's like saying the alcoholic who visits the bar will just have to show more discipline.
Brooks essentially proposed a tax on consumption, ie a VAT. However that would be yet another regressive tax, unless it would be very, very carefully designed (for example, tax Rolls Royces and not Ford Fiestas) but beyond that, we already have rich people hoarding and insufficient consumption, ie demand.
Also, one grows weary of rosy, misty-eyed dreams of the Reagan era. This is when Gordon Gecko ruled and the middle class and unions started coming under attack and the religious right gained enormous power and we were running all kinds of wars and other skulduggery.
A series of articles about The Great Reagan Era wouldn't be amiss. It's highly pertinent today, it was a bust in the chops ... view full comment
Brooks essentially proposed a tax on consumption, ie a VAT. However that would be yet another regressive tax, unless it would be very, very carefully designed (for example, tax Rolls Royces and not Ford Fiestas) but beyond that, we already have rich people hoarding and insufficient consumption, ie demand.
Also, one grows weary of rosy, misty-eyed dreams of the Reagan era. This is when Gordon Gecko ruled and the middle class and unions started coming under attack and the religious right gained enormous power and we were running all kinds of wars and other skulduggery.
A series of articles about The Great Reagan Era wouldn't be amiss. It's highly pertinent today, it was a bust in the chops to artists and other idealistic Americans not to mention the middle class.
While the VAT is regressive, our revenue woes are NOT due to the taxes on the wealthy being high enough. Our revenue woes are due to the fact that our tax system is too progressive (in fact, it's the most progressive modern economy in the world). The rich and upper middle class are the only ones seriously pulling the cart.
Ray writes: " I appreciate that investment is the key to economic growth and a rising standard of living, but with a glut of savings and trillions of dollars sitting mostly idle, I don't understand the obsession with savings. "
The world is divided into savers and non-savers. The savers will always have money, regardless of how much or little they make. The non-savers never ... view full comment
While the VAT is regressive, our revenue woes are NOT due to the taxes on the wealthy being high enough. Our revenue woes are due to the fact that our tax system is too progressive (in fact, it's the most progressive modern economy in the world). The rich and upper middle class are the only ones seriously pulling the cart.
Ray writes: " I appreciate that investment is the key to economic growth and a rising standard of living, but with a glut of savings and trillions of dollars sitting mostly idle, I don't understand the obsession with savings. "
The world is divided into savers and non-savers. The savers will always have money, regardless of how much or little they make. The non-savers never have money, regardless of how much or little they make.
The saver's goal in life is to lobby the government to give even more tax breaks for saving. The non-savers goal in life is to lobby the government to give them more money for not saving. Recently it was noted that 40% of American's hit retirement with nothing, and 56% contribute nothing to retirement plans. Yikes. The gulf between the ants and the grasshoppers continues to widen.
I like the idea of a trigger, that is raise rates when unemployment gets down to 6%. essentially what I would love to see is the sequester deferred, a jobs bill passed, a reform of the debt increase bill (to one that a President can veto), tax reform along the lines of what Romney proposed ($35,000 caps with home mortgage interest grandfathered, medical and charity exempt) all for an extension of the Bush tax rates until the unemployment trigger kicks in. If the jobs bill works then the trigger will come in early. Then next term Obama and the Republicans can negotiate entitlement reform as a separate package.
I like the idea of a trigger, that is raise rates when unemployment gets down to 6%. essentially what I would love to see is the sequester deferred, a jobs bill passed, a reform of the debt increase bill (to one that a President can veto), tax reform along the lines of what Romney proposed ($35,000 caps with home mortgage interest grandfathered, medical and charity exempt) all for an extension of the Bush tax rates until the unemployment trigger kicks in. If the jobs bill works then the trigger will come in early. Then next term Obama and the Republicans can negotiate entitlement reform as a separate package.
The cuts he has already made. In the future. Ow, ouch, you guys are painful. So, 10 years from now, a president who will exit his stench in 4 years, will somehow control a budget after he has left office. How does that work in Cohnworld? And he gonna cut trillions 10 years from now! In
retirement? Brilliant, Barry! In 10 years even Nancy Pelosi's face lifts will be melting.
Nobody here reads conservative websites, but most conservatives excoriated Paul Ryan for postponing real cuts in Medicare for 30 years. Thirty!. Cohn whipped up the TNR crowd by pretending that the cuts would happen tomorrow.
There can be no rational discussion of the economic death of America, as long as Cohn en ... view full comment
The cuts he has already made. In the future. Ow, ouch, you guys are painful. So, 10 years from now, a president who will exit his stench in 4 years, will somehow control a budget after he has left office. How does that work in Cohnworld? And he gonna cut trillions 10 years from now! In
retirement? Brilliant, Barry! In 10 years even Nancy Pelosi's face lifts will be melting.
Nobody here reads conservative websites, but most conservatives excoriated Paul Ryan for postponing real cuts in Medicare for 30 years. Thirty!. Cohn whipped up the TNR crowd by pretending that the cuts would happen tomorrow.
There can be no rational discussion of the economic death of America, as long as Cohn engages in this "back to the future" sleight of hand.
"The rich and upper middle class are the only ones seriously pulling the cart."
In other words, seattle, the lower middle class (which are almost poor) and the poor themselves are not taxed enough. What is it about the not so well-off that makes you guys on the right want to stick it to them?
Don't forget that when it comes to national defense, it's the poor and the lower middle class that we send to the front lines. That's bigger than paying a few more points on your tax rate.
"The rich and upper middle class are the only ones seriously pulling the cart."
In other words, seattle, the lower middle class (which are almost poor) and the poor themselves are not taxed enough. What is it about the not so well-off that makes you guys on the right want to stick it to them?
Don't forget that when it comes to national defense, it's the poor and the lower middle class that we send to the front lines. That's bigger than paying a few more points on your tax rate.
"Our revenue woes are due to the fact that our tax system is too progressive (in fact, it's the most progressive modern economy in the world)."
This is complete nonsense. Note how Seattle never appears to make comments on articles that demonstrate this. US effective tax rates by quintile are basically flat. That the Rich pay a larger component of total receipts has nothing to do with it's progressiveness.
Instead, it has everything to do with the little point that the wealthiest Americans today command a greater share of the national wealth than they have in many, many decades. Our economic woes would appear to stem directly from the fact that this money is pooling at the top rather than c ... view full comment
"Our revenue woes are due to the fact that our tax system is too progressive (in fact, it's the most progressive modern economy in the world)."
This is complete nonsense. Note how Seattle never appears to make comments on articles that demonstrate this. US effective tax rates by quintile are basically flat. That the Rich pay a larger component of total receipts has nothing to do with it's progressiveness.
Instead, it has everything to do with the little point that the wealthiest Americans today command a greater share of the national wealth than they have in many, many decades. Our economic woes would appear to stem directly from the fact that this money is pooling at the top rather than circulating.
Report on NY Times study of changes in tax rates and burden for different income levels appeared on page two of my daily this morning. On average, as I'm sure everyone here - well, almost everyone - knows, or admits, taxes are lower now than they've been since 1980. And the higher up you go in income bracket, on average, the truer this is. Federal income taxes, in particular, are lower as a proportion of income for the wealthier than they were back in those halcyon days when Ronald Reagan rode into DC on his great white stallion. (Or did I just imagine that, about his coming to town on a horse? Whatever.) Despite this, according to the NYT article, it seems a substantial number of folks ou ... view full comment
Report on NY Times study of changes in tax rates and burden for different income levels appeared on page two of my daily this morning. On average, as I'm sure everyone here - well, almost everyone - knows, or admits, taxes are lower now than they've been since 1980. And the higher up you go in income bracket, on average, the truer this is. Federal income taxes, in particular, are lower as a proportion of income for the wealthier than they were back in those halcyon days when Ronald Reagan rode into DC on his great white stallion. (Or did I just imagine that, about his coming to town on a horse? Whatever.) Despite this, according to the NYT article, it seems a substantial number of folks out there are ignorant of this, or even bluntly deny it. Decades of right wing propaganda have done their work. I'd like to see a really concerted effort on the part of progressives to inform the US population about the realities of income distribution and taxes. It's time to launch a serious counter-offensive on this front.
seattle, as usual, invents his own reality to suit his libertarian wingnut ideology. Because unless he is fabricating, there is nothing for him to say.
As documented in the NYT article referred to by Haole, overwhelmingly the tax cuts, in terms of reduction in the percentage paid in tax, since 1980 have gone to the wealthiest. When you combine that with the fact that in 1980 the top 10% had 33% of GDP and now has 50%, you know everything you need to need to explain our revenue problem. The top 10% could pay the entire Federal operating budget and still have a larger net income share than in 1980 when Reagan arrived with his ouiji board and the libertarian right-wingnuts and supply-side idi ... view full comment
seattle, as usual, invents his own reality to suit his libertarian wingnut ideology. Because unless he is fabricating, there is nothing for him to say.
As documented in the NYT article referred to by Haole, overwhelmingly the tax cuts, in terms of reduction in the percentage paid in tax, since 1980 have gone to the wealthiest. When you combine that with the fact that in 1980 the top 10% had 33% of GDP and now has 50%, you know everything you need to need to explain our revenue problem. The top 10% could pay the entire Federal operating budget and still have a larger net income share than in 1980 when Reagan arrived with his ouiji board and the libertarian right-wingnuts and supply-side idiots took over.
The tax system should mitigate the increasing skew in gross income. Instead, it is aggravating it by reducing taxes on the wealthy even as their income share has grown by 50%. Tax revenue cannot come from nowhere and from people who don't have much. It can only can from the people who have it. In America, where income is more skewed than in any other major industrial economy, it has to come from those who have all the money, the top 10%.
"I appreciate that investment is the key to economic growth and a rising standard of living, . . ."
Not true, Rayward, although this is the endlessly repeated rightwing claim. Technical change, higher labor productivity, is the key to growth and a rising standard of living. Additional investment only matters when it is investment in more productive technology. There are two things that drive this: rising wages and rising consumption demand. Increasing the rate of return on investment with tax or other subsidies is irrelevant. If there is investment without productivity increase, you run out of labor. But even when labor demand is slack, as it has been for a long time, you cannot gai ... view full comment
"I appreciate that investment is the key to economic growth and a rising standard of living, . . ."
Not true, Rayward, although this is the endlessly repeated rightwing claim. Technical change, higher labor productivity, is the key to growth and a rising standard of living. Additional investment only matters when it is investment in more productive technology. There are two things that drive this: rising wages and rising consumption demand. Increasing the rate of return on investment with tax or other subsidies is irrelevant. If there is investment without productivity increase, you run out of labor. But even when labor demand is slack, as it has been for a long time, you cannot gain with investment if the additional labor employed doesn't earn enough to buy the output. The income skew in our economy is ruining growth.
Why is this so? Because at a given wage level, most technical change is unprofitable, it costs more than the labor saved, even with the subsidies. Only when wages are rising from the current level does a change in technology requiring new investment make sense. The optimal capital structure is a function of wages, not of tax rates. Second, because, no matter what the subsidy, firms will not invest unless there is demand for the output. More productivity with no one to buy the increased output never makes sense.
Basically, what we have done since Reagan is put too much income in the hands of the investor class. This results in an imbalance between investable funds, the income of the investor class, and investment opportunity, the amount of investment needed to serve demand -- investor income has increased at the same time as labor income -- which equals demand -- has decreased. The result is not more productive investment, as there is no reason for more productive investment, but asset bubbles, too much money chasing too few real investment opportunities. In short, we are starving growth by under-taxing the rich. We need to increase the net income share of labor -- consumption -- to move the economy ahead.