Economist Mom
President Obama spoke Thursday before signing an executive order creating the bipartisan National Commission on Fiscal Responsibility and Reform, as Vice President Biden (left) and co-chairs Erskine Bowles (second from right) and Alan Simpson looked on. (Gary Fabiano/Pool/UPI/Newscom )
Obama's fiscal commission: Critics' 'magic pony' arguments don't fly
For some reason there’s a recurring “equine” theme in the recent talk about how to achieve fiscal responsibility…
Apparently Larry Kudlow thinks the President’s fiscal commission is a clever trick of sorts to force (and sneak) tax increases onto unwitting Americans (uh, NO, Larry…I’ve said the commission’s first assignment should be to get all the issues and policy options “on the (open) table” with the American public)–for he’s suggesting we swap the “magic pony” of supply-side tax cuts for the “Trojan horse” of the commission:
Take, for example, Obama’s new deficit commission. It’s a bad idea. This commission is a fig leaf to cover up President Obama’s out-of-control budget. It’s a Trojan horse for tax hikes, especially a value-added tax that would engulf the middle class with up to a 15 percent tax rate on the sale of goods and services. Obama is getting ready to move his lips on the pledge not to raise middle-class taxes. Congressional Republicans must not let him do this…
Rather than tax hikes, I say stop the spending…
Why not stop the multiple taxes on all forms of saving and investing, including capital gains, dividends and inheritances? And why not eliminate the business tax on profits in favor of a sales tax on net revenues that would deduct all investment expenses? That would leave us with a single-rate consumption-based income tax that would grow this economy by 7 percent to 8 percent in the years ahead, just as the economy should grow after a deep recession.
Going back to the debt-to-GDP ratio, I want to grow the denominator (the economy) and reduce the demand for the numerator (spending and borrowing). That means a combination of supply-side tax cuts and firm spending limits.
(Never mind Larry’s odd self-contradiction of first criticizing the idea of a broad-based consumption tax (as an add on) and then coming back to recommend a broad-based consumption tax (as a replacement); yes, the key difference is whether it would actually raise enough revenue and reduce the deficit, or not…)
And by the way, exactly who will ride Larry’s magic pony in his fantastic vision of how to get things right? Larry gleefully explains:
let’s especially use this Tea Party power to stop Democratic plans for another round of broad-based tax increases.
Thanks to Bruce Bartlett for directing me to Larry’s magic pony story, and for pointing to another stupid idea for an alternative to the fiscal commission–going ahead and defaulting on the debt. I think I’ll label that the “Mister Ed” option, because only someone as eccentric and naive as a “Wilbur” would listen to (even “hear”) such crazy ideas as those of Ed.
A horse is a horse, of course, of course. And no one can talk to a horse of course… Unless…
Add/view comments on this post.
The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.
President Obama signed an executive order Feb. 18 creating a National Commission on Fiscal Responsibility and Reform. (Jason Reed/Reuters)
Top question for fiscal commission: Are Americans better than leaders ask us to be?
This morning President Obama signed an executive order establishing a new, bipartisan “National Commission on Fiscal Responsibility and Reform” and made it clear that the commission would be welcome to suggest tax increases as part of their recommended policy mix for deficit reduction. And just a little later this morning, a desperate man crashed his small plane into an IRS building in Austin, Texas, because he was outraged about his high tax burden. (Read his suicide note here.)
On the commission, here is budget director Peter Orszag’s blog post, and as CNN’s Jeanne Sahadi explains:
NEW YORK (CNNMoney.com) — President Obama issued an executive order on Thursday that formally creates a bipartisan fiscal commission, a first step to forcing painful decisions needed to get the U.S. debt load under control.
Raising taxes, cutting spending and reforming Medicare and Social Security are all fair game, and thought to be impossible without the backing of both Republicans and Democrats.”Everything’s on the table. That’s how this thing is going to work,” the president said immediately after signing the order.
The commission must deliver a report to the president by Dec. 1 that makes recommendations for bringing annual deficits to no more than 3% of the size of the economy [by 2015]…
The commission will also be expected to suggest ways to permanently lower the country’s total debt…
The president formally named the two co-chairmen he has chosen for the commission: Alan Simpson, a former Republican senator from Wyoming, and Erskine Bowles, a Democrat who served as White House chief of staff under President Clinton.
He said the two men “are taking on the impossible: they’re going to try to restore reason to the fiscal debate.”…
Deficit hawks say that the country cannot adequately address the looming fiscal shortfalls without addressing both taxes and spending.
The presidentially-appointed commission might not be as “toothy” as a Congressionally-legislated commission, but (again, from the CNN story):
…there is a chance that recommendations from the presidential commission will be given serious consideration. Senate Majority Leader Harry Reid, D-Nev., and House Speaker Nancy Pelosi, D-Calif., have given their assurances — in writing — that they will bring the group’s recommendations to the floor for procedural votes before the end of the year. The House will only take them up, however, if they pass the Senate first.
Voting for the commission’s recommendations will likely be a tough pill for both parties. But the idea behind a bipartisan panel is that it can give political cover to lawmakers since no recommendation can be made unless it has the support of 14 of the 18 commissioners.
Matt Miller has it right to emphasize that the toughest obstacle to establishing fiscal sustainability isn’t in figuring out the right economic policies, but rather in having the political will to see them through (emphasis added):
The good news from the Clinton experience is that the chronicle of debt foretold in Obama’s budget is perfectly consistent with a return to fiscal sanity much sooner. The bad news is that our bipartisan blend of fiscal dishonesty and political calculation has reached the point where it’s hard to know who will spark the debate we need about the real choices America faces.
Republicans act as if near-term deficits are a bad thing, when in fact the flood of spending both from the stimulus and the Federal Reserve’s creative liquidity injections brought the economy back from the brink. The new Republican “it” boy on fiscal policy, Rep. Paul Ryan of Wisconsin, indulges in the mathematical and political fantasy that we can keep taxes at their historic level of 19 percent of GDP while doubling the number of people on Social Security and Medicare.
Democrats, meanwhile, are boxed in by Obama’s unsustainable pledge not to raise taxes on Americans earning less than $250,000 — a policy that only “works” if we think we can borrow all the cash for the baby boomers’ retirement from China. Nor will Democrats explain to their liberal base that trimming Social Security benefits for better-off retirees will be a progressive way to fund better teachers for poor children in the era of permanent fiscal pressure ahead.
It’s such a surreal moment that admissions of cowardice somehow pass for evidence of fiscal rectitude. Whatever its merits — and let’s all wish it well — the very need for Obama’s new fiscal commission amounts to an extraordinary confession.
“We refuse to risk our hold on power,” our leaders are essentially telling us, “by coming clean on our own about the tax increases and spending cuts we know are needed to pass a sound nation to our children.” Thus “political leadership” becomes an oxymoron. Odds are we’ll fix the budget once enough of us show our leaders it’s safe to do what needs to be done…
The late Paul Tsongas, one of the co-founders of the Concord Coalition, said at Concord’s birth in 1992 that:
“We are better than what we are being asked to be by our leaders.”
Now, we who work at today’s Concord Coalition must still hold some degree of optimism on the being “better” part (or else why would we keep doing what we do); see our participation on this joint statement (with two other organizations) on the fiscal commission. But I have to admit that (the motive for) today’s plane crash in Austin, and the result of two recent polls on the willingness of Americans to make the tough choices to reduce the deficit, do challenge that optimism. First, a Rasmussen poll (discussed in further detail by Eric Kleefeld of Talking Points Memo) suggests that many Americans (particularly Republicans) would rather have budget deficits and tax cuts than a balanced budget with higher taxes. (Never mind that there’s no such thing as a “free” tax cut and that deficit-financed tax cuts just turn into much larger required tax increases in the future.) Additionally, a New York Times/CBS News poll that was cited in yesterday’s NYTimes article by Jackie Calmes told us that Americans believe Bush Administration policies are to blame for the large deficits but that they’re not willing to reduce the deficit by cutting health care or education or (even) military spending. One question Jackie did not report on was the following (#39): “The Obama administration has proposed letting the tax cuts passed in 2001 expire for households earning about $250,000 a year or more. This would increase federal income taxes for those people. Do you think this proposal is a good idea or a bad idea?” The responses: 62% said “good idea,” 31% said “bad idea,” and 7% said “don’t know.” But that is not surprising, because far more than 62% of the people are being asked about a tax increase on someone else.
So the question about the tax increase on the rich is not a very helpful one, because the response only reflects the perception suggested by the first (tongue-in-cheek) comment in the story about the Rasmussen poll:
I favor balancing the budget by raising everyone’s taxes but mine. I also want a magic pony.
All this empirical evidence on how much Americans understand the deficit (not very well) and what they want to do about it (nothing themselves, if they can help it) tells me that the first thing the President’s fiscal commission needs to do is to start getting out there and talking with real Americans, educating them about why we even need to worry about the budget deficit, and asking them about the (hard) choices they’re willing to make (or not). Once Americans better understand how deficits adversely affect the economy and hence impose broadly distributed costs on society, the question that needs to be asked is not just about the kind of broad-impact spending cuts and narrow-impact (only on the rich) tax increases people would be willing to see, but whether they’d be willing to see higher taxes as part of a deficit-reduction package, even if those taxes are their own. More specifically, if the President’s commission quickly comes to the realization that not raising taxes on households under $250,000 is NOT an option, would a majority of Americans still say “yes” to the survey question on the 2001 tax cuts if the income floor were struck from it?
Are we Americans indeed better than our leaders have (thus far) asked us to be?
Add/view comments on this post.
-----------------------------------
The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Their postings appear here on the Monitor's Money site as well as on their own individual blog sites. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the blogger's own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.
President Obama speaks about the economy on the one year anniversary of the signing of the Recovery Act, in the South Court Auditorium in the Eisenhower Executive Office Building, Wednesday. (NEWSCOM)
Obama stimulus, deficit plans: What matters is 'marginal' job creation and 'marginal' deficit reduction
With today being the one-year anniversary of the American Recovery and Reinvestment Act of 2009 (more commonly referred to as “the stimulus”), and President Obama expected tomorrow to announce his Presidential commission for deficit reduction, I’m hearing a lot of claims and rhetoric about what has “worked” versus what has not, and what has to be done going forward versus what should remain “off limits.”
In all these arguments and politically-colored “evaluations”, I hear misplaced focus on (the stark and easy-to-talk-about) absolutes, averages, and aggregates, when what matters economically are relatives, marginals, and individuals.
Let me elaborate a bit with the two issues at hand…
On the Stimulus: Republican critics of the stimulus argue that the “proof” that the stimulus hasn’t worked lies in the still-bad numbers of the unemployed–that since ARRA’s passage last year, total jobs in the economy have decreased, not increased. As the New York Times’ David Leonhardt explains:
The reasons for the stimulus’s middling popularity aren’t a mystery. The unemployment rate remains near 10 percent, and many families are struggling. Saying that things could have been even worse doesn’t exactly inspire…
[T]he debate is largely disconnected from the huge stimulus experiment we just ran. Why? As Senator Scott Brown of Massachusetts, the newest member of Congress, said, in a nice summary of the misperceptions, the stimulus might have saved some jobs, but it “didn’t create one new job.”
But of course ARRA made a difference and surely did “create jobs” at the margin–even if the economy continued to lose jobs in aggregate. If the net job losses would have been greater without the stimulus, then the stimulus “created” jobs. That ARRA prevented some jobs from being lost is surely the case in the state and local government sector, where it did not matter what kind of incentive (”substitution” or relative price) effects the stimulus set up for those governments; those governments have budgets that have been so thoroughly bumped up against their binding constraints that any kind of transfers to those governments (even pure cash ones) have to have prevented some of their workers from being let go.
That doesn’t mean that ARRA couldn’t have been better designed to get more (or faster) “bang per buck”; there were parts of the policy that were far more about steering the longer-term economy in a slightly different direction than about stimulating economic activity (any kind of economic activity) now. And even the parts of ARRA that were done in the name of “stimulus” weren’t always so “stimulative”, because there was too much worry about getting the “right mix” of tax cuts versus spending–where the notion of “just right” depended on the politics, not the economics.
On the President’s Fiscal Commission: The big question is whether Republicans are going to participate. Get ready for tomorrow’s rhetoric from the Republicans that there doesn’t need to be a (general) “fiscal” commission–there needs to be a “spending” (cuts only) commission, their argument being that the long-term fiscal challenge is mostly on the spending side of the budget, not the tax side. As the Washington Post’s Lori Montgomery reports:
On Tuesday, however, House Minority Leader John A. Boehner (R-Ohio) and Senate Minority Leader Mitch McConnell (R-Ky.) again declined to say whether they would name members of the panel. “Blue-ribbon commissions are fine and dandy, but we’re still waiting for a response from the president on our proposal to start cutting spending right now,” said Boehner spokesman Michael Steel.
But this presidential commission/advisory panel is going to be different than the President’s earlier “tax reform” one. The New York Times’ Jackie Calmes explains that this advisory body is going to leave everything on the table, including tax increases that contradict the President’s own campaign promises:
Elected Republicans, however, are under intense pressure from their party’s conservative base to oppose any tax increases — a line in the sand that dims any prospects for bipartisan cooperation. Yet economists, including veterans of past Republican administrations, are vocal in insisting that the debt problem is too great to be solved without increasing revenues somehow and perhaps moving to a new consumption tax system like Europe’s.
The same economists also say a significant deficit-reduction plan is not possible unless Mr. Obama breaks his campaign promise not to raise taxes for households making less than $250,000. Last week, Mr. Obama said he would not impose that condition or any other on a fiscal commission.
And of course I think that’s a good thing to leave on the table, because even though it’s true that growing entitlement spending, especially health spending, is our greater challenge over the longer term, it’s also true that “bending the health cost curve” isn’t going to get us to the President’s goal of 3 percent of GDP deficits by 2015. And although one shouldn’t push for absolutely balanced budgets and complete elimination of the deficit now or even decades from now, we still need to work on relative deficit reduction–and relatively more fiscally responsible policies–as soon as possible. How to do it sooner rather than later? Given the present “margin” of policy choices, you have to consider tax increases, and you have to consider smart tax increases that raise revenues in more efficient ways than just raising statutory tax rates. There are ways of achieving a more sufficient level of revenue that don’t have to involve trading off with the goal of promoting a strong economy, as long as we’re able to get rid of the constraint of President Obama’s campaign promise by allowing the new commission to work unencumbered by it.
The first place to start is letting go of the notion that “Obama tax policy” has to include Bush tax policy extended. For as Jackie Calmes also writes:
When George W. Bush took office in 2001, the government projected surpluses of $5.6 trillion for the coming decade.
In an analysis of what happened next, the economists Alan J. Auerbach and William G. Gale found that much of the accumulated debt owes to Bush-era policies and to the recession, with its costs in lost income taxes and automatic benefits for the unemployed. The one-time costs of stimulus and bailout measures are “really small stuff” relative to the rest, Mr. Auerbach said.
More than Mr. Obama could have imagined, the situation now tests his promise to break Washington’s gridlock and to lead in making “the hard choices.”
Steve Pearlstein also has an excellent column today about this upcoming test of the President’s leadership:
Viewed in that context, the current political disarray need not be an insurmountable problem for President Obama, but rather could represent a golden opportunity to demonstrate the leadership the country needs and craves. He will not demonstrate that leadership by running around to carefully staged events in which he tells ordinary voters what he thinks they want to hear. Nor will he demonstrate it by redoubling efforts of his PR war room to respond to every attack or piece of Republican disinformation with overwhelming rhetorical force. Rather, the real challenge is whether the president can strengthen the bond of trust between himself and the American people by having the courage to tell the hard truths and make the hard decisions, irrespective of short-term political consequences and the tut-tutting of the commentariat.
The irony is that only by doing that which may be unpopular and unpolitic can the president revive his longer-run political fortunes…
I’m hoping the fiscal commission will serve as a good “tutor” to the President on this leadership test, which is all about helping the American people accept the “hard choices” that will pay off in the longer term. It has to start with the President being willing to talk about them more. More tomorrow.
Add/view comments on this post.
---------------------------
The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Their postings appear here on the Monitor's Money site as well as on their own individual blog sites. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the blogger's own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.
Another Deficit Hawk Throws In the Towel?
Senator Evan Bayh announced today that he will not seek reelection; here’s the CNN story (from which the above video comes). Why not? His main explanation (as highlighted by the Washington Post’s Jonathan Capehart):
Two weeks ago, the Senate voted down a bipartisan commission to deal with one of the greatest threats facing our nation: our exploding deficits and debt. The measure would have passed, but seven members who had endorsed the idea instead voted ‘no’ for short-term political reasons. Just last week, a major piece of legislation to create jobs — the public’s top priority — fell apart amid complaints from both the left and right. All of this and much more has led me to believe that there are better ways to serve my fellow citizens, my beloved state and our nation than continued service in Congress.
Is “bipartisan fiscal responsibility” becoming just a “pipe dream”? How naive was I when I wrote this over three years ago?
----------
Guest bloggers are not employed or directed by The Christian Science Monitor and the views expressed are the blogger's own. Submissions are neither edited nor reviewed before they appear on CSMonitor.com. If you have any comments about a blogger, please contact us. To comment on this post, please go to the blogger's site by clicking on the link above.
On Measuring Success by the Money You Spend
Hmm….
It seems that the Obama Administration will start to measure the “success” of the stimulus (the “recovery and reinvestment act”) the same way the Bush Administration used to brag about the “success” of their tax cuts. As AP’s Brett Blackledge reported last night (emphasis added):
WASHINGTON – The White House has abandoned its controversial method of counting jobs under President Barack Obama’s economic stimulus, making it impossible to track the number of jobs saved or created with the $787 billion in recovery money.
Despite mounting a vigorous defense of its earlier count of more than 640,000 jobs credited to the stimulus, even after numerous errors were identified, the Obama administration now is making it easier to give the stimulus credit for hiring. It’s no longer about counting a job as saved or created; now it’s a matter of counting jobs funded by the stimulus.
That means that any stimulus money used to cover payroll will be included in the jobs credited to the program, including pay raises for existing employees and pay for people who never were in jeopardy of losing their positions.
Yes, it’s a lot easier doing cost-benefit analysis when you don’t have to worry about measuring the benefits. Have I told you recently about how much money I’ve spent on my kids–their college applications and visits, their ballet lessons, their sports programs, and why, even their stylish wardrobes?… I must be a really successful parent!
And on my dogs? I don’t think I’ve yet told you about my newest dog (adopted him 3 1/2 months ago), but let me give you a hint about how great he is…
And if you want a successful marriage, start with an engagement ring like this one. Hey, it’s from Costco even!
----------
Guest Bloggers are not employed or directed by The Christian Science Monitor and the views expressed are the blogger's own. Submissions are neither edited nor reviewed before they appear on CSMonitor.com. If you have any comments about a blogger, please contact us. To comment on this post, please go to the blogger's site by clicking on the link above.
The President’s Economic Report: Sticking to the Script on Tax Policy and the Fiscal Outlook
The Economic Report of the President came out yesterday. (I was too busy digging out to notice.) I’ll have more to say on it over the weekend, but if you check out Chapter 5, “Addressing the Long-Run Fiscal Challenge,” you’ll see the Council of Economic Advisers was very careful to stick to script on tax policy in the following ways:
- Deficit-financed Bush Administration policies are largely to blame. The Bush tax cuts (and AMT relief), the Medicare prescription drug benefit, and the wars were all deficit financed and account for about half of the long-run fiscal gap. (Too bad most of those policies and their deficit financing are continued under the Obama budget.)
- The Obama Administration asserts it will stick to the President’s campaign promise of not raising taxes on households with incomes under $250,000. This is the policy prescription referred to as “restoring balance to the tax code”–the CEA writes that (emphasis added): “The President has consistently maintained that the tax cuts went too far in cutting taxes for people making more than $250,000 per year and that the country could not afford the tax breaks given to that group over the past eight years.”
- Even with those high-income tax increases, taxes will still be very low. There are several pages (pp. 152-155) written just to convince us that although the Bush Administration went too far in cutting taxes and although the Clinton Administration’s tax rates weren’t too high, the Obama Administration’s taxes will still be very low–closer to Bush taxes than Clinton taxes.
- The fiscal commission will be needed to take the necessary “further steps…to close the gap between noninterest expenditures and tax revenues.” The commission will be needed to get the gap down to 3 percent of GDP, because the Administration’s proposals only get to about 4. They refer to the remaining gap without being clear that the only feasible way to close it is to close it from both sides.
More later this weekend in between more digging out!
----------
Guest Bloggers are not employed or directed by The Christian Science Monitor and the views expressed are the blogger's own. Submissions are neither edited nor reviewed before they appear on CSMonitor.com. If you have any comments about a blogger, please contact us. To comment on this post, please go to the blogger's site by clicking on the link above.
Previous
Become part of the Monitor community