Notes From Washington

November 1st, 2011 at 9:04 am

During the debt ceiling debacle, I posted almost daily on the dysfuncionality unfolding in front of us all.  The thing that most got to me–from what I can see, it’s the thing that got to so many of us–was the aggressive unwillingness of policy makers to focus on what everyone needed them to focus on: the weak economy.

For the majority of the American people, that debate amplified what they already suspected: this town is out of touch and few here are truly interested in trying to help them get through this period of great insecurity.  Congress will provide no relief from the immediate term threat of unemployment, income loss, or foreclosure.  And they’re light years away from action on the longer term concerns about the quality of schools, infrastructure, fiscal imbalances, or structural challenges, like the quantity and quality of job growth over the long term.

The result of this willful ignoring of what matters most can be seen in the poll results: Congressional approval at an all-time, single-digit low of 9%.  You can find 9% of people who approve of mosquito bites.

Today, I read (from Catherine Rampell in the NYT) that the Tax Policy Center scores the Perry plan as…wait for it…raising taxes (slightly) on those at the bottom of the income scale, no change in the middle, and huge breaks at the top, to the tune of $1.5 million reduction in tax payments for the wealthiest families (avg inc: $8.4 million).

Change in Federal Taxes Paid Under Gov Perry’s Tax Plan
Bottom fifth (avg inc: $11.4k) 160
Mid fifth (avg inc: $56.5K) -13
Top Fifth (avg inc: $301K) -23,226
Top 1% (avg inc: $1.9mil) -283,903
Top 0.1% (avg inc: $8.4mil) -1,521,079
Source: Tax Policy Center

Moreover, as I suspected, it’s a big revenue loser:  $570 billion per year.

Of course, the Governor says he’ll make up the difference with spending cuts.

But as Bruce Bartlett writes:

“Governor Perry says he will slash spending to 18 percent of G.D.P. from its current level of 23 percent. No explanation was offered of how this would be done or how such a huge spending cut would ever be enacted by Congress. It should be noted that even if every domestic program other than Social SecurityMedicare and Medicaid is abolished, that would not be enough for Mr. Perry to reach his goal — all those programs together come to just 4.2 percent of G.D.P.

Thus, Mr. Perry’s plan cannot be taken seriously.”

Next, in other news from deep inside the beltway, I learn that the R’s on the deficit reduction super-committee claim they’re all for a balanced approach, meaning deficit savings are achieved through both spending cuts and revenue increases.  The catch is—and yes, there had to be a catch—that revenue is $200 billion dollars generated by the supply-side growth effects of future tax reform.

Just decompose that for a moment.  Future, unspecified tax reform—which means cuts to these guys—will, through the magical thinking of dynamic scoring (trickle down growth effects) generate $200 billion.  The weird part of it all: jeez guys, if you’re going in for magical thinking, $200 billion seems pretty paltry.  (To be fair, they are claiming over $600 billion more in “revenues” but those dollars come from Medicare benefit cuts and higher fees—to be fair once again, those ain’t revs.)

So, I’m sorry America, but things have not improved here since we last checked in.  You probably suspected as much, but now you know.

Now, just for fun, let’s think for a second about what our politicians would be working on were they actually doing the job we need them to do.  Here’s my short list:

Jobs, incomes, loosening the middle class squeeze, both cyclical (recession) and structural (long term)

A sustainable budget path

Coverage and cost control in health care

Adequate regulation in key sectors, including financial markets and climate.

Reinvestment in public goods, education, infrastructure

I get that people can set different legitimate paths to address these challenges.  My path to a sustainable budget may not be yours, but the rule is that neither of ours can invoke magic to get there.

The point is that if you hold or are running for political office and you don’t have a credible, understandable, plausible plan for addressing the above, you don’t belong in the picture.  Do us all a big favor and go home.

No “shrink gov’t, shudder the EPA, or for that matter, tax the rich, full stop” or other such reductionist panders are acceptable substitutes for actual plans.  It’s getting late in the day and we’ve got a lot of work to do.  Please, for the sake of your country–our country–put up or get out.

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14 comments in reply to "Notes From Washington"

  1. Dilip says:

    Even conservative commentators are less than impressed with Perry’s plan. Here is Ramesh Ponnuru:
    http://www.bloomberg.com/news/2011-10-31/perry-flat-tax-is-fool-s-gold-for-conservatives-ramesh-ponnuru.html


  2. comma1 says:

    At this point Americans have a more favorable impression of Al Qaeda than Congress. This should be news. Why isn’t it, I wonder?


  3. Jill SH says:

    Where has this quote turned up? I seem to have heard it before — and here’s a nitpick on the usage.

    “shrink gov’t, shudder the EPA, or for that matter, tax the rich, full stop”

    Wouldn’t they mean “shutter the EPA” as in, meaning to close it (close the shutters, close the building)?

    More aptly put:
    “Plans to shutter the EPA sent a shudder through environmental protection community.”


  4. Merrill Goozner says:

    While I don’t quarrel with your sentiments, Bruce Bartlett’s numbers are wrong. In 2010, when the overall federal budget was 23.8 percent of GDP, Social Security, Medicare and Medicaid accounted for less than 9.8 percent of the total. Discretionary spending totaled 9.0 percent of GDP, with defense and homeland security getting the lion’s share: 5.6 percent. That alone is bigger than the 4.2 percent cited by Bartlett.


    • Jared Bernstein says:

      You’re right Merrill, but I read that to mean the non-defense part of discretionary, which is around 3% of GDP…I suspect that’s what Bartlett meant, but the way it’s written, you’re correct.


  5. readerOfTeaLeaves says:

    I watch these events from a distance, but I pay attention because in odd ways, they affect me and mine.
    Coverage and cost control in health careWithin six weeks of that deficit ceiling fiasco, I incurred over $36,000 in medical costs that resulted from one fall off a bicycle. And I’m just one person.
    Fortunately, I have excellent medical coverage.
    But in a for-profit health care environment, if you have the bad fortune to be injured (or sick), it is like walking around with a target on your back that says, “Come extract money from me.” Apart from the anxiety of surgery, the number of people billing me is unnerving; I have spent (literally) several hours on the phone with my health care provider clarifying which of the 32 bills (and counting) I am actually supposed to pay, and in what amounts.

    While the GOP was pitching hissy fits, I was paying out — literally — thousands of dollars in copays.

    How was that health care reform?
    The profit motive appears to have accelerated.


  6. the buckaroo says:

    …seems when Republican partisans put on too much of a swell front concerning tax proposals that favor the upper crust it is necessary to remind them of their dreadful past, for which the people scourged them out of power.

    The theories as to the causes of the memory lapse of past performance & deeds range from the solar flares & sun spot activity to prophecies of the Hebrew Scriptures to exotic kool-aid imbibing rituals at the Club for Growth shindigs.

    This “tax anybody but the corporations & those with too much money” party is getting old…and against all that the founding fathers represented.

    As Hamilton wrote eloquently in the The Federalist No. 36…and (taxation) must naturally tend to make a fixed point of policy in the national administration to go as far as may be practicable in making the luxury of the rich tributary to the public treasury, in order to diminish the necessity of those impositions which might create dissatisfaction in the poorer and more numerous classes of the society. Happy it is when the interest which the government has in the preservation of its own power, coincides with a proper distribution of the public burdens, and tends to guard the least wealthy part of the community from oppression!


  7. Lawrence Berg says:

    This is an easy sell for Perry. If you oppose federal government, de-funding it makes it go away. There may not be a country left when finished, but who cares? I got my money!


  8. perplexed says:

    That’s a great list Jared! Unfortunately, we need to start with with 100% public financing of campaigns to stay within the constraints of “but the rule is that neither of ours can invoke magic to get there.”

    Without true “representative” government, we stand little chance of getting the other items seriously considered, let alone implemented. This likely means that Democrats are going to have to choose between their wealthy contributors and the 99%’s and make this a priority if they are serious about implementing the changes we need.

    -”It’s getting late in the day and we’ve got a lot of work to do.”

    IMHO few fully comprehend how “late in the day” it really is and how long its going to take to “turn this ship around” once we get started. And “getting started” isn’t even on the horizon. We could use some estimates of how many generations it will take to return this to “the land of opportunity,” that is, how many generations after we get “started.”


    • Chigliakus says:

      So as far as estimates on the rate of “turning this ship around,” what did you have in mind? Would it be a plot of the Gini coefficient on Y and time on X for various tax reforms, or is that oversimplifying?


      • perplexed says:

        That would be a great place to start the discussion. That would force us to address what range of inequality is acceptable without destroying the underlying incentives that make capitalism effective. It seems likely that there’s an “optimal range” with respect to total output but I don’t know yet if there’s any research to support it. Studies like this one (http://www.imf.org/external/pubs/ft/fandd/2011/09/Berg.htm)seem to confirm what Keynes said about wealth and income concentration acting as a break on growth, and obviously insisting on “complete equality” would destroy all of the incentive that makes capitalism so effective. Its likely the “optimal” level is in the middle somewhere and needs to be managed through progressive taxation (including wealth and estate taxes). It also seems likely that this is what Keynes was getting at: the more income that goes to those with a high marginal propensity to consume, the greater the overall growth of the economy. There is no need for a wealthy “class” of “savers” to support investment as the savings required for investment will be provided by all as interest rates adjust to provide incentives to save. The argument that $57 trillion of wealth concentrated mostly at the very top is somehow superior to $57 trillion of wealth widely distributed seems totally nonsensical to me; not to mention extremely dangerous from a power concentration standpoint.

        This would also tie our marginal tax rates to our “objectives” for income and wealth concentration instead of the subjective “fairness” discussions that have no “shared definition” we can agree on or any underlying economic theory of how they should be determined. If we are within our “target ranges,” additional revenues could be raised through VAT’s if needed.

        If Keynes was right about this relationship, the upside is that making capitalism better serve society by managing the “arbitrary” outcomes also would make it more effective in terms of total output. If we so drastically need to “cut spending and reduce the deficit,” how can we possibly afford a $6 trillion output gap? With our existing wealth and income concentration coupled with our intolerable under and unemployment situation, I’d say there’s no better time than right now to resolve these arguments and find out if Keynes was right http://jaredbernsteinblog.com/newspapers-across-the-land/#comment-35373


  9. dougfir says:

    We had a board meeting for our little non-profit organization last night and one of the topics was how much to raise fees for next year. The general response was something to the effect of “why? we covered expenses and had a little left over for the rainy day fund so why raise fees?” How does this apply to the federal government budget? Well, the line after “why?” is how.
    To set the federal income tax rate, why not give every citizen and business, large or small a flat deduction of $5,000. Allow all tax payers to deduct 100% of charitable contributions and state and local income, property and sales taxes paid that year. Then charge whatever rate is needed on every dime of income from whatever source sufficient to cover expenses and a little for the rainy day fund.
    Allowing a deduction for local taxes would eliminate some of the regressive nature of those taxes. Charging a single rate would satisfy the hateful people who want to stick it to the poor. And the wealthy could not complain that they were made to pay more than the poor.


  10. Michael says:

    It’s not “willful ignoring.” Republicans have said, over and over, that they want to break the economy in order to make Obama look bad.


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