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EconomistMom: A Glimpse of the Video Version

September 14th, 2009 . by economistmom

Today I gave a 90-minute talk (well 20-some minutes “presentation” followed by an hour of Q and A) to a group of 20 journalists here for a conference at the University of Maryland’s Knight Center for Specialized Journalism. They live webcasted it and put the video up on their website. This is a first glimpse of EconomistMom: The Video Version–although 90 minutes is far from a “glimpse” and far from what my “vlog” posts will be on my video channel that I’ll eventually get up on the Thomson-Reuters Project Insider network. (By the way, please don’t watch the whole thing if you are not my own mother, or I will worry about you and your undue fascination with me…) If you watch any more than a few minutes you’ll have to put up with a lot of my personal stories and perhaps-biased (but nonpartisan) opinions, but then you can decide if you would be inclined to watch my vlog as much as you read my blog.

At some point late in the Q&A I talk about how GDP doesn’t measure economic welfare; how economists think we should be able to put dollar values on everything, including environmental quality, but the fact is we’re not very good at translating social values into dollars when there’s no real market in which to observe market prices. And then this evening while driving home from work I heard this story on NPR which was right up that alley.  Apparently French President Sarkozy and I think alike…

It’s hard for me to watch myself. I move around way too much. And I should have brushed my hair. And did I really need to wear my reading glasses when I wasn’t reading?!  I really should get lasik–but of course, I can’t afford it on my Concord salary as “frugal” as Concord is (as I note in the talk).  I hope I don’t get in trouble for this…

Oh–look out for the sound…They had to adjust it after the first few minutes when it was obvious that I talk too loudly, too.  I was a cheerleader before I was an economist or a yoga teacher, after all…  ;)

**CORRECTION:  My oldest daughter is not a “senior in college“; she’s a senior in high school.  Obviously getting ahead of myself and maybe a little preoccupied with the college application process coming up.  (”College on the brain”…)

26 Responses to “EconomistMom: A Glimpse of the Video Version”

  1. comment number 1 by: Joe Capitalist (sort of)

    Economist Mom, you are cuter than most economics professors that I had in college!

  2. comment number 2 by: B Davis

    Today I gave a 90-minute talk (well 20-some minutes “presentation” followed by an hour of Q and A) to a group of 20 journalists here for a conference at the University of Maryland’s Knight Center for Specialized Journalism. They live webcasted it and put the video up on their website.

    Very interesting talk. I made sure not to watch the whole thing so as not to worry you! But I did watch as far as the comment that it would greatly help if we had someone like Perot or a rock star to focus public attention on fiscal responsibility. It was chiefly Perot that interested me in this issue to begin with (though the Concord Coalition came along soon after). Before then, I had assumed that the “professionals” had things well enough under control and/or that the issues were so complex that there was no point in trying to study them. However, Perot did a good job in communicating the issues to the public via his charts and the small booklets that he published. I must confess that I still have a number of them.

    Of course, Perot would not have gotten so much media coverage had he not run for President. As I think you said, Perot was not worried about getting and holding on to a job. He likely knew that he would not win. That’s one reason that I’ve long thought that we need some sort of public financing so that our elected officials are not dependent on special interest money for their jobs. As Upton Sinclair said, “It is difficult to get a man to understand something when his job depends on not understanding it”.

  3. comment number 3 by: AMTbuff

    Diane, I have decided to give you some tough love. An intervention, if you will. Please take it in the constructive spirit in which it is intended, even if my slapdash writing sounds harsher than I wanted it to.

    Concord is an admirable but perhaps doomed attempt to bridge a large partisan gap on the issue of how to close the even larger budget gap. The problem is that the partisan sides are literally trillions of dollars apart in their preferred mix of spending cuts and tax increases, not even including their favorite spending increases (health care) and tax cuts (supply side schemes).

    Concord needs to advocate a strictly balanced, as in 50/50, mix of spending cuts and tax increases relative to your quite reasonably crafted plausible baseline, which assumes a continuation of our march toward the cliff. (I realize that you prefer the current law baseline on taxes, but that is not a tenable position for Concord or for any politician, as I will explain below.) My point is that for Concord to be relevant and still retain its original mission, it needs to plant itself firmly in the middle and stay there, come hell or high water.

    For a Concord employee to appear to be partisan is as bad as for a referee to favor one team or the other. I’ve said as much about the Tax Policy Center as well. Their sterling reputation as an honest broker is their hallmark. They cannot afford to lose it and become just another partisan think tank. Concord needs people who can maintain a scrupulously non-partisan perspective at all times. Otherwise all your efforts will be completely wasted.

    I listened to your talk and most of the Q&A. I saw a heavy tilt toward revenue increases with only occasional mention of spending cuts. I can’t be the only one with that perception, unless all your other readers are significantly left of center. IMHO, you are not doing Concord’s cause any favors when you emphasize revenue increases over spending cuts. You may even be accelerating Concord’s slide into irrelevancy.

    The idea that taxes can close most of the fiscal gap (especially if we first increase the gap with a new health care program) is a left wing fantasy. It’s analogous to right wing fantasy that more economic growth will eliminate most of the long-term problem. Taxes incur deadweight losses, and those can damage society’s welfare as much as cuts in government spending. A balance needs to be struck, and the tax portion needs to avoid crashing our economy. If the spending curve isn’t bent downward, by a whole lot, this cannot happen. The math is inexorable.

    On the baseline issue, current law is a fantasy and everyone knows it. Bush’s sunsets were always fantasy, and so was the Alternative Minimum Tax springing back to 1991 levels with no indexation for inflation. That wasn’t and isn’t going to happen. Nor is any other tax increase of comparable size going to magically appear. This is why Concord’s plausible baseline (which really should be your baseline too, as a Concord employee) assumes that the current year’s tax rules will apply in future years with inflation adjustment. The public expects this, and we live in a democracy.

    Speaking of that, your musing about a benevolent dictator is frightening. Dictators never stay benevolent. It’s human nature. Power corrupts. Look at our idealistic neighbor Castro and his political prisoners and the people he executed over the years. If fixing our financial crisis costs us our democracy, the price will be far too high.

    This suggestion reminds me of extremists who oppose free speech for their opponents. I’ve met such people, idealists all. Yes, it would be convenient, but we’ve seen where that path leads: to the deaths of millions in political purges.

    Now I will move from generalities to some nitpicks on your talk.

    First, you claim that Obama really wants to do the right thing but he is hemmed in by his campaign promises. You must not realize how ridiculous this argument sounds to a non-acolyte. Nobody forced Obama to promise anything. He wanted to be elected, so he made a contract with the voters in exchange for their votes. Keeping those promises is properly the price of being elected. Just ask Bush 41.

    Second, you claim that Obama wanted health care reform to be bipartisan. I see no evidence of that. Picking off a few votes from the other party is not bipartisan, and it wasn’t when Bush did it either. Having Democrats draft the bills on their own and excluding any tort reform worthy of the name was not bipartisan either. The Bush tax cuts were as bipartisan as this effort, which is to say not at all.

    Third, you claim that Obama truly wants to be fiscally responsible. Again, where’s the evidence? The legislation so far shows only a desire to increase the scope of government spending and commitments, growing the fiscal gap. I haven’t seen anything that promises to make significant progress in closing the fiscal gap. Funding a new entitlement that grows at 8% per year with taxes that grow at 5% per year increases the gap.

    You admit that Obama promises all gain and no pain on health care. This is not political courage and it is not fiscally responsible. It is politics as usual. As Concord would say, we’ve had enough of that. You correctly called this cowardice and you correctly labeled Republicans hypocrites for reflexive opposition. You could have picked up some points for non-partisanship by pointing out that the roles were reversed in the Social Security debate. If you don’t see it this way, I respectfully recommend some introspection.

    You appeared to dismiss the September 12 protesters. Think again. Those demonstrations are very much in the spirit of Concord. These people are the natural constituency for sacrifice, mostly on the spending side, where the biggest growth will be, but also on the tax side, once spending cuts have been shown to be real. Promised spending cuts have evaporated so many times that voters will demand proof rather than promises of spending cuts before agreeing to major tax increases. Then and only then, voters will agree to increase their own taxes.

    Politicians will ask the voters to trust the government that revenue increases will not be wasted. This is backwards. Government has violated this trust too many times in the past. Now it’s time for government to trust the voters to come through with approval of revenue increases after the government implements spending cuts. The first party to figure this out will win a long, long run in power.

    Concord should be cheering the Sept 12 protests and recruiting new supporters there, not from the kooks but from ordinary people concerned about unsustainable budget trends. People that would never attend a demonstration during normal times. People who are not normally politically active at all. These people ARE your natural constituents, whether you realize it or not.

    Also, you need to stop pinning the blame for the budget gap on the extension of Bush’s tax cuts. Not only is it tiresome, but it is de facto partisan and will be tuned out by readers. Moreover, it’s irrelevant to the long-term problem. Megan McArdle recently summarized the irrelevance of the blame issue, here speaking of Obama: “it doesn’t matter whose fault it is, because the answer is ‘every single president since Coolidge’. He’s the guy who has to figure out to close the budget gap that was bequeathed to him by Lyndon Johnson and FDR, and which his predecessors–Democrat and Republican–have been punting on for decades. Rather than embrace that responsibility, or even eye it warily, he’s decided to ignore it in favor of his personal policy priorities. That’s entirely understandable, and hardly unique. But it hardly puts him on a higher plane than George Bush.” So you see, the blame game really is no-win.

    Congratulations on mentioning the employer provided health care exclusion. You could have added that this is the only potential revenue source that will grow as fast as health care costs.

    You said that the federal government can’t declare bankruptcy. That’s not strictly true, as you noted subsequently. You mentioned Bill Gale’s 4 options to resolve the fiscal gap, including inflation and default.

    I would like to see Concord begin discussing the consequences of these options in great detail. Otherwise I expect that we will slide by default into the inflation option that Argentina chose. That might be the least painful way out, but if so I’d like to know ahead of time that it’s the right choice.

    Don’t let Concord cop out with a response that default is unthinkable or that devaluing the dollar by a factor of ten or more through inflation is unthinkable. Think anyway, then tell us what you discovered. The projected fiscal gap itself would itself have been called unthinkable a decade ago. If a think tank won’t think the unthinkable, who will?

    Thanks for reading.

  4. comment number 4 by: economistmom

    AMTBuff: This is a very thoughtful and thorough comment; thank you. I take your comments well. I will fully admit I have always taken the position that I think it will be easier to close the fiscal gap with a mix of (both) tax increases and spending cuts that is indeed heavier on the tax side. That’s because I don’t think it’s realistic or “civilized” for our society to “bend down” federal spending to meet a revenue line that is not significantly raised. We can’t do anything (nor should we want to do anything) about the demographic trend that puts rising demands on our entitlement programs. (It is a good thing that we are living longer lives, even if it costs more money.) On top of that we have rising per capita health costs which contribute most of the challenge in terms of Medicare spending, but which we have little handle on (or at best, a “slippery” handle on at this point). I simply think we cannot reduce spending to that 50-50 position while maintaining the kind of government–and “civilized society”–that we want. I think that as our nation gets richer, that government spending is like a “luxury good”–something that we as a society can afford to make, and choose to make, a larger portion of what we buy. I guess I’m saying that if “taxes are what we pay for a civilized society” (a la Oliver Wendell Holmes) then we should be willing to pay for a “more civilized” society as the marginal cost of “civilization” goes up (through rising health costs) and as we get richer. And we know how to raise taxes in a way that won’t cripple the economy. The income tax system is so horribly inefficient that we could broaden the base by reducing or eliminating tax expenditures (which total nearly as much as all of discretionary spending–well, in normal times) and raise significantly more revenue without having to raise tax rates. But I also think raising tax rates back to Clinton-era tax rates is another relatively low-cost way of raising a significant amount of revenue that would be of tremendous net benefit to society–whether that revenue be used to reduce the deficit (and raise national saving) or to pay for expanded health coverage (which is in essence raising investment in our nation’s human capital). There are many ways to get revenue up to some higher percentage of GDP, and people tend to dwell on the obvious but unwise option of just jacking up tax rates. We could do it better than that.

    Also, when you do it more on the tax side immediately, rather than putting it off, it is not as bad as the anti-tax increase side would have it, because you immediately start saving on compound interest, so you immediately start closing the gap between the sharply-rising spending line and the flat or modestly-rising revenue line. So you couple immediate revenue enhancements with doing whatever you can to make the spending line not rise so sharply (but it will still be rising), and the lines start converging rather than diverging, and the deficits come down, and national saving comes up, and the economy strengthens. It is not the traditional “supply side” prescription of merely cutting tax rates to raise economic growth, but it’s a “supply side” concept nonetheless: by reducing the government deficit in ways that preserve economic incentives (through base-broadening tax reform), we would be raising the supply of capital which would directly add to long-term economic growth.

    And yes, Concord needs to present a balanced, non-partisan perspective as an organization. Concord is not comprised of non-partisan individuals, however. We have Democrats and Republicans and Independents on our board and on our staff. I don’t hide the fact that I am a Democrat and have (almost) always worked for Democrats in my prior Administration and Hill experience. And I don’t hide my personal view that the easiest way to close the gap with a mix of spending cuts and tax increases is to let the tax side do the heaviest lifting (because that side of the budget has the biggest, most solid and reliable “levers”). But I don’t think that makes Concord or even myself “partisan.” You can accuse me of being biased in favor of tax increases over spending cuts, but that doesn’t mean I am blindly biased in favor of the Democratic position on these issues. When my Democratic president or the Democrats in Congress want more spending but don’t want to allow the Bush tax cuts to expire, I will call them wimps or even cowards (just as often as I call the Republicans “hypocrites”–if not more so). It’s not that I’m blindly faithful to the Democratic Party; it’s that I’m ardently faithful to the notion that Democrats and Republicans ought to be able to find common ground and figure out a way to pay for the government that “We the People” really want and hopefully prove we deserve.

    And yes, I think we at Concord are starting to engage the public more on the possible “solutions” to the fiscal challenges we face (rather than just frightening them about the problem). The fact that we at Concord still have faith in our government and believe default “is not an option” or is “unthinkable” doesn’t mean we are not thinking about, and pushing for, the better alternatives. In our field work across the country, we are encouraging people of diverse perspectives to talk with each other about how they would “bend down” the spending line versus raise the revenue line. We want the public to figure out what it is they’re willing to do–without pushing a particular mix of policies that might represent my most preferred outcome or any other individual Concord member’s most preferred outcome. Our line has always been that we do not advocate for “big government” or “small government” but a government that best serves our nation’s needs and that we are willing to pay for. The fact that that requires that tough choices–not just the easy ones–get made means that the solutions cannot be accomplished by just one party or the other. Bipartisanship is what’s required to get our politicians to be willing to make tradeoffs that appropriately recognize there are indeed budget constraints–yes, even for a federal government with what seems like an unlimited capacity to keep borrowing.

    So thanks for your very thoughtful and (on my end) thought-provoking comment. Perhaps I should have started another post with this comment of mine!

  5. comment number 5 by: SteveinCH

    Diane and AMT,

    Thanks for a very interesting read this morning. I can’t help but join the discussion. I will admit that I have not watched the video so I am largely responding to the posts. Also, like AMT, I am skeptical of solutions that focus on revenues primarily. My reasons are perspectives rather than facts but I offer them up to the degree they are helpful.

    First, to state it plainly, I do not believe that increasing revenues will lead to balance in the absence of some binding rules or a financial crisis. The incentives in government are simply all wrong to make this happen. Spending, in my view is likely to exceed receipts within any reasonable level of receipts. The last time we had spending stay roughly in line with receipts was in the 1950s. At that time, the reach of government was smaller and we were, to a degree, harvesting a “peace dividend” post WWII.

    If I am right and restraint requires a crisis, I would rather be further from than nearer to the mark on revenue maximization. We would be far worse off running 3% deficits with 24 or 25 percent of GDP in receipts than we are at 18 to 20 because we have more ability to respond when forced to respond.

    Given the incentives in place, and that SCOTUS has abandoned any pretense of limitations on Federal power, I simply cannot imagine a World where balance occurs over a reasonable period of time. Diane, if AMT has accurately reflected your characterization of the current administration, I must say I also profoundly disagree. What have you seen in terms of budget submissions or policy proposals that suggests to you that this administration will do a better job than previous ones of driving balance? If I look at proposals rather than listen to rhetoric, it seems likely to be worse and not better. What I mean by that is deficits as a percent of GDP are increasing despite the fact that revenue as a percent of GDP is also increasing. This is exactly what I fear when I look at driving up revenue as a potential solution to our economic woes.

    Furthermore, looking at current revenue and receipts is a very limited view of the problem. The long term financial issues around SS and Medicare will need to be dealt with, to say nothing of a proposed broadening of government liabilities in health care. In my opinion, current spending must come down, if only to provide some cushion against known future liabilities.

    All of this brings me to my second, and admittedly more philosophical point. The expansion of government, while having the potential to seem compassionate, tends to undermine the strength of the population. How many of our seniors now look at government as the solution to their retirement (mistakenly I know but they don’t see it that way)? Why does a society provide money to people based on age or occupation (farmers) rather than need? Yes there is an argument that the generally poor need more support but why can this not come at the expense of those who have no need?

    Furthermore, government is now expected to solve even the most minor problems. Traffic congestion requires a wider highway (as opposed to individual adjustment). Poor performing schools require more money as opposed to a whole plethora of other potential changes. New Orleans requires levees to keep a catastrophic hurricane from happening as opposed to suggesting to people that living above sea level adjacent to the Gulf of Mexico might actually be a good idea. In then end, a philosophy of more government promotes the erosion of individual responsibility and accountability. I suspect most of the people at the tea parties would happily support taxes to fund the poor but we all know that the scope of government would shrink dramatically were that to be its primary emphasis.

    Maybe one last thought in the same vein. Large government requires decision makers to make a lot of “on average” decisions. The deadweight loss of those decisions is large and pushing for more of them seems unwise.

    I think Concord is a worthy organization, the type of one I think you should be proud to be a part of. Having said this, you must recognize that there is no force requiring politicians to make tradeoffs. In the absence of a real citizens movement that says balance now matters, the politician who ignores balance will be on average more successful than the one that does not. As long as this is the case, balance will elude us without substantive Constitutional reform.

    Sorry to be a downer but that is reality as I see it. I work in business and in business it is assumed that as a business becomes larger, marginal costs should decline. Somehow in government, the opposite seems to happen. As long as this is case, it’s hard to get excited about voluntarily making it bigger

  6. comment number 6 by: AMTbuff

    Advanced medical technologies are a luxury. Never in recorded history has a government successfully provided luxuries to the public. Why? Because, by definition, luxuries are not affordable for people of average means, the same people who earn the bulk of the national income and pay the bulk of taxes.

    In theory it would be possible for the government to guaranteed a bare bones health care benefit limited to rudimentary care, excluding expensive treatments. However the political reality is that such a benefit would quickly expand to cover almost everything and break the bank, bringing us right back to that impossibly steep cost curve that the Concord presentations show.

    The only way to bend the medical cost curve downward is to reduce demand. Third-party payment systems stimulate demand, making the problem worse. Only when people are required to spend their own money, and lots of it, for medical care will costs begin to decline. I see no way that this can happen unless the government decreases, rather than increases, its role in paying for medical care. That includes tax expenditures.

    Given these arguments, there are two possible roads ahead. One is guaranteed medical care funded by taxes, to whatever extent the nation can afford it. The other is a return to privately paid medical care, with greatly reduced government involvement.

    What about the middle ground? As I said above, the middle ground is untenable. Political forces will push it one way or the other, probably to the higher cost curve rather than the lower one.

    If this analysis is correct, Concord’s efforts at compromise are doomed, at least on health care. That decision needs to go one way or the other, and middle solutions are merely stepping stones for partisans on the way to their goals. The health care debate is the fiscal battle of our generation, and the outcome will determine the fiscal future of our nation. It’s the difference between a federal government that spends 20% of GDP and one that will grow inexorably to 40% of GDP and more. The latter will be a very different country, with reduced scope for individual ambition.

    Based on the above, I suggest that Concord step aside from the health care debate until it is settled, then look for compromise on the remaining issues. At that point Concord should stick to the 50/50 formula of spending cuts and tax increases relative to the new plausible baseline.

    As another study project, I suggest an economic analysis of the Laffer revenue maximum. Just how high a percentage of GDP can the government take in taxes before the economy is damaged so much that revenue begins decreasing? Is there a maximum, or could the government for example take 90% of GDP with a properly structured tax, spending, and income transfer system? If economists can narrow down the range of percent of GDP where the revenue maximum will be, Concord can argue forcefully that the government needs to stay below that range.

    Back on health care, here’s another thought. If we were starting from a clean sheet of paper, I would argue for the reverse of Medicare. The government could guarantee reasonable quality health care to everyone of working age, and cut off assistance at age 65. At that point you would have to pay your own way out of whatever you had saved during your working years. If you didn’t provide sufficient monetary value to your fellow human beings, or if you spent it all on high living, you wouldn’t be able to buy advanced medical care. This could be quite a motivation to remain productive and responsible.

    In my opinion, there is nothing morally wrong about such a program structure. The government gives you 65 years to make your bed, then you have to lie in it. At that point, if you are one of the rare people who is deserving through no fault of your own, you will get help from family, friends, or charity. Not from the government.

  7. comment number 7 by: AMTbuff

    P.S. I still want to see a specific analysis of the likely consequences of defaulting on the federal debt or inflating it away. “Unthinkable” doesn’t answer this.

    Thanks for your long reply to my first wall of text. ;)

  8. comment number 8 by: B Davis

    Based on the above, I suggest that Concord step aside from the health care debate until it is settled, then look for compromise on the remaining issues.

    I don’t see how Concord can step aside from the health care debate when current federal health care spending (Medicare and Medicaid) is projected to be the fastest growing area of non-interest spending over the next 75 years (see the second graph at this link). I do think that they need to be nonpartisan and concentrate on cost. That seems to be the case in the following excerpt from their website:

    Concord on Health Care

    The Concord Coalition has consistently written and testified in front of Congress about Medicare and health care reform in the past. We have argued that it is essential that reform recognize how central rising health care costs are to the federal budget’s fiscal unsustainability and that just expanding coverage will make that problem worse. Ultimately, reform must include substantial and concrete efforts to bend the long-term health care growth cost curve, must pave the way for sustainable government health care programs, and must not add to the deficit over the 10-year budget window. Cost control must begin quickly to get the nation on a more sustainable fiscal path, especially since demographic changes by themselves will severely strain entitlement programs and the broader federal budget.

    At that point Concord should stick to the 50/50 formula of spending cuts and tax increases relative to the new plausible baseline.

    I agree that both spending cuts and tax increases must be a part of any solution. However, I don’t think that Concord should recalibrate its preferred solution to a precise 50/50 split from the new levels each time one party or the other pushes through a tax cut or spending increase. That way, both parties would know that any policy that they could push through, however misguided, would effectively gain Concord’s support as soon as it became law. And the Bush tax cuts aren’t even permanent law, having been set to expire in 2011. By the way, the first graph at the first link above shows the massive debt that is projected by 2080 (716% of GDP) under the CBO’s Alternate Fiscal Scenario which includes an extension of the Bush tax cuts.

    The third graph at this link, shows that the top marginal rate is very close to the bottom of its post-World War II range. That suggests to me that there is plenty of room for an increase in income taxes, at least in the top marginal rate. However, I do also have a concern about spending which is, according to Table S-1 in the FY 2010 Mid-Session Review, projected to remain above 22.7% of GDP through 2019. Does anyone know what the main contributors to this historical high level of spending is? Is it continued fallout from the financial crisis and/or increased interest payments? In any case, I think that both spending cuts and tax increases need to be looked at based on historical and other relevant factors (such as changes in demography). Both need to be part of a solution but, for the reasons given above, Concord should not be locked into promoting a precise 50/50 split.

  9. comment number 9 by: AMTbuff

    I don’t see how Concord can step aside from the health care debate when current federal health care spending (Medicare and Medicaid) is projected to be the fastest growing area of non-interest spending over the next 75 years

    I don’t believe that a viable middle ground exists between government control and private purchasing of health care. By viable I mean one that is politically stable and that can prevent explosion of costs in the long run. (Governments can ration care and private payers cannot purchase more than they can afford, so both these systems can bend the cost curve.)

    In my opinion, trying to find a middle ground on health care is like trying to find a middle path on a hike to the other side of a mountain. You can go left or right, but it makes no sense to hike straight up. If you start that climb, you’ll just find your way blocked and you’ll have to revert to going around the mountain anyway.

    That’s why I say to Concord to let the political process choose one of these two options on health care, then look for compromise on the other issues like Social Security where it has a chance of succeeding.

    You make a valid point on the 50/50 split, that Concord should not adjust its baseline every time there is a policy change. Another valid criticism of the 50/50 split is that the path midway between the two curves will still have government spending reaching 100% of GDP at some point in the next century.

    Finding a way to reduce the growth rate of spending to the GDP growth rate is the crucial challenge. I’d like to see proposals from Concord directed at that question.
    tactics.

  10. comment number 10 by: SteveinCH

    B Davis,

    To your comment on marginal rates, I think you are looking at only one side of the picture. Let me offer a few points of view. First off, marginal rates paid by taxpayers these days have relatively little to do with the rate that is stated at the marginal rate. There are numerous other factors in play, deduction treatment, other taxes, etc.

    A more reasonable way, in my opinion to look at it is to look at the average tax rate of the population as a whole or different segments of the population.
    Average federal income tax rates are down substantially across all income strata. For example, for the top 5% of earners from 22.1% to 20.5% from 1987 to 2007. For the bottom 50% from 5.09% to 2.99%. This is a limited view I am aware; however, since you were talking about raising Federal tax rates, it seem relevant.

    My broader point is that tax rates are down across the entirety of the population and down proportionally more among lower income people than higher income people. This suggests nto that your conclusion about the need to raise taxes in incorrect but that it is potentially miguided to focus on the higher end of the continuum.

    Long way of saying that the published marginal tax rate over time actually doesn’t mean very much since too many other things are moving at the smae time.

  11. comment number 11 by: B Davis

    AMTbuff wrote:

    I don’t believe that a viable middle ground exists between government control and private purchasing of health care. By viable I mean one that is politically stable and that can prevent explosion of costs in the long run. (Governments can ration care and private payers cannot purchase more than they can afford, so both these systems can bend the cost curve.)

    To some degree, we already have a system that exists in a middle ground between government control and private purchasing of health care. We have the government programs of Medicare and Medicaid (and some other government involvement such as tax subsidies) and the rest is private health care. Of course, many would argue that the current system is not viable. If we could start from scratch, I would think that a better mix might be to have the government programs provide the most necessary health care to all citizens and have private health care cover those services that are most considered optional. Of course, we are not starting from scratch. Still, we would probably do well to look at the systems of other developed countries who seem to be providing a similar level of health care at a much lower cost.

    That’s why I say to Concord to let the political process choose one of these two options on health care, then look for compromise on the other issues like Social Security where it has a chance of succeeding.

    I’m not aware that Concord is seeking any specific compromise on health care reform. Their stated mission is not to seek compromise on all issues. According to their About Page, Concord is a “nationwide, non-partisan, grassroots organization advocating generationally responsible fiscal policy”. They go on to describe their mission as “educating the public about the causes and consequences of federal budget deficits, the long-term challenges facing America’s unsustainable entitlement programs, and how to build a sound economy for future generations”. To my knowledge, compromise is sought only to the degree that it helps achieve the above-stated goals.

    You make a valid point on the 50/50 split, that Concord should not adjust its baseline every time there is a policy change. Another valid criticism of the 50/50 split is that the path midway between the two curves will still have government spending reaching 100% of GDP at some point in the next century.

    I assume you mean that government debt will reach 100% of GDP. If annual government spending should ever reach 100% of GDP, we are in deep trouble! In any event, I agree that we need to strive for stability and sustainability and not just blindly support a 50/50 split. If you look at the first graph at this link, you’ll see that receipts as a percentage of GDP has been fairly stable since the early 50s. Except for the increase from the mid 70s to the early 90s (and during the recent financial crisis), spending has been fairly stable as well. Hence, my initial preference has always been to keep receipts and spending at a stable level of GDP and relatively close together. That said, the demographics of our aging population is likely to force both to a slightly higher level. In fact, spending will be forced to a sharply higher level if the current projections on entitlement spending come to pass. That is why Concord focuses much of their attention on long-term entitlement costs.

  12. comment number 12 by: B Davis

    SteveinCH wrote:

    To your comment on marginal rates, I think you are looking at only one side of the picture. Let me offer a few points of view. First off, marginal rates paid by taxpayers these days have relatively little to do with the rate that is stated at the marginal rate. There are numerous other factors in play, deduction treatment, other taxes, etc.

    I agree that the top marginal rate is like the tip of an iceberg. It tells you nothing about the the rates being paid by the lower brackets or the overall, effective rate being paid by any of the brackets.

    A more reasonable way, in my opinion to look at it is to look at the average tax rate of the population as a whole or different segments of the population.
    Average federal income tax rates are down substantially across all income strata. For example, for the top 5% of earners from 22.1% to 20.5% from 1987 to 2007. For the bottom 50% from 5.09% to 2.99%. This is a limited view I am aware; however, since you were talking about raising Federal tax rates, it seem relevant.

    Again, I agree. A year or two ago, I posted effective tax rate figures from the CBO at this link. As can be seen from the second graph, the effective income tax rate has dropped since 1980 for the lower four quintiles and has remained fairly stable for the top quintile. The lower quintiles appear to have gotten somewhat the better benefit of the tax cuts. However, much of this may be due to the fact that, according to the third graph, the upper quintiles have gotten the better increases in income. In fact, the bottom quintile has basically had no real growth in real average pretax income since 1979! Hence, much of the income of the upper quintiles has moved into higher tax brackets whereas that of the lowest quintile has remained stagnant. In any event, the second graph shows that the effective tax rates of all of the quintiles have fallen since 2000, at or close to their lowest levels since 1980. Hence, it would seem that all Federal tax rates could rise.

    My broader point is that tax rates are down across the entirety of the population and down proportionally more among lower income people than higher income people. This suggests not that your conclusion about the need to raise taxes in incorrect but that it is potentially miguided to focus on the higher end of the continuum.

    As I mentioned above, much of the relative increased benefit achieved by lower income people may be due to the fact that their incomes have increased less. Still, I agree that taxes will need to go up for all brackets. Hence, I would agree with the opinion expressed here that the Bush tax cuts (or at least the great majority of the Bush tax cuts) should not be extended.

  13. comment number 13 by: economistmom

    Today (Friday 9/18) Bruce Bartlett says I’m ok to be biased in favor of tax increases over spending cuts:
    http://www.forbes.com/2009/09/17/federal-budget-spending-opinions-columnists-bruce-bartlett.html. (He agrees it’s completely unrealistic to expect to be able to make much progress on the spending side–I mean cutting it. I question whether we as a civilized and compassionate society would really even want to try.)

  14. comment number 14 by: SteveinCH

    B. Davis,

    Your post hints at an issue that I have long wondered about.

    “Hence, much of the income of the upper quintiles has moved into higher tax brackets whereas that of the lowest quintile has remained stagnant.”

    This leads me to one of my key philosophical questions about taxes. Are taxes about an equitable funding of a fixed cost of government or instead are they about correcting for a market income distribution that policy makers don’t like?
    If you take the former point of view, the growth (or lack thereof) in incomes isn’t relevant. From the latter perspective, it is very relevant. My belief is the current administration (at least rhetorically) has the latter point of view.

  15. comment number 15 by: SteveinCH

    Diane,

    I’m not sure I’d point to Bruce Bartlett as the voice of moderation in a discussion about taxes and spending. His argument seems to be as follows:

    1. The political calculus of cutting spending is impossible to make work. Discretionary spending isn’t very much and entitlements are impossible to cut from a political perspective.

    2. Furthermore, no administration has ever cut spending, well except Reagan between 83 and 88 but that was just demographics at work.

    3. Therefore, the only reasonable solution is to raise taxes to close the gap.

    My problem with the argument is that it is mostly political. It’s we can’t cut spending because we won’t. I could make the same argument as it relates to taxes. Average personal income tax rates have declined from the 80s to today because of the political process. That doesn’t mean we cannot raise taxes, it means we have chosen not to.

    To me, Bartlett’s argument is an argument that says nothing more than it is politically difficult to meaningfully cut spending. In that, I wholeheartedly agree; however, I’m not sure it’s politically easier to sustainably raise tax revenues and, even if it were, that doesn’t make it the best answer.

    Were one to go through the entitlement programs and take the point of view that all entitlements should be “welfare”, that is, provided to people who cannot (at least temporarily) provide for themselves, I rather suspect there is a lot that could be reduced. It’s on my list of things to do to actually do the analysis but I’ll have to take a sabbatical before I’ll get to it.

    As to your question of whether we should want to try as “a civilized and compassionate society”, I wonder why you believe that government force should be the source of our compassion. Is it compassion if I am required to contribute? Is it a measure of my civility? Who decides how much compassion is appropriate from each of us?

  16. comment number 16 by: AMTbuff

    B Davis wrote:
    According to their About Page, Concord is a “nationwide, non-partisan, grassroots organization advocating generationally responsible fiscal policy”.

    This sounds EXACTLY like the September 12 protestors. And yes, the non-kooks are non-partisan: they were opposed to profligacy even when Republicans were in power. It’s clear to concerned Americans that politicians of all stripes have higher priorities than fiscal responsibility and that needs to change.

    Concord missed a golden opportunity to lead the September 12 protests, focus them tightly on fiscal responsibility, and provide an intellectual foundation for the protest against putting future generations so deeply in debt. Instead, Concord failed to take any advantage whatsoever of this mobilization of like-minded Americans. What a waste.

  17. comment number 17 by: SteveinCH

    I think it’s an enormous stretch to all the 9/12 protestors non-partisan. Clearly we don’t have facts on their party affiliation or voting choices, but I would be quite surprised if there were many registered and consistently voting Democrats among the group. Furthermore, it is almost impossible to assert they are nonideological. There was a very strong sense of small government activism among the group, which is certainly ideological. It happens to be an ideology with which I agree but it is an ideology nonetheless.

    Finally, to assert that Concord, or any other policy-driven organization could have led the 9/12 protests seems off the mark. There were already groups notionally leading the protests (those groups were clearly partisan/ideological by the way) and I think Concord’s objectives are only somewhat overlapping with the 9/12 protestors.

    Perfectly legit to point out ways that Concord and other organizations could be more effective, but I think this is an unfair critique.

  18. comment number 18 by: SteveinCH

    Should say call rather than all in the first sentence

  19. comment number 19 by: AMTbuff

    SteveinCH wrote:

    To me, Bartlett’s argument is an argument that says nothing more than it is politically difficult to meaningfully cut spending. In that, I wholeheartedly agree; however, I’m not sure it’s politically easier to sustainably raise tax revenues and, even if it were, that doesn’t make it the best answer.

    Means testing is the politically easiest way to cut spending, as you mentioned later in your post. Liberals don’t like this because they know that it undermines the foundation of public support for large government programs. That’s why Social Security was built as a universal entitlement rather than a welfare program. Liberals will fight any effort to switch to a welfare model.

    Bruce and Diane both miss the obvious. It’s virtually impossible to increase revenue as would be required to close the budget gap and keep it closed. Spending cuts of that size are equally impossible. A 50/50 mix would be just as politically difficult, if not more.

    There are two ways out that are much easier politically, and they have already been mentioned in the comments above: inflation and default. Inflation allows Congress to lie to the American people that a cut in spending is not a cut, and that a tax increase is not a tax increase. Beneficiaries will get more dollars than ever and taxpayers will all be in the million-dollar income range paying top rates. Purposely mismeasured inflation* can achieve something like a 50/50 distribution of pain, while allowing Congress to blame the Chinese or the Fed or maybe even space aliens. It’s the obvious choice for any politician.

    Once inflation gets going, it’s not really necessary to default. Accelerating inflation accomplishes slow motion default, and by mismeasuring it the government can almost eliminate even its inflation-indexed debt.

    *Mismeasuring inflation can be accomplished by fiddling with the index, as has been done a few times already. Even more effective in times of accelerating inflation is the simple device of delaying inflation adjustments. An adjustment based on last year’s 10% inflation falls 10% short if this year’s inflation rate is 20%. These tricks are infinitely easier to accomplish than actual spending cuts or tax increases.

  20. comment number 20 by: AMTbuff

    SteveinCH you are correct that I erred in calling the September 12 protesters non-partisan. While they may dislike overspending by both parties, they are very much on the spending cut side of the debate on how to close the fiscal gap. That may not line up with either of the two major parties today, but it’s fair to call it partisan.

    You are also correct that Concord could not have led the protests unless they were expanded to include advocates of revenue increases to close the gap. Getting pro-tax/anti-cuts people together with pro-cuts/anti-tax people in the same demonstration would have been quite a feat. Come to think of it, Concord might want to try this some time. If the two sides could get together in a demonstration for fiscal gap closing, maybe they could get together on legislation. I really doubt that they can, though. Each side sees the other side as the problem.

  21. comment number 21 by: B Davis

    SteveinCH wrote:

    This leads me to one of my key philosophical questions about taxes. Are taxes about an equitable funding of a fixed cost of government or instead are they about correcting for a market income distribution that policy makers don’t like?

    If you take the former point of view, the growth (or lack thereof) in incomes isn’t relevant. From the latter perspective, it is very relevant. My belief is the current administration (at least rhetorically) has the latter point of view.

    I have likewise thought about this question. I believe it to be a very difficult question in that the two point of view are not quite so distinct as they may sound. The first view (that taxes are about an equitable funding of a fixed cost of government) suggests that all people should pay the same fee for the same service. For example, all users of a toll bridge should pay the same toll. However, it can be argued that the wealthy and those with high incomes receive more from certain government services and therefore should pay more. Warren Buffett has talked about the “ovarian lottery” and how, had he been born in Bangladesh or 200 years ago, his skills would have provided him far less of an advantage. He gains much more than others from the current system and should arguably pay more of the cost to maintain it. Hence, it’s really not clear exactly what constitutes an “equitable funding”.

    On the other hand, the second view would suggest that taxes should be used to lessen a widening distribution of income. It’s certainly possible to argue that one or another individual has a stagnant income due to their own lack of effort. However, it’s difficult to make that argument about entire quintiles of the population. The stagnation of income in an entire segment of the population suggests that there may be some at work beyond the direct control of that segment. Hence, giving them a tax cut might be seen as a way to compensate them for a system that is working less well for them than it is for others.

    I’m sure that I could have worded the above points better. Such is often the problem with attempting to answer key philosophical questions!

  22. comment number 22 by: B Davis

    AMTbuff wrote:

    This sounds EXACTLY like the September 12 protestors. And yes, the non-kooks are non-partisan: they were opposed to profligacy even when Republicans were in power. It’s clear to concerned Americans that politicians of all stripes have higher priorities than fiscal responsibility and that needs to change.

    Concord missed a golden opportunity to lead the September 12 protests, focus them tightly on fiscal responsibility, and provide an intellectual foundation for the protest against putting future generations so deeply in debt. Instead, Concord failed to take any advantage whatsoever of this mobilization of like-minded Americans. What a waste.

    As SteveinCH and you seem to agree in comment numbers 17 and 20 below, the September 12 protestors do not likely rank as non-partisan. The website for the march states:

    We’ve had enough of the out of control spending, the bailouts, the growth of big government and the soaring deficits. And we reject the future tax increases to pay for all of this spending and debt down the road. We are gathering on 9-12-2009 to deliver our message in person that we’ve had enough!

    Hence, they are proposing that the solution to deficits be 100 percent on the spending side.

  23. comment number 23 by: SteveinCH

    B Davis,

    Thanks for the reply. I actually think the perspectives are maybe more different than you imply. From my pov, funding a fixed cost of government does not have to be like a toll road (fee for service) or any other model in particular but the justification for the distribution must be based on the cost of government and not other factors. So you could argue for a graduated tax rate to fund government if you thought that was the most fair way to do it, but it would be in the context of funding government.

    In contrast, if you are arguing from income distribution, you are not limited to some notion of fairness in paying for a service, rather your notion of fairness extends to the income distribution at large. My sense is that most advocates of highly progressive taxation, when pressed, are actually basing their argument on correcting income distribution rather than paying for government; however, many are loathe to frame the argument this way.

    In my mind at least, the distinction is less about outcome than rationale although progressivity is far easier to defend using the income distribution rationale

  24. comment number 24 by: B Davis

    SteveinCH,

    My sense is that most advocates of highly progressive taxation, when pressed, are actually basing their argument on correcting income distribution rather than paying for government; however, many are loathe to frame the argument this way.

    It may be that it is much easier to look at income distribution than it is to look at every government service and reason the most fair distribution of taxes by which to fund it. Some advocates of highly progressive taxation may simply look at the changing distribution of incomes and reason that the upper quintiles are doing very well under the current level of progressivity. They may reason that this suggests that a higher level of progressivity is called for.

    In any event, I do think that it’s best for politicians to give their true rationales for policies that they are advocating. If it truly is a good policy, then it should be possible to explain the rationale in a way that others can understand. At most, one may just need to simplify the explanation. But having to come up with a totally different, fake rationale indicates that, at the very least, the advocate needs to give their true rationale more thought.

  25. comment number 25 by: AMTbuff

    B Davis wrote:
    Some advocates of highly progressive taxation may simply look at the changing distribution of incomes and reason that the upper quintiles are doing very well under the current level of progressivity. They may reason that this suggests that a higher level of progressivity is called for.

    Except that the income inequality researchers invariably analyze pre-tax income. With this methodology, tax rates of 100% would not change the reported income inequality.

    In fact, with this methodology the reported income inequality will actually increase as tax rates increase. That’s because market-clearing wage rates will increase to partially compensate for the higher tax rate. Even your auto mechanic will charge you more if his tax rate increases.

  26. comment number 26 by: B Davis

    AMTbuff wrote:

    Except that the income inequality researchers invariably analyze pre-tax income. With this methodology, tax rates of 100% would not change the reported income inequality.

    I don’t know what form of income is used by most income inequality researchers but I agree that they would do best to use after-tax income. The analysis at this link shows an analysis that does use real after-tax income and, even by that measure, each successive quintile has done better than the one before it.