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The President’s Economic Report: Sticking to the Script on Tax Policy and the Fiscal Outlook

February 12th, 2010 . by economistmom

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:

  1. 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.)
  2. 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.”
  3. 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.
  4. 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!

3 Responses to “The President’s Economic Report: Sticking to the Script on Tax Policy and the Fiscal Outlook”

  1. comment number 1 by: SteveinCH

    Diane,

    I’d be interested in your thoughts on whether 3% in a full employment low inflation environment is a reasonable goal. My own view is that 3% might (emphasis on might) be an acceptable through cycle solution but that means the full employment answer has to be lower than 3% for the math to work, doesn’t it?

  2. comment number 2 by: SteveinCH

    Off topic but Krugman continues his descent into insanity.

    http://krugman.blogs.nytimes.com/2010/02/13/the-case-for-higher-inflation/

  3. comment number 3 by: AMTbuff

    Steve, I didn’t find that Krugman article delusional, hyperbolic, or even inaccurate. Perhaps I should start worrying about myself!

    Inflation is well known to help with the downward stickiness of wages. That’s one of the few widely accepted arguments in favor of inflation. The trick is to keep inflation from accelerating.

    The solution to this threat obvious. Stoke inflation now, then elect Republicans in 2012. Krugman will switch sides yet again and start arguing against inflation. SuperKrugman to the rescue!