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Nothing Magical–or Even Sensible–About An 18-19 Percent of GDP Revenue Ceiling

April 28th, 2011 . by economistmom

magical-mystery-tour

Bob Williams of the Tax Policy Center feels the way I do about how meaningful–or not–the 40-year historical average level of revenues as a share of our economy is as a guide for where revenues ought to go in the future.  On the TPC’s “TaxVox” blog, he writes:

[T]here’s nothing intrinsically right or wrong with any given level of taxation. As Americans get older, spending on Social Security and healthcare will necessarily rise. Doing what we do now will simply cost more. At the same time, the new technologies that will help doctors provide better care will boost costs still further. And, as we grow wealthier, we may choose to spend more for things we want—helping those in need, improving our roads and schools, or paying to build more and better infrastructure.

Or we may decide we don’t want to do those things. Or we may choose to do them but stop doing other things that we decide aren’t worth the cost—farm subsidies, excessive health spending, and some highly-publicized earmarks come to mind. Or that we’d be a lot more willing to pay for them through a reformed tax system that is simpler, fairer, and more efficient.

Those are political decisions that lawmakers make all the time. But there’s nothing magical about 18 or 19 percent.

Tell that to the Republicans in Congress who have signed a “no new taxes” (of any kind) pledge.  Oh yeah, we have been, and oh yeah, at least some politicians are catching on.  For example, there’s Republican Senator Tom Coburn–who I think truly qualifies as a “deficit hawk” by the way.  From CNN.com (emphasis added):

Washington (CNN) — A leading Senate conservative said Sunday he can accept tax reform that increases overall tax revenue as part of a comprehensive deficit reduction plan.

Republican Sen. Tom Coburn of Oklahoma told the NBC program “Meet the Press” that if lowering tax rates and eliminating loopholes and deductions ended up bringing in more money to the U.S. government, “that would be fine with me.”

Asked about a pledge he signed previously against any kind of tax increase, Coburn said his more important pledge was to do what’s best for the country. He also noted that political reality dictated the need for bipartisan support for any agreement to pass.

“This isn’t about politics as normal,” Coburn said. “It’s about making a decision now that is urgent.”

In other words, if deficit reduction is really a priority for politicians, and if they are really “deficit hawks” of any variety (whether small-government types like Coburn, or big-government types like the Progressive Caucus, or medium-government types somewhere in between), these politicians would realize that certain pledges they’ve made are far less important than their at least implicit pledge to the American people that they will get our fiscal house in order and not let our economy implode.

These less-important pledges don’t just include the Republicans’ 18-19 percent of GDP revenue ceiling.  They include President Obama’s campaign pledge (made so long ago and way before he even dreamed up his fiscal commission) to not raise taxes on anyone with less than $250,000 income.  There’s nothing magical, or even sensible, about that tax pledge, either, and just like how the Republican tax pledge turns off Democrats (and leads them to call the Republicans crazy), the Obama campaign tax pledge turns off the Republicans, too.

Bipartisan deficit reduction is going to have to involve tax policy, and that means bipartisan deficit reduction is going to require that some of these less-important promises be broken.

Allan Sloan: The Debt Is the Problem Even If We Don’t Default On It

April 27th, 2011 . by economistmom

In Wednesday’s Washington Post, Allan Sloan is amused by people who “freak out” over the federal debt getting “downgraded” or defaulted on–the same people who seem oblivious to the problems with the debt itself or even their own role in its growth over the past decade:

You’ve got to love it. Republicans who never saw a George W. Bush national debt-increase request they didn’t support point with alarm at S&P now saying there’s a 1-in-3 chance it will downgrade the U.S. credit rating within two years. Democrats, who rightly fussed about the costs of Bush’s massive tax cuts, two unfunded wars and unfunded Medicare prescription drug benefit, insist that things are going to be okay under the current Democratic administration.

Allan explains that worries about default are really overblown, although who knows, we might just act “stupid” enough for it to happen (emphasis added):

I think S&P has the right idea in treating the U.S. government as just another sovereign credit rather than as some sort of “exceptionalist” borrower that’s not subject to any rules of the financial marketplace.

But even if U.S. Treasury debt is downgraded, there’s no chance of the government defaulting on its debt absent Washington doing something incredibly stupid, such as refusing to increase the national debt ceiling.

The reason there’s no chance of a default (absent exceptional stupidity) is that the U.S. government isn’t a company that has to worry about attracting enough borrowers to roll over its debts, the way even the most mighty corporate borrower had to worry during the 2008-09 financial panic.

Unlike a GE or a giant bank, the U.S. government is borrowing in a currency — the U.S. dollar — that it can print. And there’s the Federal Reserve, which has indirectly funded a significant part of the federal budget deficit through its “quantitative easing” program under which it’s buying $75 billion of Treasury securities a month. If all else fails, the Fed could fund the government directly.

The real problem?  It’s not the “grade,” but the “performance” itself.  As Allan emphasizes, the debt itself is what we should be fretting over:

[It's t]he same problem I’ve been writing about for years — that even when you’re the U.S. government borrowing in your own currency, there are consequences to excessive debt. Unless the United States defaults on its obligations, interest costs get higher and higher, putting pressure on the budget. Borrowing all this money from all over the world — foreigners own about half our publicly traded Treasury securities — puts downward pressure on our currency’s value.

So in other words, we should spend less time worrying about the possibility of not paying back our debt and start worrying about how (oh no!) we’re actually going to have to keep paying for our debt–for many, many years to come.

What Is a Deficit Hawk…or Panda…or Peacock?

April 26th, 2011 . by economistmom

deficit-hawks-cartoon(Cartoon by Tim Eagan.)

The Washington Post’s Greg Sargent questions the true “hawkishness” of some who label themselves “deficit hawks”:

As I noted some time ago, the term “deficit hawk,” as it’s commonly used in Beltway discourse, simply doesn’t mean “someone who fully committed to reducing the deficit by any means necessary, even if it means tax hikes and — paradoxically enough — new government programs.” Rather, it means “someone who is fully committed to reducing the deficit through tax cuts, entitlement reform and an unswerving adherence to general hostility towards expansive government.”…

[I]magine if everyone who used the term “deficit hawk” agreed that it should refer only to those want to reduce the deficit by any means necessary, with nothing at all taken off the table. The conversation would start to sound very different, wouldn’t it?

It sounds to me like Greg’s saying a lot of Tea Party types label themselves “deficit hawks”–and that’s probably true.  But I cringe when I hear that, because to be opposed to deficits does not mean one is opposed to big government.  It just means that if I am for big government but against deficits, I have to be for higher taxes.  And if I am for smaller government and lower taxes, but against deficits, I have to be for the tough benefit cuts that make that math work out.   I think Paul Ryan has pretty clearly spelled out that he is a deficit hawk of the latter type (even if the details of the proposed benefit cuts are not yet spelled out), that the Progressive Caucus in Congress has spelled out that they’re deficit hawks of the former type (closing the deficit with mostly tax increases–but also defense cuts), and that President Obama is trying to forge a deficit-hawkish path somewhere in the middle.

In my opinion, anyone who sincerely offers a plan to reduce the deficit can deserve the label “deficit hawk”–no matter how different their preferred approach may be from my own or even society’s consensus view.  Ruth Marcus suggested that deficit hawks who still value a strong role of government might be more appropriately labeled “deficit pandas”–but that’s probably a little too wimpy sounding for most people’s tastes.  (Pandas are cute and cuddly, yes, but they also seem pretty fat and lazy.)  A year ago Michael Linden of the Center for American Progress explained that those who are insincere in their commitment to deficit reduction–but use their claimed commitment to fiscal responsibility to get what they really want, which is a small government still larger than the much lower taxes they’re willing to pay–are more properly considered “deficit peacocks.”  (Paul Krugman liked this CAP guide on “how to spot a deficit peacock” a lot, and he even called the President one at the time.)

So whether any of us perceive someone as deserving of the “deficit hawk” label depends on our own individual interpretations of the sincerity and seriousness of the deficit-reduction strategies offered.  There’s so much distrust in this town though, so those deficit-reduction approaches polar opposite to our own (that we just fundamentally dislike) are automatically dismissed as insincere and not serious.  And then we say we won’t even honor the other side with any conversation about their “crazy” plan versus our serious plan.  We label them (cocky) “peacocks” or “pandas” (of the fat and lazy variety) and claim that we, as true “hawks,” don’t need to work things out with them.

I don’t know what the political solution is (nor what some other fitting animal descriptions might be for the various factions in this deficit-reduction debate), but so far this common-good, shared-sacrifice, fiscal responsibility effort that the President says we need to make, is not working out so well–even with the mix of true deficit hawks already involved.

Hiding Behind Words to Avoid Coming Together

April 24th, 2011 . by economistmom

fightin-words-graphic-washpost-john-ritter(Graphic by John Ritter for the Washington Post, published April 24, 2011, page B1.)

I very much liked the suggested point-counterpoint opinion pieces on the front of the Outlook section in today’s Washington Post.  Actually it was not so much a debate with pro-one side vs. the other arguments, but rather a one-two-punch critique of the rhetoric used on both sides.

First, University of Virginia history professor Sophia Rosenfeld warns that the GOP’s talk of “common sense” when it comes to fiscal responsibility really has little to do with striving for “common good” type strategies.  Her central thesis (emphasis added):

Once democracy is established and consolidated, common sense is rarely a match for the messy and complicated business of governing. No matter how many times politicians invoke the term today, there can be no such thing as a single, simple, common-sensical solution to the problems confronting the nation. The mind-boggling complexity of the issues surrounding climate change, economic recovery, multiple wars and, yes, federal and state budget deficits outstrips the authority of common sense either as the basis of workable policies or as a critique of those already on the table.

The divisions in American public opinion also pose a challenge to “common sense” rhetoric. The federal budget and the family budget are decidedly different beasts. Once we get past the level of real common sense — as in “don’t put your hand in the fire if you don’t want to get burned” — one person’s common sense is generally another’s misguided thinking.

The political appeal to common sense is thus best understood not as a call for clearheaded solutions but rather as a form of pandering — an effort by pundits and politicians to channel real popular anger and to lather voters with collective flattery. Calls for common sense like Beck’s or Palin’s start from the premise that the hard-working majority can instinctively tell right from wrong. That their enemies — self-serving Washington politicians, greedy Wall Street bankers, immoral Hollywood entertainers, out-of-touch scientists and “experts” — cannot be trusted. (After all, these are the elites who got us into the mess we’re in.) And that it’s time for the rest of us in the majority to “unite” and apply our “innate common sense,” in the words of Beck, to the real issues confronting the world.

And to her right (on the Outlook front page), American Enterprise Institute’s Arthur Brooks argues that the Democrats’ emphasis on achieving “fairness” through higher taxes on the rich doesn’t exactly encourage the “shared sacrifice” (for the “common good”) needed for bipartisanship in deficit reduction.  It really perpetuates the hyperpartisan, “class warfare” type of talk that gives each side an excuse to keep disagreeing.  In fact, Brooks’ main point is that with all that talk about raising taxes on the rich as being “only fair,” eventually even us only-middle-class-less-than-$250,000-a-year people start to think that taxing only the rich is unfair.  Why?  Because as Americans, we believe in opportunity and not just luck.  As Brooks puts it:

If opportunity in America is a sham — if the system is rigged and some people get the breaks only for reasons of luck, birth, or discrimination — then merit is fictitious and redistribution brings greater fairness. But if America is an opportunity society — if you have the chance to work harder, get more education and innovate — then rewarding merit is fair, and it is fair for some to make more money than others.

Personally, I would like to believe that someday I can make over $250,000 a year and not be “punished” for it, just as much as I hope that if (”there but for the grace of God go I”) I were to actually fall into hard times (through bad luck), the social safety net will be there to catch me.   (And incidentally, I had no idea the “there but for the grace of God go I” line is also a problem.)  As a (generously-defined) “middle-class” person I am willing to pay higher taxes and accept lower benefits, as long as those sacrifices I’ll be called to make are broadly shared with others in society who can also afford to make them.  That’s the “shared sacrifice” view that I actually believe a lot of Americans feel is “fair.”

But right now we’re far from achieving “common good” and “shared sacrifice” solutions, because our politicians are too busy hiding behind these words of “common sense” and “fairness” in accusing the other side of being unreasonable.  Fundamentally, the gulf between the two political parties in their views on the appropriate roles of government (and hence the best way to reduce the deficit) seems enormous right now.  The quality of the conversation is going to have to improve before the necessary compromises on policy materialize.

The Bipartisan Deficit Reduction Glass Is (Almost) Half Full

April 21st, 2011 . by economistmom

glass-half-full

Contrary to a typo in an NPR transcript earlier this week, I do not work for the “Conquered Coalition.”  (LOL.  It’s been corrected since.)  We at the Concord Coalition, like many “deficit hawks” who are really more appropriately considered “deficit pandas” (a la Ruth Marcus–I love it!), haven’t given up on fiscal responsibility just yet.

Take the recently-reported Washington Post-ABC News poll that’s been characterized (in a Washington Post print headline) as showing “little backing for debt remedies.” Stories about this poll have tended to emphasize the majority who are opposed to each item in a “pick one” menu of tough choices:  78 percent opposed to cutting Medicare, 69 percent opposed to cutting Medicaid, 56 percent opposed to cutting defense spending.  The only “pick one” option that a majority (72 percent) supported:  “raising taxes on incomes over $250,000.”  And even that is not as agreeable as it sounds, considering that households with incomes over $250,000 make up only about 2 percent of the population–i.e., you’d think we could get a little closer to 98 percent support on that one.

But that majority opposition to each of the “tough choices” is because respondents were asked to take or leave each of those tough choices as the single strategy for deficit reduction.  No one wants to agree to give up something if they think others in society aren’t going to give up something, too.  None of those “pick one” choices conveyed a notion of shared sacrifice or a “balanced” approach.

It’s the response to the poll question below–which does start to get at the possibility of compromise for the common good–that deserves more of our attention:

18. Say the national debt could be reduced significantly by raising taxes on all Americans by a small percentage and making small reductions in Medicare and Social Security benefits. Is this something you would support or oppose? Do you support/oppose this strongly or somewhat?

          -------- Support --------   --------- Oppose --------     No
          NET   Strongly   Somewhat   NET   Somewhat   Strongly   opinion
4/17/11   45       19         26      53       13         40         2

Only slightly over 50 percent oppose this more balanced approach which combines (”small”) cuts in the major entitlement programs with “raising taxes on all Americans.”  This is a glass that is (almost) half full.  We haven’t even begun to make the full sales pitch on this “shared sacrifice” plan with more specifics about how Medicare and Social Security can be trimmed while actually strengthening the safety-net parts of those programs (reassuring the liberals), or how revenues can be raised in a progressive manner by reducing “tax entitlements” rather than merely jacking up tax rates (reassuring the conservatives).

This gives me hope.

The same poll shows that a majority of Americans (59 percent) already agree that the best way to reduce the deficit is through the only-generally-described “combination” of tax increases and spending cuts–not just one or the other.  They’re just not going to agree to a particular example of that more balanced approach without learning more about the details of the proposals and considering how those specific proposals would affect their own families and would mesh with their views of the appropriate roles of government.

This really seems quite doable.  We just need to keep talking–and listening.  It’s a conversation we’ve only just begun, but recently it seems to me (”glass half full” person that I am) that we’re starting to grow up about it.

Still a Happy Tax Day

April 18th, 2011 . by economistmom

I wrote the largest check I’ve ever written to the IRS this weekend (I can’t even say how much–it’s so painful), but it was understandable given it was related to my withdrawal of my retirement savings to pay my legal and medical bills over the past year.  So I was devastated to see my bank account wiped out, but on the other hand still believe that my taxes pay for good things–and that what goes around, comes around.

I still believe in the vision of government that President Obama suggested in his speech the other day.  I have been pretty darn lucky in my lifetime so far, even as hard as the past couple years have been as I’ve gone through a divorce.  I got a good, public-school education and went all the way to getting my Ph.D., and I’ve never had a hard time finding work.  I have four beautiful kids who have also benefited from public schools and government-subsidized, employer-provided health care and who are very smart and healthy as a result.  And I know that most families struggle much, much more than I do, and that (as President Obama reminded us) “there but for the grace of God go I.”  I don’t consider the taxes I pay to be none of the government’s business.  I know that I’m paying my dues for government being there for me.  I know that if it turns out I am not so blessed in the future, there will be a safety net there for me and my kids.

So I still feel the way about taxes as I did five years ago when I wrote this piece for the Boston Globe.  There are still lots of good reasons for taxes and why we shouldn’t begrudge paying them today.

Headed to “Admitted Students Day” for Kid #2

April 17th, 2011 . by economistmom

My daughter, Emily, has been accepted into Sarah Lawrence College with a very nice merit scholarship of theirs–their “Presidential Scholarship.” We are headed up there today to check out the campus and the people. I am also going up there with a mission of getting us some need-based aid, because even a scholarship that would cover all the costs at an in-state, public university doesn’t even cover half of the costs of a Sarah Lawrence education. And yes, I really am “needy” now–having been through a divorce that has taken two years and depleted my entire retirement savings with the legal and medical (therapy) bills alone.

But back to the positive focus. My older daughter, Allie, is finishing her first year at Princeton, so my two older daughters’ college paths are likely to be as different as they are from each other. (Look them up in the U.S. News rankings and you’ll see part of what I mean–but don’t jump to simplistic conclusions just yet.)  It’s really wonderful that there are places seemingly “just right” for each of them. I recently wrote a column for the Christian Science Monitor related to these different types of students and the different kind of “human capital accumulation” that best brings out their talents–and how broad the definition of what makes us “valuable humans” really is. I’ll write more on this in a week or so, when I can share my CSM column and more on the David Brooks book that inspired it (as well as my kids who inspired it).

Not Perfect, But Good

April 14th, 2011 . by economistmom

[CORRECTED 10:15 am Thurs to say tax expenditures are "economically inefficient" (not "efficient"). Thanks, npm, for pointing this out to me!]

Some of my “likes” about the President’s speech and his general “framework” for deficit reduction:

  • advocates a “balanced” approach with a mix of spending cuts and revenue increases;
  • recognizes that a lot of spending occurs in the form of “tax expenditures” which are economically inefficient and also disproportionately benefit the rich, and proposes to raise additional revenue by reducing some of these tax expenditures;
  • acknowledges that the Bush tax cuts played a large part in turning the surpluses of the late 1990s into the record deficits in the following decade;
  • clarifies that the choice is not reducing the deficit versus not reducing the deficit, but reducing the deficit by cutting benefit programs versus reducing the deficit by raising taxes;
  • reminds Americans that we all benefit from safety-net programs even if we don’t personally need that safety net at this very moment (or even ever use it)–the “there but for the grace of God go I” sentiment;
  • outlines a vision quite different from the Ryan one by refusing to use savings from spending cuts or tax base broadening to fund tax cuts for the rich;
  • proposes an approach generally similar to that of the President’s fiscal commission.

Some of my “dislikes” or at least “disappointments” about the proposed framework:

  • proposes a mix of spending cuts versus revenue increases that is probably still too heavy on the spending side, and gives the President an “opening bid” that is basically where I think he wants to end up.  (Is that the best negotiating strategy to counter Ryan’s all-spending-cuts proposal, or has the President already negotiated with himself?)
  • suggests that the broadening of the tax base/reduction of tax expenditures would be limited to households with incomes above $250K–such as those “millionaires and billionaires” the President kept referring to today.  Not clear that this would raise adequate revenue or that the President is willing to go after the largest tax expenditures or pare them back enough (even on the rich).  (Still, in terms of economic efficiency, raising taxes on the rich by broadening their tax base is still preferable to raising taxes on the rich by simply raising their marginal tax rates.)
  • fails to acknowledge that even the “middle-class” portions of the Bush(-now-Obama) tax cuts were deficit financed and were fiscally irresponsible, and that President Obama has always supported the deficit-financed extension of the great bulk of the Bush(-now-Obama) tax cuts;
  • takes a pass on Social Security reform, just like the Ryan plan;
  • doesn’t cut defense spending as aggressively as the commission recommended (and yes, probably for the same political reason that it doesn’t raise as much revenue as the commission proposed–which by the way I still think was too low with its ceiling of 21 percent of GDP);
  • proposes a “fail-safe” trigger that I worry would be either ineffectual because of its exemptions (Social Security and Medicare, and “emergency” situations) or even economically damaging because of its procyclical nature (cutting spending during recessions).

I thought the President’s speech was great in terms of tone and delivery, but just good in terms of substance. Not perfect, but at least good–and I am reminded that the wise adage applies well here, that we can’t let the perfect be the enemy of the good. It actually exceeded my expectations from before the speech, and I am somehow comforted and reassured to see the House Republicans react the way they did to the speech (in the video below)–lashing out with accusations of the President’s “partisan rhetoric,” basically shocked that the President disagrees with them on the issue of tax cuts for the rich and the draconian spending cuts they require. (So I guess the President did provide a decent counterpoint to the Ryan plan, even in taking that “balanced” approach of still three-fourths spending cuts to the one-fourth tax increases.)

Mr. President, Here’s Your Chance to Get in the Game!

April 13th, 2011 . by economistmom

obama-playing-basket-ball

If the President really is to rebut House Republican budget chairman Paul Ryan’s plan, he’s going to have to say something completely new in today’s speech.  He’s going to have to say that reducing the deficit is as important as creating jobs, but that there’s not necessarily a tradeoff.  And he’ll have to reassure his liberal base (what’s left of it?) that the way you avoid that tradeoff is to take the polar opposite strategy of Ryan–which is not to not reduce the deficit (which, I’m sorry, “fearmonger” that I am, really will ultimately hurt all of us, rich or poor), but to reduce the deficit through better tax policy.  (Example:  a Brookings paper I wrote on just such an approach over four years ago which reads amazingly like it was written yesterday.)  The President can’t go on merely empathizing with his liberal base by complaining about the heartless, clueless Republican approach to deficit reduction, which is to drastically slash government spending programs in favor of tax cuts all the time for any reason, while at the same time basically embracing the bulk of the Republicans’ tax-cutting approach.  (The extension of the Bush/Obama tax cuts still accounts for more than 100 percent of the cost of the President’s budget proposals.)  Huh?

Ruth Marcus has also been puzzling over the President’s strategy on the deficit issue; in today’s Washington Post she tries on a sports analogy (emphasis added):

I’m no sports nut but I’ve spent enough time at kids’ soccer games to understand that it’s impossible to score if you’re playing on the wrong side of the field.

Which is why I have found the White House strategy for dealing with Republicans on the deficit so befuddling…

The fight over spending this fiscal year is a case in point. The prospect of a Republican takeover of the House was evident well before the election. The inevitable result was going to be more draconian cuts than would have been required if the spending bills were passed beforehand.

In the aftermath of the Democrats’ losses, the entire debate played out in terms they were destined to lose. If the argument is framed solely in terms of budget cuts, Republicans always win: They are willing to out-cut Democrats. That inescapable tilt was exacerbated by the virtual absence of a White House message about the impact of a shutdown or the cuts themselves…

A second, maddening example of the White House allowing the other side to frame the debate involves the longer-term fiscal picture. The president convened a commission on the topic and then abandoned it. First, he did not lift a finger to help his co-chairs, Erskine Bowles and Alan Simpson, assemble the 14 votes necessary to get the commission’s plan a congressional vote. Then, when the plan was released, the president pointedly declined to express a view. He stuck to the vagueness strategy in his State of the Union address and his 2012 budget proposal.

In the meantime, the void was filled — and the playing field was shifted even further rightward — by House Budget Committee Chairman Paul Ryan. The Wisconsin Republican unveiled a plan that makes the centrist Simpson-Bowles proposal look as if it were written by Nancy Pelosi and Howard Dean.

If the White House had weighed in on Simpson-Bowles before Ryan released his plan, it could have staked out an argument that the framework — a combination of spending cuts and tax increases — was correct but that some specifics (the precise mix of the two, the details of the Social Security fix) went too far in the conservative direction. Now the “reasonable” compromise would [seem to] be between Simpson-Bowles on the leftward side and Ryan on the right…

[T]he administration [has been insisting that] coming forward with a plan of its own would be counterproductive. The history of budget deals, officials argued, was that public presidential proposals get shot down (George W. Bush on Social Security in 2005, for example); successful outcomes are crafted behind the scenes.

Indeed, this was happening in the form of the so-called Gang of Six, the bipartisan group of senators working to write the Simpson-Bowles framework into law. Just as the gang was nearing agreement, the Ryan plan came along, and the White House, rattled by its reception, decided it needed to get into the game…

[But] if the White House was going to support the Simpson-Bowles framework all along, why not do it earlier and take advantage of the momentum?

Back to the sports metaphor, it makes you wonder: Can’t anybody here play this game?

Ruth seems to suggest the President has just accidentally stumbled onto the “wrong side of the field” (that would be the conservatives’ side), but I don’t think that’s so accidental after all.  If he intended to play at all for the “other team” (that would be the liberals), he wouldn’t keep intentionally passing the then-Bush-now-Obama-tax-cuts ball to the conservatives.  If the President intended to play on the liberals’ team (for at least part of the time anyway), he’d launch a strong offense that would propose a deficit-reduction plan based largely (mostly?) on raising revenue by reducing tax expenditures (a la Simpson-Bowles, although I’d suggest it would then be more “a la Bowles-Simpson”), and he would go further on the revenue-leaning side in order to provide a more adequate counter to the Ryan plan (which is all spending-side cuts).  The President would say: hey, Ryan’s approach to reduce the deficit would virtually eliminate government programs outside of the entitlement programs–hey, that’s crazy!  And he’d push back with his own approach to reduce the deficit by broadening the tax base and allowing revenues to rise as a share of our economy to levels even above the Bowles-Simpson ceiling of 21 percent, while explaining that he doesn’t like that ceiling because the “right” level of revenues has nothing to do with historical averages or any other arbitrary target but instead with what’s needed to adequately finance the government spending we as a society desire and deem “worth it.”  (And the “right” size of government is the size we desire even when we have to fully pay for it–and by the way, isn’t necessarily properly measured by spending or revenues as a share of GDP!)

In my wildest fantasies, in his speech today the President would make these declarations about embracing the fiscal commission’s general tax reform strategy, underscoring the point by adding that “you know, let’s face it, the Bush tax cuts sucked, and I’m finally going to replace them with something better.”  (Or something like that.)

But somehow I don’t think we’ve come any farther with the President on tax policy than a year ago (i.e., before the President got any ideas from his commission) when I wrote this open letter to him, concluding with:

I know you made an unfortunate campaign promise on tax policy that you feel bound to–to not raise taxes on any households with income under $250,000.  But isn’t it more important to keep your greater (at least implicit) promise to the American people on keeping our economy strong, putting us on a better path (”changing” course), and leaving the nation in decent shape for our kids?  You can’t keep both promises, and to me as an economist and as a mom–and I hope to you as our leader and a dad–it’s obvious which one you should abandon.

Happy Tax Day!

Mr. President, please pleasantly surprise me today!  Seize control of that ball and start charging in the right direction!  (And yes, I know you play the “court” more than the “field” Ruth was talking about.)

Are We Really Supposed to Be Impressed By This?

April 10th, 2011 . by economistmom

washpost-budget-deal-graphic-041011

OK.  So our leaders finally came to a literal “eleventh hour” agreement to narrowly avoid a government shutdown–an agreement to cut $38 billion from the remainder of this fiscal year’s federal budget.  To put that cut in perspective, the Washington Post made the graphic above.

In his weekly address, President Obama is proud of this just-latest demonstration of “bipartisan compromise” (emphasis added):

Last night, after weeks of long and difficult negotiations over our national budget, leaders of both parties came together to avert a government shutdown, cut spending, and invest in our future.

This is good news for the American people…

This is an agreement to invest in our country’s future while making the largest annual spending cut in our history. Like any compromise, this required everyone to give ground on issues that were important to them.  I certainly did…

Reducing spending while still investing in the future is just common sense.  That’s what families do in tough times.  They sacrifice where they can, even if it’s hard, to afford what’s really important.

A few months ago, I was able to sign a tax cut for American families because both parties worked through their differences and found common ground.  Now, the same cooperation has made it possible for us to move forward with the biggest annual spending cut in history. And it’s my sincere hope that we can continue to come together as we face the many difficult challenges that lie ahead – from creating jobs and growing our economy to educating our children and reducing our long-term deficits.

That’s our responsibility. That’s what the American people expect us to do.  And it’s what the American people deserve.

This “biggest annual spending cut in history” is the $38 billion out of the $3.5 trillion just-annual budget (or just above 1 percent), as shown in the graphic.  And as unimpressive as this picture is, it still leaves out both the budget outlook beyond this year (which is not getting any better) and the entire “other side” of the federal budget–the revenue side.  But of course, the revenue side of this issue is even uglier and more hypocritical than the (direct) spending side is.  “Compromise” has been both sides getting the tax cuts they want (as in the lame-duck extension of the fiscally-irresponsible Bush tax cuts that the President still boasts about).  The necessary “tough choice” of actually raising revenue to actually reduce the deficit is rejected as the flip-side “largest tax increase in American history” that has always been treated as something completely different from the “largest spending cut in American history”–even though if revenues were raised by reducing tax preferences (”tax expenditures“), it would fundamentally be the same.

As one of the Post’s headlines says, “bigger battles…loom.”  How this first battle turned out is nothing to be impressed about but should only leave us more worried about the capacity of our “leaders” to actually lead in those much bigger budget issues now at the top of their to-do list.

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