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Chris Cillizza: Water Is Wet (and Other Obvious Things)

December 19th, 2011 . by economistmom

charlie_brown_kick

The Washington Post’s Chris Cillizza stated the obvious in Sunday’s Washington Post:  “Congress is unpopular.”  And deservedly so, because as Chris explains (in print but also in a nice video on that web page):

Saying that Congress is unpopular is kind of like saying that water is wet or that big-time college football is corrupt. It’s so obvious as to be assumed. And yet, in 2011 Congress managed to underperform even the low regard in which the American people hold it.

It wasn’t just that lawmakers didn’t do much in 2011. It was that they didn’t do much in a year in which the economy continued to struggle, the nation’s collective anxiety soared and, for the first time in modern memory, our fiscal foundations seemed genuinely shaky.

The mismatch between the bigness of the country’s problems and the smallness of Congress drove the institution’s approval ratings down to used-car-dealer (or even journalist) levels.

Chris goes on to boil down the major failures of Congress this year to three areas:  (1) the budget “deal” in the spring; (2) the debt-ceiling “debate” in the summer; and (3) the (not so) “supercommittee” in the fall.  From my perspective, in all three cases: (1) the Obama Administration led by talking about the need for a “balanced” approach to deficit reduction that would involve both revenue increases and spending cuts (their “opening bid” effectively representing the compromise position they hoped to ultimately reach); (2) Republican leaders took a hard line position (pretty much “bullying”) on their Grover-mandated “no new taxes” stance; and (3) the Democrats in Congress and the Administration then cried “no fair, you mean bullies!”–but ultimately caved in and agreed to spending cuts only.

And now it’s gotten so bad that the two sides can’t even agree on passing a deficit-financed tax cut, the only kind of policy that we’ve seen them have no trouble agreeing on over the past, um, decade or so.  House Speaker John Boehner explains that the Senate-passed two-month (only) extension of the payroll tax cut does not provide Americans with the kind of “certainty” they need.  He’s right that the temporary extension is just another installment of kicking the can down the road, but Americans are very used to that kicking of the can.  I think Americans are more freaked out about the potential that Congress won’t even manage to kick the can–that they’ll miss it all together while they bicker for bickering sake–and we’ll all end up flat on our assets (and the body part that sounds like that).

(Hence, the Charlie Brown cartoon; just substitute “football” for “can.”)

14 Responses to “Chris Cillizza: Water Is Wet (and Other Obvious Things)”

  1. comment number 1 by: Jason Seligman

    I was struck by the Speaker’s clarity as well. 2-month tax policy is not tax policy. Families and businesses cannot plan on the time frames Congress increasingly offers as standard operating procedure. I thought we’d learned our lessons from the temporary tax “experiments” of the late 60’s (one year hike) and mid 70’s (limited time discount) which are generally seen as having been not that effective though the permanent income hypothesis, but apparently not.

    Hard to know then what to make of the Ayres and Edlin proposal today:

    http://www.nytimes.com/2011/12/19/opinion/dont-tax-the-rich-tax-inequality-itself.html?ref=opinion

    While I agree with it’s premise, the upshot seems to be that staying liquid beyond estimated payments is This bit of code would no doubt be important if you find yourself in the 1 percent in a year when the Brandeis ratio breaks the magic number 36… when would one know that by the way…

    An AMT by any other name would appear as uncertain for planning purposes, to this eye.

  2. comment number 2 by: SteveinCH

    Not to mention the issues in the actual calculation the authors have done. Let’s count a few.

    1. They are using tax filings as the basis for the income data without noting that an increasing number of businesses file on the personal income tax forms. This skews the ratio higher but is not accounted for in the author’s work.

    2. They are seriously misinformed of the data available. They claim the last available data is in 2007 but here http://www.cbo.gov/publications/collections/tax/2010/AverageFedTaxRates2007.pdf is the data for 2007 and shockingly, the ratio has fallen from 36 to around 29. Indeed, according to the CBO data, which includes a more comprehensive definition of income, the ratio has never reached 36.

    3. The magical number of 36 itself is entirely pulled from the air or from some orifice of the authors own devising.

    4. The authors fail to account for changes in the makeup of the workforce between part time and full time workers. There are more part-time workers today than in the past as a proportion of the total and this moves the median down.

    And, as Jason points out above, if the most recent data is from 2006/7, how the heck would we implement the tax…4 years retroactively?

  3. comment number 3 by: Patrick R. Sullivan

    Last week the Obamanists discovered that half of all Americans earn below median income.

  4. comment number 4 by: Jim Glass

    I mentioned a few days ago, in a now closed thread thread, that progressive tax cuts for the lower-incomed create regressive vey high marginal tax rates for the lower-incomed, which punish and deter attempts on their part to improve their economic lot.

    More details on same.

  5. comment number 5 by: B Davis

    SteveinCH wrote:

    December 19th, 2011 at 6:48 pm

    2. They are seriously misinformed of the data available. They claim the last available data is in 2007 but here http://www.cbo.gov/publications/collections/tax/2010/AverageFedTaxRates2007.pdf is the data for 2007 and shockingly, the ratio has fallen from 36 to around 29.

    Could you give the calculation by which you obtained the 29 figure (and the source if it differs from the one you give above)? Thanks.

  6. comment number 6 by: Vivian Darkbloom

    In addition to the other practical objections , I would add that the use of *household* income makes no sense. In fact, using any “income” multiple will simply encourage the 1 percent to defer their income–I would not be surprised if the net effect of such a proposal would not be to reduce revenues (this is not precisely the Laffer curve objection). Aside from that, the idea that the tax code should be used as the, or even an instrument to level incomes, as opposed to raising revenue, is very wrong-headed to begin with.

    If a person has 36 times the median income, or whatever, and has actually *earned* that income, the last thing we want the tax code to do is discourage that sort of activity. There are, of course, examples in which a person’s income is not proportionate to one’s economic contributions, but this is not the fault of the tax code. The tax code is not the instrument to sort out which individuals have actually justified their incomes and which have not. Using this very blunt instrument to do try to do so does much more collateral damage than good.

    If you look at which persons are in the top 1 percent, one would find that they are comprised primarily of corporate managers, doctors, lawyers, engineers and various types of entertainers. Many of these people are undoubtedly overcompensated. In my experience, if one adds an additional tax surcharge say, on CEO’s, they will simply change their benchmarks to “gross up” their pre-tax income. Focusing on the tax code as the solution simply draws attention from the real source causes of unjustified inequality. For CEO’s, this means changing corporate governance rules rather than the tax code. For excessive physician pay, it means breaking the AMA stranglehold on entry to the profession. For sports figures, it means eliminating the “sports tax” that the public involuntarily pay to enrich them. For lawyers, it might be changing tort laws and class action rules. Etc., etc.

    Our progressive social reformers have apparently not figured out that redistributing gross income by making the game more fair is more effective than redistributing net income without changing the rules of the game.

  7. comment number 7 by: Steveinch

    B Davis

    I used the average of the middle quintile. While this is not precisely equivalent to the median, it should be close. This is how I calculated the 29 ratio.

  8. comment number 8 by: Arne

    “The magical number of 36 itself is entirely pulled from the air”

    A little research indicates that they are using the census numbers wothout the CBO’s adjustment for household size. Their quintiles have the same number of households; CBO’s quintiles have the same number of individuals.

    I think their methodoly sucks since they ratio numbers that are not similarly adjusted, but I can see what they did.

    I think indiviual incomes for fulltime workers would be a more valid source for the median, but I suppose deciding how to apportion household investment income would make a ratio across percentiles just as methodologically unsound.

  9. comment number 9 by: Jim Glass

    Regarding Ayres and Edlin:

    This is total bullspit. The NY Times is notoriously picky picky about its op-eds (see this great, funny example by Boris Johnson, now mayor of London). Yet if a piece is total idiocy they give it full rein. A few years back they ran one claiming secondary markets have no economic benefit, so the stock and bond markets should be subject to confiscatatory-level (not tiny Tobin-level) tax to defund financial profiteeers.

    This is barely less bad. No, worse. (1) When it comes to actual real-person one percenters nobody is bothered by them — most people are *fans* of them! — and nobody wants to tax their income back down to any “Brandeis ratio”. So the whole idea is riducluously impossible politically. (2) It would be totally impossible to implement and disastrous economically to try, for reasons far too many to list in a blog comment — but as the whole notion is so ridiculously impossible politically, there’s no need to list them.

    But, hey, why would the Time’s op-ed page editors be picky about any of that? :-)

    “Specifically, we propose an automatic extra tax on the income of the top 1 percent of earners — a tax that would limit the after-tax incomes of this club to 36 times the median household income … I.R.S. would create a new tax bracket for the highest 1 percent of income and calculate a marginal income tax rate for that bracket sufficient to reduce the after-tax Brandeis ratio to 36″

    To put a *solid cap* on the post-tax income of the top 1% at any level requires an effective 100% marginal tax rate. Census puts median household income in 2009 at just about $50,000, and 36x that is $1.8 million.

    OK, let’s see. The average salary in the NBA is $5 million, rising to $8 million under the new contract.  How do you think the Players Union will react to a 100% tax on that extra $3 million?

    More to the point, is that what voters actually want? “Tax LeBron James! That greedy pig is exploiting the working class!”

    Average salary in Major League Baseball is $3.1 million. Average salary in the NFL is $1.9 million. Katie Couric was paid $15 million per year to read the news (on a perpetually bottom-rated news show). Tom Cruise got $70 million for Mission Impossible II. Angelina Jolie and Brad Pitt … Oprah…

    OK, now … where are the 99%ers who are marching to Occupy Sports Stadiums, Occupy Hollywood, Occupy TV studios, Occupy Oprah? Where’s the outrage? Hello??

    If Ayres and Edlin, instead of talking about an anonymous “one percent” had instead *named names* and said…

    “The incomes of the players on the pro sports teams you root for, of your favorite actors and the celebrities you watch on Entertainment Tonight, of Brian Williams and Diane Sawyer — and, of course, of Oprah! — are a threat to democracy. So we propose a 100% marginal tax rate on them as needed…”

    (1) They’d be laughed out of any town they were in. (2) What do you imagine the reaction would be in the worlds of pro sports, Hollywood, and TV news? (3) Can you imagine the NY Times would have ever printed it?

    And the only difference between CEOs on the one hand and athletes and celebrities on the other, is that instead of making their money by playing kids’ games and let’s pretend as grown-ups, CEOs do it by first working 60-hour weeks for two or three decades in jobs that are actually materially productive for society, to get to where they are.

    This class warfare nonsense gets re-peddled every four years for obvious political reasons. It never goes anywhere. It never will.

    When I see my buddies in the local bar I frequent start cursing the Mets on TV for being paid too damn much, instead of cursing the team’s owner for being too cheap to pay big enough salarie to get decent players, I’ll reconsider.

    And when I see “the 99%” boycotting Mission Impossible IV because Tom Cruise is getting paid too damn much, instead of because it’s a stinker…

  10. comment number 10 by: SteveinCH

    Jim, I agree with your conclusion although I think you’ve misinterpreted the authors’ intent. I think their actual plan (such as it is) is to propose a surtax above the cutoff of the bottom 1%.

    To use your numbers, let’s assume the top 1% starts at $400,000 and the average income of the top 1% is $2 million and the mystical 36x gets you to $1.8 million. They authors would propose a 12.5% surtax on all income over $400,000, leading to a reduction in the average income of $200,000 (($2,000,000-$400,000)*.125)

    But hey, who needs to know what their tax rate is going to be. I think Le Bron should wait 2 or 3 years for the Feds to figure it out and then just pay the balance (with interest of course since he’s been allowed to keep the money).

  11. comment number 11 by: Jim Glass

    Steve, I admit I don’t understand their proposal, though I’m pretty sure they don’t either.

    I do realize they don’t propose a 100% marginal rate starting at $1.8 million, but instead to increase the rate on all the 1%ers, with incomes starting a lot lower than that.

    However “a tax that would limit the after-tax incomes of this club to 36 times the median household income” must of necessity apply at an effective 100% rate for the group as a whole to the extent their income increases relative to the median.

    E.g. If the income of “the club” — note the totally bogus perjorative, unless talking about the incomes of the Yankees — rose from 36x to 40x, they would tax it all the way back down to 36x. That’s 100% of the marginal 4x.

    Let’s just say that 100% tax rates don’t work. And I don’t know one person in the political world who has or would endorse the idea of doing this to Oprah, Jennifer Anniston, Brian Williams, or their own home town sports teams, “threat to democracy” though they be.

  12. comment number 12 by: Arne

    Not sure if I should argue about something so silly, but I have 5 minutes before I need to go…

    Ayres and Edlin are using the average income of the top 1 percent, so you could assume they are intending the meaining of “the after-tax incomes of this club” to be understood as also the average. Then the mathematical problem disappears. Kobe can still take home 10 percent more than his nearest competitor.

  13. comment number 13 by: Vivian Darkbloom

    The fact that averages are being used points out what is probably an even more serious objection to this very silly proposal: If I’m in the bottom quintile of those one-percenters earning, say, $400,000 per year, why should I be subject to a surtax because Kobe’s income goes from $20 million to $40 million per year?

  14. comment number 14 by: Anandakos

    Jim,

    OK, then. We’ll exempt sports stars and entertainers. Then we can focus on the .01%-ers and their “carried interest” rip off.

    And if they threaten to decamp to the Cayman Islands I’ll pitch in for their tickets.