EconomistMom.com
…because I’m an economist and a mom–that’s why!

EconomistMom.com

The Debt As National Security Threat–and What To Do About It

September 17th, 2012 . by economistmom

Please tune in (go online) to watch today’s event–the second in a series of off-the-Hill hearings with formerly on-the-Hill people designed to highlight bipartisan views on the debt problem and how to solve it.  It will be live-streamed starting at 12:30 pm (going until around 3:30).  Today we hear from:

PANEL ONE

National Security Implications of America’s Debt

Featuring:

Robert Gates
Former U.S. Secretary of Defense (via Satellite)

Michael Mullen
Former Chairman of the Joint Chiefs of Staff

PANEL TWO

The Bipartisan Plans to Address the Situation

Featuring:

Erskine Bowles
Former White House Chief of Staff; Co-chair, National Commission on Fiscal Responsibility and Reform (via Satellite)

Pete Domenici
Former U.S. Senator (R-NM); Senior Fellow and Co-Chair, Bipartisan Policy Center’s Debt Reduction Task Force

Alan Simpson
Former U.S. Senator (R-WY); Co-chair, National Commission on Fiscal Responsibility and Reform (via Satellite)

Alice Rivlin
Former Director of the White House
Office of Management and Budget; Co-chair, Bipartisan Policy Center’s Debt Reduction Task Force

The opening session of this “Strengthening of America” initiative–a joint one sponsored by The Concord Coalition, the Bipartisan Policy Center, the Center for Strategic and International Studies, and others–was held last Wednesday, at which former Treasury secretaries James Baker and Robert Rubin spoke.  Here’s a blog post by Concord’s Steve Winn summarizing that hearing.

13 Responses to “The Debt As National Security Threat–and What To Do About It”

  1. comment number 1 by: Patrick R. Sullivan

    As a couple of friends of mine are fond of saying, ‘When unlike things are treated as though they are like, error is assured.’

  2. comment number 2 by: Brooks / Gordon

    I hope a (probably brief) threadjack can be forgiven…

    In the news today is a pie chart from a TPC study, showing the percentage breakout of “tax units made nontaxable by tax expenditures” across different “tax expenditures” that made each tax unit nontaxable http://taxvox.taxpolicycenter.org/2011/07/27/why-do-people-pay-no-federal-income-tax-2/

    I have just a technical question: Why is a pie chart — i.e., summing to exactly 100% — appropriate analytically for this purpose? Doesn’t that assume that the categories are mutual exclusive — that, for example, no one who benefits from “credits for children” isn’t someone also benefiting from “itemized deductions”, and that no one among “the working poor” also benefits from “elderly tax benefits”, etc., etc.?

    I assume that such an assumption is invalid, and it seems to me that a pie chart — i.e., discrete categories summing to 100% — is invalid. Am I wrong?

    In the paper that the blog post links to, TPC explains their methodology, with bolding mine:

    To determine which tax expenditures moved tax units from being taxable to being nontaxable,
    we arranged tax expenditures into eight groups and then estimated how many units became
    nontaxable when we added each group of tax expenditures sequentially to the standard income
    tax provisions.

    From that explanation, it seems to me they probably chose a category to start with first, and all those who fit that category were put into that section of the pie chart even if those tax units also fit their other categories of tax expenditures. If so, the sequence they choose over-represents those categories they count first (in that it gives the appearance that that category was the sole factor and in that it appears disproportionately larger than other categories) and understates the percentages for lower categories.

    Yet in Table 2 of the paper they present what looks to be raw data in which the categories do appear to be mutually exclusive. Perhaps that is not really raw data, thought, but rather a reflection of the above methodology (e.g., counting everyone who gets “elderly tax benefits”, if they started with that category, but only counting beneficiaries of other tax expenditures if they didn’t also get “elderly tax benefits”, and so on throughout their “sequential” counting process).

    Anyone know what the deal is with this? Am I missing something, or am I correct that a pie chart not make sense for this purpose, and that it is misleading (and subject to manipulation) if there is any substantial overlap across categories?

    (As a note, I do NOT want to get into yet another discussion of the nature of tax expenditures or what should be included in that category or if someone thinks the term is inherently bogus, etc. I’m just asking a very narrow technical question above. That’s all. I’m not making any implication about anything.)

  3. comment number 3 by: AMTbuff

    Your analysis is correct. The charts would look different if the arbitrarily chosen sequence were different. Although categories 1 and 2 have little overlap, category 3 would probably show a large percentage if it were put in the top position. Presumably the authors did not prefer the pie chart result of that choice.

    A more objective presentation would be to compute the percentage breakdown of “tax expenditures” for each taxpayer, then average those numbers by category across taxpayers. Then we might see, as a made-up example, that 25% of the tax expenditures on an average taxpayer are exclusion of transfers.

    My proposed presentation averages out the diversity the paper’s authors sought to highlight: That some taxpayers benefit mostly from one category and that these groups of taxpayers are qualitatively different. If you have a better methodology than theirs for that purpose, go ahead and post it. Failing that I’ll fall back on my universal recommendation: Always present the results under all reasonable assumptions. In this case that means showing pie charts for several different choices of the sequence.

  4. comment number 4 by: Brooks / Gordon

    AMT,

    Thanks.

    Yes, I agree your approach would be valid, although of course it wouldn’t quite measure the same thing (and relate as directly to the point re: % of households not paying any income tax).

    I don’t have an alternative, and I agree with you that they could have shown pie charts resulting from various sequences to the extent that there was substantial overlap across categories. At the very least (if we’re correct) they should have noted the bias of their approach and addressed the degrees of overlap.

  5. comment number 5 by: AMTbuff

    On reading the paper more carefully, the text on the bottom of page 3 together with Chart 4 anticipate your question and address it well. With that additional information in hand the methodology appears quite sound.

    I probably would have gone with Chart 4’s red lines (separate effect) only instead of the pie chart, but the two differ only for above the line deductions such as deductible retirement contributions and tax-exempt interest .

  6. comment number 6 by: Brooks / Gordon

    AMT,

    Very good point. I should have read the paper more thoroughly.

  7. comment number 7 by: Patrick R. Sullivan

    So, now the TPC says Martin Feldstein was right;

    ‘…we should keep in mind that high-income households pay a lot less tax than they would without tax expenditures.’

  8. comment number 8 by: Patrick R. Sullivan

    Also from the TPC, better late than never;

    http://taxvox.taxpolicycenter.org/2012/09/13/who-pays-the-corporate-income-tax-2/

    ‘…until now, TPC assumed investors ultimately paid the entire corporate tax in the form of lower returns to capital. Now, TPC concludes that labor also pays through lower wages. As a result, workers, as well as shareholders and other owners of capital, would benefit from any cut in the corporate tax. Similarly, both would take a hit if corporate taxes are hiked.’

    When do they endorse Romney.

  9. comment number 9 by: Brooks / Gordon

    Patrick,

    No, that point by TPC does not lead to your conclusion that they are saying Feldstein was right. “A lot less” does NOT equate to “so much less per the tax expenditures Romney may intend to reduce/eliminate that they’d end up paying as much or more net of Romney’s proposed tax rate reduction”.

    As I said at http://economistmom.com/2012/08/refutation-by-redefinition-feldsteins-redo/#comment-88126 I’ve been hoping TPC would respond to Feldstein’s second piece at http://gregmankiw.blogspot.com/2012/09/a-reply-from-martin-feldstein.html, his response to their critique of his first piece, with revised assumptions and an argument that 100k is a more appropriate cut-off for the middle class (middle income). Does TPC agree that Romney can produce revenue-neutrality for those above 100k (and thus not have to increase taxes paid by those below)? And do they have a response re: the $100k limit of the “middle class” (middle income)?

    I haven’t seen a response from TPC.

    Seems that, as of last Sunday, TPC has had a nice opportunity to point out, as part of a response, that Romney himself rejected Feldstein’s $100k assumption.

    From ABC’s This Week, 9/14:

    GEORGE STEPHANOPOULOS: You know Democrats are going to be wanting to get much more detail from you on how you’re going to pay for your tax cuts. We’ve heard that at the Democratic Convention. President Clinton said your math doesn’t work. I know you dispute what President Clinton said and what the Democrats that say that you’re going to have a $2,000 tax hike on middleclass families. I know you dispute that. You cite your own studies. But one of the studies you cite by Martin Feldstein at Harvard shows that to make your math work, it could work, if you eliminate the home mortgage, charity, and state and local tax deductions for everyone earning over $100,000. Is that what you propose?
    MITT ROMNEY: No, that’s not what I propose. And, of course, part of my plan is to stimulate economic growth. The biggest source of getting the country to a balanced budget is not by raising taxes or by cutting spending. It’s by encouraging the growth of the economy. So my tax plan is to encourage investment in growth in America, more jobs, that means more people paying taxes. So that’s a big component of what allows us to get to a balanced budget.
    GEORGE STEPHANOPOULOS: But his study, which you’ve cited, says it can only work if you take away those deductions for everyone earning more than $100,000.
    MITT ROMNEY: Well, it doesn’t necessarily show the same growth that we’re anticipating. And I haven’t seen his precise study. But I can tell you that we can lower our rates–
    GEORGE STEPHANOPOULOS: Well, you cited the study, though.
    MITT ROMNEY: Well, I said that there are five different studies that point out that we can get to a balanced budget without raising taxes on middle income people. Let me tell you, George, the fundamentals of my tax policy are these. Number one, reduce tax burdens on middle-income people. So no one can say my plan is going to raise taxes on middle-income people, because principle number one is keep the burden down on middle-income taxpayers.
    GEORGE STEPHANOPOULOS: Is $100,000 middle income?
    MITT ROMNEY: No, middle income is $200,000 to $250,000 and less.

    http://abcnews.go.com/blogs/politics/2012/09/full-transcript-george-stephanopoulos-and-mitt-romney/

  10. comment number 10 by: Patrick R. Sullivan

    Brooks, the TPC claim was that Romney’s idea was ‘mathematically impossible’. Clearly, it isn’t.

  11. comment number 11 by: AMTbuff

    Diane wrote:
    If you recall, the Tax Policy Center’s analysis showed that it was mathematically impossible to cut marginal tax rates as much as Romney proposes, not increase capital income taxes, and broaden the tax base in a revenue neutral way, without the reform resulting in a shift of tax burdens away from the richest households and towards other households (the “non-rich” you might say)–in other words, a “regressive” distributional effect.

    I believe this statement to be correct even under assumptions about base broadening and additional economic growth that I would consider fair to Romney. It’s unfortunate that the TPC has not published enough information to allow me to confirm or reject my belief.

    The TPC’s case is so strong with the assumptions they made that I’m guessing the result would be in the same direction even with modestly different assumptions. I just wish I didn’t have to guess.

    I also believe that TPC damaged its reputation for impartiality by wading into the political cesspool. TPC should be especially careful to present all sides of the issues if it does that.

  12. comment number 12 by: Brooks / Gordon

    Patrick,

    Don’t shift the subject in the guise of a reply to my response to you. I addressed a specific argument you made and pointed out that it was a non sequitur. Your reply is irrelevant.

  13. comment number 13 by: AMTbuff

    Heritage has just posted a comprehensive response to the TPC’s analysis of what it calls Romney’s plan:

    http://www.heritage.org/research/reports/2012/09/tax-policy-centers-skewed-analysis-of-governor-romneys-tax-plan

    Commenters here will be happy to see that all their points have been included in the discussion. IMHO the most important point is that TPC framed its question in a way that was favorable to Democrats. If we stipulate that Romney could not:
    A. Cut tax rates 20%,
    B. Maintain revenue neutrality, and
    C. Maintain distributional neutrality,
    then who says that the compromise must be on (C) rather than on (A)? Or (B)?

    If TPC had cared about appearing non-partisan it could have presented the result that Romney can only cut tax rates 18% (or whatever) while maintaining distributional and revenue neutrality. That headline would have been a yawner. Instead, TPC wanted to make an striking statement and it did. That was a very costly choice for on outfit that had a hard-earned reputation for impartiality.

    [Housekeeping note: Diane, you might want to remove the URL option for posters. Spammers are posting nonsense with URLs attached to their names.]