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Doomsday for the Cliff Deal

December 21st, 2012 . by economistmom

mayan-calendar-rock

All over an unwillingness to convince his colleagues to let tax rates come back up (as scheduled) on (even) the very richest, any “deal” between Boehner and Obama is off –at least until after Christmas:

House Speaker John A. Boehner threw efforts to avoid the year-end “fiscal cliff” into chaos late Thursday, as he abruptly shuttered the House for the holidays after failing to win support from his fellow Republicans for a plan to let tax rates rise for millionaires.

The proposal — Boehner’s alternative to negotiating a broader package with President Obama — would have protected the vast majority of Americans from significant tax increases set to take effect next year. But because it also would have permitted tax rates to rise for about 400,000 extremely wealthy families, conservatives balked, leaving Boehner (Ohio) humiliated and his negotiating power immeasurably weakened.

The Post article goes on to quote from Boehner’s issued statement:

“The House did not take up the tax measure today because it did not have sufficient support from our members to pass. Now it is up to the president to work with Reid on legislation to avert the fiscal cliff,” the statement said, referring to Senate Majority Leader Harry M. Reid (D-Nev.).

But how will it help to leave the Senate Democrats to work with the President on a plan?  The whole problem has been the lack of bipartisanship and the willful disregard for “common ground” policies that both sides could not exactly “love” but at least come to tolerate.

Maybe over the Christmas break the politicians can sit back and ponder what their own personal roles in this impasse have been and the choices they’ve made about the battles they’ve fought.  There’s been much ado about the tax rates on the rich–should the top two brackets (affecting only those with incomes over about $250,000) be allowed to go back to pre-2001 levels, or only the top bracket (affecting those over about $400,000), or only the top rate for millionaires?  All those options would produce only a fraction of the deficit reduction required to get us back on an economically sustainable path–at best, a “downpayment” on what will have to be a grander bargain eventually (but soon).  The real money and the real (more) common ground lies in looking at the ways in which the federal government spends money (and “subsidizes” certain privileged activities) through the tax code.  In this week’s installment of his always excellent New York Times column, Bruce Bartlett reiterates the point that tax expenditures grow government (so that Republicans should be in favor of cutting tax expenditures just like they favor cutting direct spending), while he also reminds readers that extending tax cuts and deficit financing them is not cutting taxes at all–it’s raising future taxes.

As if as a society we have not been neglecting our kids’ well being enough already.  All over what seems a silly, way overblown debate over the top income tax rates going from 30-some to 30-some percent.

41 Responses to “Doomsday for the Cliff Deal”

  1. comment number 1 by: SteveinCH

    On the “tax expenditures” grow government point, it is of course nonsense.

    Let’s posit a tax code that looks like this.

    1. All HH shall pay 100% of their income to government.

    2. All HHs with at least one member who is breathing on December 31 of the year receive a 100% credit on their incomes.

    How large of a government would we have under this tax code?

    By Bartlett’s silly logic, government would be 100% of GDP. But of course government would have very little (pity the poor guy or gal who dies on 12/30 and can’t transfer assets in time) and would be able to do almost nothing.

    It’s an absurd definitionalist argument designed more to confuse that to illuminate and to defend the growth of government at all costs.

  2. comment number 2 by: Vivian Darkbloom

    “On the “tax expenditures” grow government point, it is of course nonsense.

    Let’s posit a tax code that looks like this.

    1. All HH shall pay 100% of their income to government.

    2. All HHs with at least one member who is breathing on December 31 of the year receive a 100% credit on their incomes.

    How large of a government would we have under this tax code?”

    Steve, Bartlett’s argument is half wrong—and so is yours.

    Let’s begin with your example because it is not realistic or representative of tax expenditures generally. Tax expenditures, by their nature, direct the tax breaks to a particular segment of the economy. The JCT would not call a general credit on income, as you have posited it, as a “tax expenditure” for the same reason that they don’t classify the standard deduction as one.

    When government gives a tax break for wind or solar energy or growing corn or purchasing a house, that is “growing government” in the sense that government decides who gets favorable treatment or politicians get to leverage their influence by deciding how these favors are handed out and these examples validate Bartlett’s general point.

    I don’t mean to re-open the entire discussion on “tax expenditures” again; however, I would again re-iterate that not all tax expenditures are created equal. The broader the application of the expenditure, the more it resembles your example–that’s why you are only half wrong (or half right). The more narrow it is, the more it validates what I think Bartlett’s point is (or should have been). The broader it is, the more it validates your point.

    I’m not yet sure whether the refusal to pass Boehner’s bill represents an act of political courage or irresponsibility. From what I gather, the main objection was not that it raises taxes—the main objection was that it does not cut spending and would not likely lead to any outcome that would dramatically cut spending. To the extent the motivation was the latter, I would say it is an act of political courage. Thus far, the media have played this as a refusal to raise taxes on the rich and that’s largely political spin. I may be wrong, but I don’t think that is what resulted in the failure to get this bill through. Even Grover Norquist said he didn’t have a problem with the tax aspect of that bill.

    http://www.businessinsider.com/grover-norquist-boehner-plan-b-atr-fiscal-cliff-tax-increase-obama-2012-12

  3. comment number 3 by: SteveinCH

    Vivian,

    Thanks for the thought but I don’t agree with you. First, the definition of “tax expenditures” is almost infinitely expandable. On the left, it’s now fashionable to call the differential rate on capital income a tax expenditure, though by your definition it clearly isn’t. And, my example isn’t a general credit on income. Some people will not qualify (namely those who are the last surviving member of their HH and die in a particular year).

    If government had a policy where its only intervention into a segment of the economy was through the tax code, you might rightly call that “growing government.” However, the examples you cite do not fit that criteria. Outside the tax code, government is already heavily involved in the energy and housing sectors thus it is not growing the reach of government to include it through the tax code.

    Furthermore, Bartlett’s argument is also mathematical, namely he’ll argue that government “spends” the money it fails to collect through tax expenditures. The point of my example is to illustrate what a nonsensical perspective that is.

  4. comment number 4 by: Vivian Darkbloom

    Steve,

    I hate to nitpick on your comment because I suspect we agree on most things; However,

    “First, the definition of “tax expenditures” is almost infinitely expandable. On the left, it’s now fashionable to call the differential rate on capital income a tax expenditure, though by your definition it clearly isn’t. ”

    As to the first sentence, yes, and that was inherent in my comment that “not all tax expenditures are equal”. As to the second sentence, I agree as well, but probably for a different reason. My point is that if everyone gets to benefit from a tax break, it is no longer a “tax expenditure” (such as the standard deduction). Quite a few people benefit from lower rates on capital gains, but certainly not everyone. If this were the only criterion one could argue that “preferential rate” on capital gains is a “tax expenditure” to some degree. However, there are other rational economic reasons why capital gains should be taxed at lower rates (and perhaps not at all). Therefore, if it is not a preference, it can’t be a tax expenditure. The preferential rate is designed to offset other distorting effects of other parts of the tax code. The JCT now proposes to call this a “tax induced structural distortion” rather than a “tax expenditure”. The latter has been historically associated with “tax subsidies”.

    “If government had a policy where its only intervention into a segment of the economy was through the tax code, you might rightly call that “growing government.” However, the examples you cite do not fit that criteria. Outside the tax code, government is already heavily involved in the energy and housing sectors thus it is not growing the reach of government to include it through the tax code.”

    The fact that government might already be active in a particular sector through means other than taxation is for me not a reason to argue that if they do intervene through tax preferences this does not *enlarge* the scope of government. If government directly spends $100 on housing and indirectly spends another $100 through targeted tax breaks, say, the low income housing tax credit, I would not object to calling that a doubling of the size of government in that sector.

    Again, I view “tax expenditures” on a continuum scale. We might start with the standard deduction at one extreme (or with your own example which is near that extreme which is not a tax expenditure or hardly one). At the other end, we could cite the low income housing credit or most of the refundable tax credits which clearly are in the realm of “spending”. I agree with you that the term has been stretched to the extent that it no longer has any clear or useful meaning. But, we’ve covered all this before, ad nauseum.

  5. comment number 5 by: reflectionephemeral

    We have very low borrowing rates, a long-festering unemployment crisis, and a deeply & fundamentally irrational opposition party.

    This is the worst possible time to strike a “grand bargain” on our long term debt problem.

    (Which is mostly health care costs).

    The problem isn’t the “lack of bipartisanship”, it’s the Republican Party’s incapability of behaving rationally from a policy or strategic perspective.

    Bipartisanship is generally a virtue, but not when one of the two parties is off the rails. Everyone who cares about the deficit & the debt is working to defeat all Republican candidates for federal office.

  6. comment number 6 by: SteveinCH

    Good luck with that perspective. But, let me ask you a question.

    Let’s say that you know three things.

    1. The current interest rate is low.

    2. The long term interest rate is much higher.

    3. You don’t repay debt. Instead you roll it over.

    Under those three things, what are the medium and long term consequences of acquiring more debt today because the current interest rate is low?

    Just one more thing…sentences that start with “everyone who cares about x is doing y” are almost always incorrect. Yours is as well.

    I think you’d find most everyone who posts here cares about the deficit and debt and I suspect most are not working to defeat all Republican candidates for federal office.

    Happy holidays

  7. comment number 7 by: AMTbuff

    Boehner put himself on the line for a deal. Reid is playing the coward, hiding from any political risk. Obama doesn’t appear to want a deal. It seems to me that Reid and Obama need to step up as Boehner did, but maybe they are too accustomed to reaping the rewards of other people’s efforts.

    Whoever you prefer to blame, the two parties are having an absurdly difficult time agreeing on cutting 10% of our current deficit. It’s depressing. Imagine the arguments when the Chinese and other lenders decide not to roll over their T-bonds and the cash shortfall is $3T per year. Here’s what they’ll be saying in Argentina: http://www.youtube.com/watch?v=aIrhVo1WA78

  8. comment number 8 by: Vivian Darkbloom

    “This is the worst possible time to strike a “grand bargain” on our long term debt problem.”

    I wonder: What would be the best time? Striking a bargain is different from fully and immediately implementing it.

    This reminds me of the saying that “the best time to plant a tree was yesterday”. Even stronger logic applies, I think, to arriving at a grand bargain to address our debt problem. Trees tend to grow more quickly when young and the rate slows in middle and old age. Not so with the debt. A growing national debt is always subject to the law of compound interest.

    If you don’t believe me, just read “Being There” or better, watch the movie starring Peter Sellers. We really need Chauncey Gardiner now. In addition to being uncommonly wise, he could also walk on water.

  9. comment number 9 by: Arne

    “the best time to plant a tree was yesterday”

    The best time to have spent money on infrastructure (including education) was last year. After all the whole “fiscal cliff” is an admission that the stimulus was not enough.

  10. comment number 10 by: Vivian Darkbloom

    Arne,

    If I thought that spending money on infrastructure (including education) would be money well spent and represent a positive net long-term return on “investment”, I would agree with you.

    Unfortunately, history proves otherwise. For every additional $2 spent on “infrastructure” that has a positive return on investment there are probably $8 that do not. This is especially true with respect to education. We’ve had this discussion in this forum already; however, just to summarize: the United States already spends more per capita on “education” than any other country on the planet, save one (Finland is normally cited). And yet, the return on that investment is dismal compared with countries that spend far less. The problem with the US education system is not insufficient spending. For example:

    http://rossieronline.usc.edu/u-s-education-versus-the-world-infographic/

    And, much of the cost of US education spending is hidden due to unaccounted pension costs.

    So, if you want to plant government trees, fine. But, first demonstrate to me that that tree is a good investment and not just something to put more gifts under. One thing is certain: Borrowing that money to invest in trees has significant costs. The higher our debt (e.g. as measured by the debt-to-GDP ratio), the higher those costs are. Probably, exponentially so.

    Besides, I fully expect government spending on education will be ramped up all on its own in the near future when students start defaulting in even greater numbers with respect to loans given them previously as “investments”.

    http://www.huffingtonpost.com/2012/04/03/student-loan-debt-recovery_n_1399136.html

  11. comment number 11 by: Arne

    The complaint is that it could be more efficient - no doubt. Nonetheless, a better educated workforce is a good investment and keeping more of our experienced teachers from being laid off would further that investment and would be stimulative. Especially when speeking of should have beens.

  12. comment number 12 by: SteveinCH

    Arne,

    Do you have any idea what the trend line looks like on education spending over time?

    Do you think we should expect some improved results for additional spending?

    As for the notion that we are laying off experienced teachers, I’m curious what facts you think you have to support that. If you look at the BLS data, education jobs are down less than 200,000 on a basis of more than 10 million versus 2008.

    When you spend more to get the same or less, do you ever stop spending more?

  13. comment number 13 by: Arne

    Since 1970 the percentage of GDP spent on education has dropped slightly, with variations somewhat following the business cycles. In constant dollar terms it has increased, as has the number of degrees earned, the total number of students, the percentage of students in povery and the percentage of students on IEPs.

    We are spnding more and getting more.

    I don’t know how to respond to someone who presents numbers that show a decrease and ask why I think there is a decrease.

  14. comment number 14 by: SteveinCH

    And I don’t know how to respond to someone who asserts as facts things that aren’t.

    http://www.usgovernmentspending.com/spending_chart_1970_2011USp_13s1li111mcn_20t

    And spending per pupil in real terms is up dramatically

    http://nces.ed.gov/fastfacts/display.asp?id=66

    Spending per pupil has more than doubled in real terms.

    Perhaps you’d like to present some actual numbers as opposed to assertions.

    Take care

  15. comment number 15 by: Arne

    Interesting, I was looking at this chart from the same source,
    http://www.usgovernmentspending.com/education_spending

  16. comment number 16 by: SteveinCH

    And it’s the classic trap of the big spender. Negative returns to scale are the only way to go.

    Why should education spending per pupil grow faster than inflation exactly?

  17. comment number 17 by: Vivian Darkbloom

    Steve,

    Those costs you cite on government education spending are vastly understated (I do not believe US government spending dot com takes the tax expenditure costs into account as spending). I don’t really hate to do this, but this is relevant to our recent exchange on tax expenditures. The cost of that “spending” is estimated to be over $35 billion per year (at the federal level):

    http://subsidyscope.org/education/tax-expenditures/

    Another area of large unaccounted-for costs is in the area of student loans. Direct loan programs do not take into account the “fair market” cost of providing lower-than-market interest rates. Also, the federal government is on the hook for about 97 percent of the huge amounts of student loans that have previously been extended as “investments”.

    There is record number of student loans in danger of default. The student loan crisis will eventually be compared to the housing crisis.
    But, the data you refer to (with respect to elementary and secondary education) shows that per capita spending in real terms has increased above 5-fold since 1960.

    I have to doubt that kids who graduate from high school today (if they do) or adults who graduate from college are 5 times smarter than those who graduated in 1960.

  18. comment number 18 by: Arne

    The productivity and earning power of those more expensively (better) educated pupils is increasing. The returns are still positive, although not as dramatically so. It is true that we can go too far, and I know of many anecdotes. But in the aggregate, reducing the numbers of experienced teachers who were laid off would be a good investment in education and would stimulative.

    Enough said.

  19. comment number 19 by: SteveinCH

    Arne,

    That’s not the answer to any question and you’ve provided exactly zero data to support your point of view. If you want to classify it as an assertion, that’s fine. If not, I’d suggest a fact base.

  20. comment number 20 by: SteveinCH

    VD–

    Two thoughts…$35 billion a year in the context of US education spending can hardly be considered a “vast” understatement. As to whether that’s spending or not, a topic for another day (hopefully not).

    On student loans, I agree on the default risk but, as are the actuarial costs of SS, Medicare, and pensions, our cash accounting system at the Federal level doesn’t really allow us to calculate them.

    And your point on real costs of elementary and secondary ed is exactly my point to Arne. But it does create a broader point for me. Measuring spending as a percent of GDP creates an inherent upward bias. Spending should be measured in real dollars per capita (of the population served). Anything more than flat is, in my view at least, overspending.

    If I could change one thing in our budget processes, that would be the one thing.

    Merry Christmas to you if you are a celebrant : )

  21. comment number 21 by: Vivian Darkbloom

    Steve,

    “Vast” of course is rather subjective. I think you need to add the sums mentioned in your para 1 and 2, add to that the hidden pension costs, etc;, and then make your own judgement.

    Merry Christmas to you, too, as well as to Arne and all the others who drop in here. As for me, I’ll celebrate most anything.

  22. comment number 22 by: Jim Glass

    How Democracy Works

    Today I went into the local deli to get a cup of coffee, and the TV that entertains the lottery ticket players in there was showing “Who Wants to Be a Millionaire?”, celebrity edition.

    Cheech Marin had just been asked:

    “If the track for the Indianapolis 500 race is 2.5 miles long, and the race is 500 miles, how many laps around the track does it take to complete the race?

    “A: 125, B: 200, C: 250, D: 500″

    Cheech goes: “Oh … uh … math, I live in Hollywood you know … uh…”

    (Apparently dope really does rot your brain.)

    Then he says: “I’d like to use my ‘poll the audience’ option.”

    Host Meredith Vieira says sure, and tells the audience members to all punch in their answers on their seat keyboards.

    The audience answers are very much like:

    A: 125, 17%
    B: 200, 39%
    C: 250, 14%
    D: 500, 30%

    Cheech says, “More say B than anything else. I put my faith in the people. So I’ll say B, 200 laps.”

    Just like a politician!

    As Tiny Tim said: “God bless us, every one. We need it.”

  23. comment number 23 by: AMTbuff

    This recalls Tony Hendra’s clever line (on National Lampoon’s Radio Dinner album): “If dope smoking doesn’t damage your brain, how come so many teenyboppers think Cheech and Chong are funny?”

  24. comment number 24 by: Jim Glass

    Ha! I just found my copy of that album in old stuff I had packed away, listened to it, and was thinking of it as I wrote that. That thing still funny.

    You do realize how we are dating ourselves.

    Ah, the classics. :-)

  25. comment number 25 by: SteveinCH

    Looks like doomsday may have been averted.

    My reactions are that it’s about as bad a deal as could have been created.

    http://uspoliticaleconomics.blogspot.com/2013/01/the-not-quite-worst-deal-imaginable.html

  26. comment number 26 by: SteveinCH

    Allow me to make one more point here. The entirety of the scoring process is now ridiculous. The papers are reporting a $600 billion tax increase. But the baseline you have to construct to get that number is neither current law nor current policy. On current law, this scores as a massive tax cut…probably $3 trillion or so over 10 years. On current policy, it should score as a more than $1 trillion tax increase since the payroll tax holiday is in the current policy baseline (or at least it should be).

    So this is more of the issue with baseline budgeting. DC claims $600 billion in tax increases versus a baseline that nobody has ever seen before…only in Washington…

  27. comment number 27 by: AMTbuff

    The bad:
    1. No entitlement reform
    2. No spending cuts
    3. More revenue acceleration (Roth conversion) to feed spending
    4. Higher top rates make it impossible to reform the income tax without decreasing progressively, which is a holy grail for the left. As Mankiw says, this is a total rejection of Bowles-Simpson principles.

    The good:
    5. Fantasy revenue from AMT spring-back to 1993 levels is finally gone, as is the annual AMT extension game.
    6. The current law and current policy baseline have been unified, albeit with an unsustainable fiscal gap. The parties can no longer talk past each other while trying to fool the voters by speaking from different baselines. Diane and other acolytes of the higher-revenue fantasy baseline now must join the reality-based community.

    This last point is the least appreciated and possibly the most important achievement of all. I haven’t seen anyone mention it yet.

  28. comment number 28 by: Vivian Darkbloom

    AMT,

    All good points.

    The baseline issue cuts both ways; however, on balance I think that bringing the policy and law baselines together is a good thing, as you state.

    Who remembers the significant tax increases brought about by ObamaCare? They were hardly part of the current discussion. The next time tax increases on the “rich” will be proposed, we’ll have a new baseline to work from, and those proposed increases won’t seem as significant when they are not lumped together with the prior increases. That, too, is part of the overall baseline strategem.

    I suspect that we will no longer talk about the “Bush tax cuts” or the “Clinton-era tax rates”. What’s next then? The “Eisenhower-era” tax rates and the Kennedy tax cuts?

    The Roth IRA “revenue raiser” is an inspired bit of accounts juggling. Both sides can claim victory–one short-term, the other long-term.

    As I understand it, the proposal is designed to encourage taxable rollovers to Roth IRA’s that will generate more income in the 10-year budget window but cost revenue over the longer period. In the world of private business, people go to jail for that. In the government realm, it’s just part of being a good “public servant”.

    I have not looked at the details and was actually curious as to what has really changed. I could do a taxable rollover from a normal IRA to a Roth IRA under prior law. And, I could do a rollover from a 401(k) to a normal IRA to a Roth under prior law. Is the change simply that the transfer from a 401(k) or similar qualified plan can now be done directly rather than without an intermediate stage? I have yet to see a media description that makes any sense to me and have not had time to study the actual text of the bill.

  29. comment number 29 by: Jim Glass

    The current law and current policy baseline have been unified, albeit with an unsustainable fiscal gap. The parties can no longer talk past each other while trying to fool the voters by speaking from different baselines. Diane and other acolytes of the higher-revenue fantasy baseline now must join the reality-based community.

    This last point is the least appreciated and possibly the most important achievement of all. I haven’t seen anyone mention it yet.

    I have. It seem the Democrats really liked the Bush tax cuts for 99% of the people all along. One report I saw: “Obama’s first offer was for a $1.6 trillion tax hike, Boehner countered with $800 billion, the final deal was for $600 billion, what does this tell us?”

    Douthat in the Times:

    http://douthat.blogs.nytimes.com/2013/01/01/liberalisms-400000-problem/

    If a newly re-elected Democratic president can’t muster the political will and capital required to do something as straightforward and relatively popular as raising taxes on the tiny fraction Americans making over $250,000 when those same taxes are scheduled to go up already, then how can Democrats ever expect to push taxes upward to levels that would make our existing public progams sustainable for the long run?…

    There is a significant constituency among Congressional Democrats that was already uncomfortable with the $250,000 threshold and wanted to push it higher — all the way to a million dollars, if a certain influential New York Senator had his way…

    Nor is this tax-wary caucus likely to grow weaker with time: It exists because many Democratic lawmakers represent (and are funded by) a lot of affluent professionals in wealthy, high-cost-of-living states, and that relationship is only likely to loom larger if current demographic and political trends persist.

    Is a Democratic Party that shies away from raising taxes on the $250,000-a-year earner (or the $399,999-a-year earner, for that matter) in 2013 — when those increases are happeningly automatically! — really going to find it easier to raise taxes on families making $110,000 in 2017 or 2021? Color me skeptical…

    Because Social Security and Medicare are so popular, the right-wing path to fiscal sustainability does sometimes have an air of fantasy about it. It’s just that on the evidence of what the Obama White House and Senate Democrats have been willing to concede this week, the left-wing path to solvency looks pretty implausible right now as well.

    The Democrats have now made 98% of the Bush tax cuts permanent, without cutting spending at all.

    From today on, where is the increased revenue to pay for that spending supposed to come from?

  30. comment number 30 by: Vivian Darkbloom

    “The Democrats have now made 98% of the Bush tax cuts permanent, without cutting spending at all.”

    Yes, and Paul Krugman agrees!:

    “The bad news is that the deal falls short on making up for the revenue lost due to the Bush tax cuts. Here, though, it’s important to put the numbers in perspective. Obama wasn’t going to let all the Bush tax cuts go away in any case; only the high-end cuts were on the table. Getting all of those ended would have yielded something like $800 billion; he actually got around $600 billion. How big a difference does that make?”

    “And on the principle of the thing, you could say that Democrats held their ground on the essentials — no cuts in benefits — while Republicans have just voted for a tax increase for the first time in decades.”

    http://krugman.blogs.nytimes.com/2013/01/01/perspective-on-the-deal/

    Most of Krugman’s followers have not yet been able to put 2 + 2 together. They are apparently incapable of figuring out that the next round is on them.! It’s pretty amazing how gullible most people are. But, I guess if you want to believe something, you really will despite all evidence to the contrary.

    It doesn’t seem that difficult to go from Krugman’s paragraph one to his paragraph two to the next tax hike, but Krugman’s followers apparently won’t get it until it hits them in the wallet. It will be interesting to see how the pivot from taxes on “the rich” to taxes on the middle class is made. The NYT editorial board is already prepping their readers with talk of a financial transaction tax, VAT, etc.

    My guess is that it will take a bond crisis. But, AMT made that observation already.

  31. comment number 31 by: Brooks / Gordon

    Jim,

    Although I haven’t read up on the details of the legislation or the negotiations, my sense upon the news (and previously after Obama offered up the $400k alternative) is much like that implied (I think) by Douthat — that Obama was holding all the cards, yet (for whatever reason) didn’t really want or couldn’t get the $250k, and leaves much on the table with this deal. Put differently, my first reaction to the news (and to Obama’s previously offering up the $400k) was to wish I could play poker with Obama.

    Andrew Samwick’s take: http://www.samwick.blogspot.com/2013/01/so-who-won-fiscal-cliff-fight.html

  32. comment number 32 by: Vivian Darkbloom

    Brooks,

    What is the difference between the revenue to be raised by increasing rates from $250K upwards and $400K upwards? Even Krugman concedes, not much.

    We are talking penny ante here.

    Let’s face it–Obama promised too much to start with. When you open the negotiation by unrealistically stating that you are not going to raise taxes on anyone earning less than $250K per annum and you are not going to cut spending, what do you expect? This is not bad negotiating, it’s bad policy and politics. Obama ran on the platform of not raising taxes on 98 percent of Americans but permanently writing those tax cuts into the Code for that 98 percent. And now, you claim to be surprised at the result? Where the heck have you been? He got a very large part of what he campaigned for.

    Everyone on the left, including you Brooks, suddenly seem surprised. Given the starting point, what the heck did you expect?

  33. comment number 33 by: Brooks / Gordon

    Vivian,

    True, $200 billion over 10 years isn’t much from a deficit-”reduction” perspective. But it does mean that about $200 billion may come at the “expense” (one way or another) of people with much lower income (and wealth), and it may be “much” to at least some of them.

    As for Obama, FWIW, I think his opening bid was $1.6 trillion in revenue (over 10 years), and that he favored and still favors some spending cuts (at least in the abstract, and I think with some indications of some particulars, such as changes to Social Security COLA that you brought up previously). That said, I don’t see much in terms of results, at least to this point with this legislation he agreed to, so I still don’t see much seriousness from him on this problem.

    Everyone on the left, including you Brooks

    On what basis do you consider me “on the left”?

  34. comment number 34 by: SteveinCH

    AMT, not sure I agree with your point on the baseline consolidation. It’s true for revenue now but not for spending…witness the CBO assumption that the sequester will still happen for 9 years and 10 months beginning in March.

  35. comment number 35 by: Brooks / Gordon

    AMT / Steve,

    To add to Steve’s point re: baseline spending, have they made some permanent “fix” to the “doc fix” for Medicare, or is that still a difference between current law and current policy baselines?

    I realize perhaps you were just referring to the revenue baseline and related discussion of tax “increases”/”cuts”.

  36. comment number 36 by: SteveinCH

    The doc fix has only been done for one year as I understand the bill that just passed so it will still be a current law/current policy baseline issue.

  37. comment number 37 by: Brooks / Gordon

    Steve,

    Yeah, that’s what I thought. So I guess AMT just meant revenue baseline.

  38. comment number 38 by: AMTbuff

    Yes, I meant revenue baseline. I have not heard people on either side refer wistfully to maintaining the current law fantasy on doc fix. There has been a little bit of it on the sequester, although neither side likes both the defense and non-defense halves of the sequester.

    I haven’t seen Republicans extoll the current law baseline on sunsetting spending items and I don’t expect Diane to do so either. If anyone tries that, I will criticize them here. It makes no more sense for spending than it did for revenues.

    Sunsetting as a scoring gimmick does not express Congressional intent. It never did. The most it can do is to provide negotiating leverage to move the outcome slightly in favor of one party, as we just saw.

    Current law baselines which depart from current policy remind me of Lincoln’s “if you call a tail a leg” riddle. Good riddance to that line of argument!

  39. comment number 39 by: Brooks / Gordon

    AMT,

    Would you like members of Congress to oppose and try to prevent any (net) tax increases (and just address deficits entirely on the spending side)?

    And, given your (apparent) view of the current law revenue baseline as bogus if it diverges from the current policy baseline, would you regard any expiration of a prior, time-limited tax cut as a tax increase, and thus something you’d like members of Congress to try to prevent (i.e., you’d want them to extend the current tax rates [or lower them] rather than allow the scheduled tax rate increase)?

  40. comment number 40 by: AMTbuff

    The revenue baselines are now unified, so your question is mercifully moot.

    I would like to see the long-term spending curves flattened for real through structural reforms which are politically durable. Means testing at defined income levels, increased eligibility ages, and anything else that’s hard for politicians to weasel out of.

    Once we know what percentage of GDP the spending will be, and once we are sure that the spending will not need to be higher except for war or recession, then tax law should be changed so that the required amount of revenue is actually collected. No more of static projections of $X vs. actual collections of $X/2. Revenue increases need to be as real as the spending decreases.

    The problem is that the spenders don’t want to cap their spending. They want more revenue precisely because it will reduce the pressure to cut spending. Under these circumstances, adding revenue fuels the spending fire rather than putting it out. The two-step process I outlined is the only way to close the fiscal gap before the bond market forces us to do it the very hard way.

  41. comment number 41 by: Brooks / Gordon

    AMT,

    The revenue baselines are unified for now, but that may not always be the case, and my questions matter even under current circumstances (as I’ll explain if we can make some progress here).

    Let me make my questions more precise, because you answered only for a scenario down the road under which perhaps you would not want members of Congress to oppose and try to prevent a tax increase without giving your answer for today. So what about today (not your scenario) — what are your answers to my questions for the time being? Please give clear answers to both.

    And as a note, I’m not asking you (let alone debating you) about your rationale, assumptions, etc., underlying your answers, although there’s obviously nothing wrong with stating them if you wish, as long as they aren’t in lieu of clear answers to my questions.