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Onward

November 7th, 2012 . by economistmom

Well, now that that’s over, it’s time to get to work.  The Concord Coalition’s executive director, Bob Bixby, explains it this way in a Concord blog post:

If the country is on an unsustainable fiscal path, which it is, and if continued partisan bickering will not solve this problem, which it won’t, and if divided government has been re-elected, which it has, then the only choices are calamity or compromise.

The Concord Coalition urges compromise.

That must begin immediately as the two parties negotiate a responsible alternative to the “fiscal cliff” – a combination of tax increases and spending cuts that will hit with such suddenness that it could throw the still-fragile economy back into recession.

But they can’t just kick the can down the road — again. The year-end fiscal cliff is bad, but eventually we will need the longer-term deficit reduction produced by the policies comprising the fiscal cliff. It just needs to be phased-in in a more rational way as proposed by the bipartisan Simpson-Bowles and Domenici-Rivlin recommendations…

Solutions will be impossible if both parties retreat to their partisan corners and stubbornly insist that compromise is only something for the other side to do and that any calamity is only the other side’s fault.

It’s long past time to stop such unrealistic nonsense.

There must be spending cuts, including reform of our major entitlement programs such as Medicare, Medicaid and Social Security. And there must be tax reform that broadens the base, maintains progressivity and increases revenues. And all of this must be, and indeed can be,  done in a way that enhances economic growth.

Neither side has a monopoly on wisdom for how this should be accomplished, and neither side has a mandate, or the votes, to ram through its own purist agenda…

So the message to policymakers is this: Do your job.

And yesterday (on Election Day) the Milwaukee Journal Sentinel posted this video conversation I had with editor David Hayes during my visit to Wisconsin last month.  It’s another talk about dealing with the fiscal cliff and the longer-term fiscal outlook and how we need the public to get more engaged and vocal about it.

Happy Election Day - Go Vote!

November 6th, 2012 . by economistmom

I am SO hoping that things get resolved tonight so we can get onto all the work those politicians will need to get done before they start campaigning again. I give you a CNN video of the “campaign in 2 minutes” for some nostalgic inspiration as you all go out to vote today. See you on the other side of the election. :)

Who’s the Most Fiscally Responsible Candidate?

November 1st, 2012 . by economistmom

Between Obama and Romney, who proposes a fiscal policy agenda that’s the “most fiscally responsible?”  That’s not that easy to answer, because “fiscal responsibility” is more than just deficit reduction, and “most” depends on the baseline–i.e., compared with what?

Neither is the “most fiscally responsible of them all” certainly, because as my Concord Coalition colleague Josh Gordon writes, neither candidate is embracing a specific “go big,” “grand bargain” approach–at least not yet.  (This is an election season, after all.)

On Romney, Josh explains:

While Romney has called for cuts of five percent to non-defense discretionary spending (without providing details about where the cuts would fall), he has also supported an increase in defense spending, and restoration of the Affordable Care Act’s (ACA) Medicare cuts. When pressed, the campaign has avoided going into further detail about where all this would come out. In fact, unlike recent past presidential candidates, Romney has not produced even a bare bones outline showing the relative impact of his proposals on the budget. He has certainly given insufficient detail to establish that he has a credible plan to balance the budget.

One only needs to look at Rep. Ryan’s budget to see that even with large cuts to non-defense discretionary spending and Medicaid, it is mathematically suspect to promise a balanced budget without higher revenues — as the Ryan budget doesn’t achieve balance until 2040. Assuming that the gap can be made up with consistently above-average economic growth is an unrealistic dodge to avoid hard policy choices.

Aside from the overall goal, major questions remain about individual components of Romney’s fiscal proposals. The most discussed of these is his three-part tax plan. In short, Romney has promised to: 1) reduce all federal income tax rates by 20 percent after extending the expiring “Bush tax cuts”; 2) reduce taxes on the middle class (defined as individuals earning less than $250,000) and; 3) not increase the deficit — achieving revenue neutrality by reducing the tax expenditures benefiting the wealthy (except for the tax breaks favoring capital income).

These three parts of Romney’s plan are mathematically incompatible. The non-partisan Tax Policy Center has amply demonstrated why this is so, and no credible studies have shown otherwise. When pressed for an explanation of their assumptions, of the tax expenditures they would target, or which of the three parts would be jettisoned if the numbers don’t ultimately work, the Romney-Ryan campaign has avoided an answer.

Finally, the Romney plan for controlling health care costs in the federal budget also leaves many unanswered questions. The immediate result of his proposal to repeal not just the new spending within the ACA, but also the ACA’s Medicare cost savings and tax increases, would be to actually increase the deficit. Moreover, repeal of the ACA’s cost control experiments and pilot projects would needlessly inhibit research into ways that the health care system might be reformed to provide better value for our health care dollars. Given that we know very little on how to control systemic health care costs, this would also severely limit the possibilities for success of Romney’s own proposals to remake Medicare and Medicaid.

And regarding President Obama’s fiscal policies, Josh emphasizes that just because the President has had to be more specific (in submitting budget proposals every year), doesn’t mean it all adds up to a big-enough, fiscally-responsible-enough plan:

To the President’s credit, he supports negotiating a long-term, bipartisan “grand bargain” on fiscal issues with both spending cuts and new revenues. Yet, such explicit support has come only after his initial tepid reaction to the Simpson-Bowles report when it was released. Nevertheless, if Obama is re-elected, the upcoming fiscal cliff will give the nation’s political parties a chance to negotiate a major budget deal. This will test whether the President will fulfill his promise to have flexibility and put all options on the table. Unfortunately, during the campaign season, he and Vice President Biden have taken some options to reform Social Security (raising the retirement age) and Medicare (premium support) off the table. This will make achieving a bargain more difficult.

On taxes, the President has been similarly contradictory. He has argued for the need for more revenue, yet has ruled out tax increases for anyone earning less than $250,000. He has also proposed some new tax breaks even while arguing that others should be scaled back. On the corporate side, he has been as vague as Gov. Romney in detailing how he would pay for his proposed rate reduction.

Obama’s proposal to limit itemized deductions in the top two income tax brackets is a start on reform that broadens the tax base, yet the proposal has been made in every budget submission of his presidency and has gone nowhere. He has not supported a broader fundamental reform like the forward-looking plans recommended by the Simpson-Bowles and Domenici-Rivlin panels — where major tax expenditures are eliminated or scaled back and better targeted.

Obama’s contradictions are likely to impede a grand bargain. Furthermore, Obama’s promise not to increase taxes on anyone within a very expansive definition of the “middle class,” makes it very difficult to make the tax code more efficient.

Finally, the President’s health care reform agenda is mainly focused on implementing the Affordable Care Act (ACA). Proper implementation is a worthy goal and will be necessary for the ACA to have any chance of remaining effectively deficit-neutral. Yet, for the nation to control health care costs over the long term, more legislation needs to be enacted. Medicare in particular needs further reform.

And then there’s the tricky part–that “fiscal responsibility” means more than just mechanically reducing the budget deficit.  It means getting to “fiscal sustainability,” which is just as much about strengthening and growing the economy as it is about holding down the public debt.  (Both the numerator and the denominator in the sustainability goal of stabilizing the ratio of debt-to-GDP matter.)  The economy part (the denominator) is a particular challenge these days, because we’re still in a period where we are still recovering from an unusually severe recession that has been unusually resistant to the usual stimulus treatments, which come (naturally) in the form of deficit-financed policies.  At the moment, our economy still needs counter-cyclical fiscal policy (hence, all the calls to not let ourselves go over the “fiscal cliff”), but over the longer term after we hopefully get back to higher (”full”) employment, our economy will need higher national saving, in both the public and private sector, to keep growing its supply side (productive capacity).  So we still need deficits now, but significantly lower deficits later, and we need to be mindful that not all forms of deficit spending (or tax cuts) are created equal in terms of economic effects on either the supply or the demand sides of our economy.

I think this tricky part of having to worry about the economic (and not just budgetary) effects of these fiscal policy choices is what Princeton economics professor Alan Blinder is getting at in his Wall Street Journal op ed, where he expresses his pro-Obama opinion:

For stimulus, we could do a lot worse than to enact President Obama’s American Jobs Act, which he proposed about a year ago. It consisted of about $250 billion in tax cuts and about $200 billion in spending, most of it well targeted on creating jobs. But Republicans rejected the act outright.

For deficit reduction, I believe the nation eventually will come around to something resembling the Simpson-Bowles plan, which was rejected by both parties (with Rep. Paul Ryan voting against it) when Alan Simpson and Erskine Bowles proposed it in 2010. Although President Obama didn’t embrace Simpson-Bowles in 2010, his current 10-year deficit-reduction plan is a first cousin. Any such plan would “pay for” the American Jobs Act many times over.

For his part, Mitt Romney rejects any short-term fiscal stimulus, attacks the Fed for trying to speed up the recovery, and proposes large, new, permanent tax-rate reductions—beyond even the Bush tax cuts—which would almost certainly bust the budget again. He claims the rate cuts can be paid for by closing loopholes. But several neutral third parties have demonstrated that his numbers don’t add up.

So the Romney plan would provide neither the short-run stimulus nor the long-run deficit reduction we need, while the Obama plan would provide both. Which plan is better? I guess the answer to that is an opinion, not a fact.

To counter Blinder’s opinion, a pro-Romney economist would surely claim that Romney will cut spending by much more than Obama would, which means the Romney-proposed tax cuts will be more affordable, plus such an economist would likely also throw in a supply-side growth story that claims that revenues would actually rise when tax rates are cut (even before any base broadening).  (I welcome readers’ suggestions as to which actual conservative economist’s commentary is the best counter to Blinder’s.)

This election does offer a stark choice in terms of fiscal policy paths.  Obama is clearly for a larger, more active role of government in our economy and society.  Romney clearly wants to reduce the influence of government, especially regarding tax burdens.  Unfortunately, with neither of them is it clear that they have the political will and talent to raise the taxes or cut the spending needed to make their plans consistent with deficit reduction.  So we’ll have to just wait and see how the election turns out, and then hope that whoever wins will do better on “fiscal responsibility” than their campaign talk suggests, once the campaign is finally over.

On Bayonets vs. Big Bird

October 25th, 2012 . by economistmom

big-bird-with-bayonet

(google image citation:  Horse And Bayonet Meme. Tumbler/horseandbayonet and enstarz.com)

Debate coach Todd Graham, commenting on CNN.com about President Obama’s “horses and bayonets” zinger of a line, calls it “the most memorable line of the night.”  But Professor Graham also makes the good budget-hawk observation that it wasn’t just cute; Obama actually has a (substantive) point (emphasis added):

The question was posed to Romney on how he would pay for his proposed $2 trillion increase in military spending, and he flat out didn’t answer it. He was busy finishing his previous answer. So by the time it was the president’s turn, Obama actually said, “You should have answered the question.”

Obama then asserted that the United States spends more on its military than the next 10 countries combined. That’s a great attention grabber. By the time Romney finally answered, he simply said we needed a stronger military, and the Navy needs more ships because it has fewer ships than it did in 1916.

But Obama countered with the most memorable line of the night. “We also have fewer horses and bayonets.” Obama’s debating point was that the nature of our military has changed. He continued by saying that the U.S. has things like submarines and aircraft carriers that should suffice, and reminded viewers that the nation needed to study what its threats are and put money into things like cybersecurity and space. Obama said that the military neither wants nor has asked for this extra $2 trillion.

This was terrible for Romney for three reasons. First, it was the original area of real disagreement, and Romney couldn’t afford to be bested. Second, no matter what he may actually know, Romney looked like a neophyte when it comes to military spending, as though he were repeating old Republican talking points. Viewers could be left unsure whether he knew what century this is.

And finally, it’s two freaking trillion dollars! They both talked about the budget deficit and the need to balance the budget, and over three debates, this — $2 trillion on military spending — was the biggest difference on offer. Axing Big Bird would net a President Romney next to nothing in savings, but adding $2 trillion to defense sounded excessive, especially if it’s true that the U.S. already spends more than the next 10 countries combined. Point Obama.

Whether the $2 trillion difference in defense spending is really the biggest difference in the candidates’ budget plans depends on how you combine the various pieces of their tax policy approaches (do you look at Romney’s proposal to cut tax rates separately from his base-broadening, revenue-raising “proposal”–or on net?), but the point that Big Bird is chump change compared with the defense spending issue is an important one.  If it takes a cute line (”horses and bayonets”) to get people engaged and understanding that reducing the deficit is more than cutting “waste, fraud, and abuse”–or even foreign aid or “Big Bird” (public TV)–then it’s a good thing.

On Anxiously Seeking Women in Binders

October 17th, 2012 . by economistmom

So of course, the world is all “atwitter” about the “binders full of women” comment (in the CNN video embedded above; here’s the transcript for reference–just search “binders”).

Yes, the visual was ridiculous, and the comedians are going to have a field day with this (beyond the field days ordinary bloggers and tweeters have already had).  But the whole exchange bugged me more than amused me.  I was bothered by the suggestion that this is how women get hired to high positions: employers have it pointed out to them (even via talking to themselves) that the first-round “qualified” applicants are all men. So they are told to go look for more women–to collect the resumes in “binders”–because they don’t already know these women to be qualified the first time around; they only think those women “could be qualified” in their looking again.  And they have to become “anxious” enough to hire so many more people such that the women can finally rise over the bar.  Well, yukk to all that.  I don’t find it so funny, and I hope I am never hired by someone who found me only in a “binder.”

Still, I look forward to the SNL version.  :)

Notes from “the Land of Persuadable Voters” (a.k.a., Wisconsin)

October 16th, 2012 . by economistmom

badgers-make-me-happy-t-shirt

Today’s Washington Post has a front-page story about Wisconsin, a “state up for grabs” as the print edition says, and “the land of persuadable voters” as the online version puts it.  I happen to have spent two days in Wisconsin last week, speaking to a variety of groups ranging from students to financial planners to newspaper editors.  Here’s a 6-minute (easy-watch) TV interview I did for Wisconsin ABC affiliate WISN’s Sunday morning talk show, “Up Front with Mike Gousha,” on the tough fiscal policy choices ahead–the election, the fiscal cliff, and beyond.  (The segment aired this past Sunday.)  If you want the background behind that quick summary, here’s a video of the one-hour conversation I had with Mike and a large, engaged audience at Marquette University Law School, before we taped the TV segment.  And here’s a video of a University of Wisconsin event I did (recorded by Wisconsin Eye) with some faculty from their public policy school, focused also on the fiscal cliff and beyond, with heavy emphasis on what tax reform’s role in deficit reduction should be.  The tax policy emphasis was natural given the expertise of the participants, but that shouldn’t discount the main point that tax reform is the only kind of fundamental reform that has any chance of significantly affecting the fiscal outlook in the next few years.

Based on my small sample of time with a decent cross-section of them, I find the hypothesis that Wisconsinites are “persuadable” and “up for grabs” a reasonable one, but I don’t think one should take that characterization as suggesting they are easily swayed by superficial things–like the candidates’ body language during debates or the political attack ads.  The fact that many Wisconsin voters do not vote consistently for one party over the other is testament to their looking more deeply beneath the candidates’ party labels, into the candidates’ true positions on issues of real substance.  Many seem puzzled that the candidates all like to talk the good talk about “fiscal responsibility” yet seem to expend most of their energy attacking the ideas of their “opponent” that they do not agree with, rather than acknowledging and working on the bipartisan solutions that are possible given their common ground.  They want to know if the candidates’ talk will really work:  would a President Romney really be able to cut government spending enough to support lower tax rates (his prescription for longer-term economic growth), without on net hurting the middle class? Would President Obama in his second term really be able to find enough revenue to pay for the new public investments he says the economy needs to grow, without admitting that tax burdens would likely have to go up for everyone, not just the rich?  Would either president be able to change the partisan, gridlocked environment in DC, in order to be able to affect the changes needed to get our economy back on a better path?

So, I think the typical “persuadable” Wisconsin voter will be listening to tonight’s presidential debates closely, for the substance of what the candidates say far more than their style.

The Post story sums up Wisconsinites this way, with a quote from Charles Franklin who directs the Marquette University Law School Poll of Wisconsin citizens:

Although they may not follow politics closely, they do vote.

“Clearly those folks are not driven by ideology, clearly they’re not driven by party,” said Marquette University’s [Charles] Franklin.

“They do their civic duty,” he said. “And the last bit is: ‘Wisconsin nice.’ They’re just nice people.”

I can vouch for that!  :)

(PS:  I’ll provide some free advertising for the “Justice” clothing store–that t shirt shown above can be purchased here!)

Is Romney Speeding–or Just Heading Somewhere Else?

October 9th, 2012 . by economistmom

batmobile-flying-610x400

Bill Gale clarifies the debate over the Romney tax plan with an analogy even those who aren’t tax policy geeks can understand:

[L]et’s get out of the hyper-charged world of tax policy for a second.

Suppose Governor Romney said that he wants to drive a car from Boston to Los Angeles in 15 hours. And suppose some analysts employed tools of arithmetic to conclude that “If Governor Romney wants to drive from Boston to LA in 15 hours, it is mathematically impossible to avoid speeding.” After all, the drive from LA to Boston is about 3,000 miles, so to take only 15 hours would require an average of 200 miles per hour. Certainly other road trips are possible — but the particular one proposed here is not.

(Note: this is just an example that uses the logic to be employed; I am not suggesting that Romney has in any way broken a law.)

Especially in this inflamed campaign environment, one can imagine the frenzied responses. The Obama campaign might put ads out that say Romney wants to speed or is going to speed. Romney’s campaign might respond by saying the study is a “joke” and “partisan,” that he supports speeding laws and would never, ever speed, and it is ridiculous to suggest that he would. The Romney campaign and its surrogates might say that the analysts must be wrong because they don’t even know what his road plan is or which car he would drive. Besides, Romney never really said he wanted to go LA, he might want to go somewhere closer; he could get to LA without speeding if he took more than 15 hours; he could get somewhere else in 15 hours without speeding. And so on.

With a few substitutions, this is almost exactly how the tax debate has evolved. Substitute “the various tax cuts Romney has proposed” for “driving from Boston to LA;” substitute revenue-neutrality for “in 30 hours; substitute “tax increases on households with income below 200k and tax cuts for higher income households” for “speeding” and you have the basic story: Romney can’t do all of the tax cut proposals he has advocated, remain revenue neutral, and avoid taxing households with income below $200,000 or cutting taxes for higher income households.

My bet is that he’s not really going to speed, because he’s not really going to get anywhere close to LA.  (Were he to become president, there would be detours and roadblocks along the way, labeled “Congress.”  And with both “D” and “R” stickers on the signs, by the way.)  But for now he wants to keep up the illusion that he has this super-fast, flying race car that can magically and legally get the job done.  Maybe Romney’s tax plan is like the Batmobile.

Romney’s Tax Plan: What We Learned (or Not) from the Debate

October 4th, 2012 . by economistmom

From last night’s debate (emphasis added to NPR transcript, video above from Wall Street Journal):

MR. ROMNEY: Well, sure. I’d like to clear up the record and go through it piece by piece. First of all, I don’t have a $5 trillion tax cut. I don’t have a tax cut of a scale that you’re talking about. My view is that we ought to provide tax relief to people in the middle class. But I’m not going to reduce the share of taxes paid by high- income people...

…look, I’m not looking to cut massive taxes and to reduce the — the revenues going to the government. My — my number one principle is there’ll be no tax cut that adds to the deficit.

I want to underline that — no tax cut that adds to the deficit. But I do want to reduce the burden being paid by middle-income Americans. And I — and to do that that also means that I cannot reduce the burden paid by high-income Americans. So any — any language to the contrary is simply not accurate.

First, Romney says he will have “no tax cut that adds to the deficit.” How to reconcile this with not raising burdens on “middle-income” Americans and not reducing burdens on “high-income” Americans–given the Tax Policy Center’s analysis of the kind of base broadening needed to support a 20% across the board reduction in marginal income tax rates (in addition to the proposed extension of the full complement of Bush tax cuts) and no increase in effective tax rates on capital income?

A few possibilities I see: (i) Romney is willing to back off the 20% figure for the marginal tax rate cuts; (ii) Romney is implicitly fiddling around with his definition of “middle income” vs. “high income” (consistent with Martin Feldstein’s point that you might be able to avoid raising burdens on middle-income households as long as “middle-income” ends at $100,000); and/or (iii) Romney is using “dynamic scoring” assumptions that assume growth effects offset any “static” revenue loss.  Some combination of those three tradeoffs is being exploited here.

Second, Romney says he is “not going to reduce the share of taxes paid by high- income people.” How to reconcile this with reducing marginal tax rates and keeping capital income tax expenditures out of the tax base?  Well, two cautions here, noting what Romney is literally saying:

  1. If the Romney plan is actually revenue losing, then maintaining the high-income households’ share of a smaller overall tax burden would still imply a reduction in the progressivity of the income tax system–”progressivity” referring to the existing pattern of rising average tax burdens (taxes paid/income) at higher income levels.  A constant share of a shrinking progressive policy means the rich person’s burden, relative to his or her income, goes down more than it does for someone with lower income.  The reference to “shares of taxes paid” was a favorite way of talking about the (claimed “increased”) progressivity of the Bush tax cuts by the Bush Administration.  Given that a lot of the Romney advisers are the same people who created, promoted, and managed the Bush tax cuts (way back in 2001), the use of this statistic to advertise the “fairness” of the Romney plan is not at all surprising.
  2. Exactly who are the “high-income people” in this category?  (Go back to point (ii) above, regarding the deficit-neutrality claim.)  As the Tax Policy Center pointed out in their response to the Feldstein critique, if we change the definition of “high income” to above $100,000 instead of above $200,000 or $250,000, it’s much easier to keep the burdens of this much broader category of households constant (or higher), by paying for net tax cuts on those above $200,000, with net tax increases on those between $100,000 and $200,000.  You can technically call that “not a reduction” in the tax burdens of (all) “high-income people” (meaning the aggregate category of people with income above $100,000), but most of us wouldn’t find that a sensible way to increase the “fairness” of the tax system.

So Romney was very effective in last night’s debate at making his tax plan sound, contrary to the President’s claims, both fiscally responsible and fair, but that’s because he was just able to declare it without explaining the details.  And the President coming back with the details of the TPC analysis didn’t work as well as it did when he first touted the analysis two months ago in his campaign speeches and TV ads.  (CNN’s real-time sentiment meter of their sample of Colorado undecided voters recorded that point in Obama’s remarks as his lowest point in last night’s debate, in fact.)  And the debate moderator certainly didn’t follow up with the questions I would have.  ;)

Feldstein and Summers on Tax Reform: A Lot of Common Ground–but Still Some Stumbling Blocks

October 1st, 2012 . by economistmom

Last week as part of the “Strengthening of America-Our Children’s Future” project that the Concord Coalition is a co-sponsor of, a forum was held in New York on the topic of “pro-growth tax reform.” Harvard economics professor and Romney adviser, Martin Feldstein, joined former Treasury secretary and Obama adviser, Lawrence Summers, to discuss what they consider “pro-growth” tax policy.  A preview of their discussion was provided by former Senator Sam Nunn’s co-anchoring of the CNBC “Squawk Box” show earlier that morning; in this segment Feldstein and Nunn discuss the potential for bipartisanship in tax reform, but Feldstein is also asked to react to comments that Summers had made on the show just before.  (This latter issue will be most appreciated by those who have been following the Tax Policy Center’s analysis of the Romney plan and Feldstein’s subsequent critique of the TPC analysis and defense of the Romney tax reform plan.)

At the event, Feldstein and Summers made it clear that when it comes to the notion of what is “pro-growth tax reform,” there is a lot of common ground between economists who favor the Rs and economists who favor the Ds.  Here are what I heard as some of the main points of agreement between Feldstein and Summers (what Summers referred to as the “structure that Marty and I have converged on”):

  1. “Pro-growth tax reform” means structuring the tax system to encourage longer-term expansion in the productive capacity (or “supply side”) of the economy.
  2. This suggests that a broader, more even tax base, which supports relatively low marginal tax rates, is the best way to raise necessary revenue with the least distortion to those supply-side economic decisions (how much to work, how much to save, how much to invest in human or physical capital).
  3. A first priority to follow the “broadening the tax base” strategy is to reduce existing “tax expenditures” that are considered inefficient and/or unfair.  Tax expenditures are economically equivalent to government spending programs and make government bigger than indicated by the levels of direct spending. (Cutting revenues by increasing tax expenditures grows, rather than shrinks, the size of government.)
  4. Tax expenditures could be reduced in a variety of ways that don’t have to target particular sectors of the economy (could be done in across-the-board, broad-brush ways–e.g., Feldstein likes the idea of capping the total amount to a percentage of gross income) and can be done in a progressive manner, where tax burdens are increased relatively more on higher-income households (e.g., the Obama budget proposal to limit itemized deductions and even other tax expenditures to the 28% rate).
  5. Tax reform does need to raise revenue (relative to the policy-extended, “business as usual” baseline, and even before any “dynamic scoring” type effects are accounted for) in order to contribute to deficit reduction and (therefore) be “pro-growth.”
  6. But “pro-growth tax policy” is a longer-term goal focused on mainly the supply side of the economy; we cannot immediately raise tax burdens in ways that would threaten putting our economy back in recession (by reducing demand for goods and services too severely).

But I also heard some remaining sources of disagreement between Feldstein and Summers, which are probably indicative of where “stumbling blocks” to bipartisan tax reform remain:

  1. Beyond decreasing tax expenditures/broadening the income tax base, what are some other features essential to “pro-growth” tax policy? (i) Feldstein seems to favor continued low or even lower effective tax rates on capital income (more consistent with a consumption base), while Summers seems to favor reducing or eliminating the current preferential rates on capital gains and dividends (consistent with reducing tax expenditures under an income base); (ii) Feldstein would favor keeping marginal tax rates low across the income spectrum, including at the very top, while Summers would favor a return to higher rates at the top as necessary to restore fairness (greater progressivity) to the system; (iii) Summers explicitly said that effective (average) corporate income tax rates are too low, not too high, while Feldstein argues for corporate tax reform that is revenue-neutral at best with lower marginal tax rates on profits earned abroad; (iv) Feldstein would probably argue for a lower upper bound on overall revenues/GDP than Summers would, as consistent with the “pro-growth” goal.
  2. Beyond deficit reduction, what is needed to grow the economy’s “supply side?” Feldstein would probably argue for working toward smaller government in scale and scope, while Summers clearly stated that pro-growth tax reform is (necessary but) “not sufficient” to address our nation’s growth needs, because we have “under-invested” in many things.  Beyond raising national saving by reducing the deficit, Summers believes government should more directly help the economy invest more in education, infrastructure, the environment, health care, etc.–the components of the productive capacity of the economy.  He stated that such public investments are a necessary complement to fiscal sustainability in a “pro-growth” fiscal agenda.  (And immediately, Summers emphasized that continued stimulus-type policies, to keep demand for goods and services up, are still necessary–although Feldstein did not disagree with this.)

The conversation between Feldstein and Summers is a good indicator of the potential for achieving bipartisan tax reform consistent with not just “growth” goals but fairness and fiscal responsibility goals as well.  The broad contours of the common ground are indeed well “grounded,” but some of the remaining points of disagreement might be significant-enough stumbling blocks to make meeting halfway still challenging.

Why Romney Still Has Work to Do on His Tax Plan

September 28th, 2012 . by economistmom

tpc_obama_attack_ad

Ezra Klein’s “Wonkblog” has put up this very nice “comprehensive guide to the debate over Romney’s tax plan.”  It explains why no one but Romney himself can properly “defend” his tax plan, because no one but Romney himself can decide which part of the doesn’t-add-up math in his plan will have to give.  Is it the deficit reduction?  Is it the protecting the “middle class”–and “middle class” defined how?  Is it protecting capital income from any increase in taxes?  Is it some of the across-the-board tax rate cuts?  So many people have speculated in so many different ways, trying desperately to discredit the Tax Policy Center’s analysis in order to defend the Romney “plan.”  Yet everyone has not only failed to damn the TPC analysis, but also failed to answer the basic question raised by the analysis: what exactly does Mitt Romney really want to do with tax policy? The only one who can put an end to the much-ado-about-what-should-have-been-just-another-boring-tax-analysis chatter is Romney, just coming clean and answering the question honestly.  (And I’m still talking about his tax reform plan and not even his own tax returns.)

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