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Today’s Washington Post has an excellent column by Steven Pearlstein, inspired by his recent trip to NYC where he was impressed by the condition of the now-privately-financed-and-managed Central Park. 

He finds important lessons for economic policy in Central Park’s success (my emphasis added):

The first is a reminder of the importance of creating and sustaining public facilities that are accessible to everyone and nourish a sense of community. Over the past 20 years, the tendency has been for those who can to abandon public schools, public transportation, public recreation, with the result that American society has become increasingly segregated by class and polarized by political ideology…

The second big lesson is that investment in public infrastructure can have big payoffs…

That doesn’t mean that all spending on public purposes can be characterized as investment (an old liberal trick) or that all investments can be expected to have the same payback as Central Park. But it does put the lie to the idea that Americans no longer have the money to build and maintain the quality schools, libraries, parks, roads and public transportation systems required for an advanced economy. Collectively, we have the money. What we haven’t had is the political will to raise the taxes necessary to make these high-payoff public investments.

Conservatives and Republicans see in the Central Park success story further confirmation of their belief that government is inept. After all, it took a private organization, relying primarily on private donations, to turn things around. Liberal Democrats would no doubt reply that if New Yorkers hadn’t been scared away by tax-cutting ideology and had been willing to raise and spend $350 million of public funds for Central Park, the city’s parks department could have accomplished the same feat.

There’s something to both arguments.

Because of the power of special-interest groups and public employees, government spending priorities are too often misplaced and too many government agencies fail to use the money they have to deliver quality, efficient service. That’s why outsourcing has become so prevalent, why charter schools have become so popular, and why so many state and local officials are turning to public-private partnerships and social entrepreneurs to tackle some of their toughest challenges. What Democrats in Washington have yet to realize is that this isn’t about rejecting government or shrinking it — it’s about redefining it.

At the same time, it’s important to remember that in terms of economic impact there isn’t a big difference between a nonprofit raising $350 million in private donations to fix up Central Park or city government raising $350 million through a well-designed tax system to accomplish the same purpose… The idea that every dollar collected in taxes is a dollar lost from the economy is nothing but political propaganda.

…the candidates most likely to prevail this fall will be those who figure out how to tap into the yearning to tackle and solve a big problem, to restore pride in the public realm and to reaffirm that sense that we’re all in this together.

Steven is making the important point that just because Central Park is a success story in “privatization” to some extent, doesn’t negate the fact that it’s a much larger testament to our society’s desire to continue to benefit from such inherently public projects.  And realizing how much we value such public goods is the start to being willing to pay for them.

(photo by LA Times)

Now that I’m on a better internet connection (spending a night back home from the beach before heading back tomorrow) and have found a better transcript to work from (courtesy of CNN), I thought I’d do a better side-by-side on the two candidates’ references to fiscal policy in their Saturday evening interviews with Pastor Rick Warren.  (This is what interests me way beyond the “cone of silence” controversy.)

Here is the exchange between Pastor Rick and Senator Obama on tax policy and what defines “rich” (my emphasis added, and my edits in italics):

WARREN: OK. Taxes, this is a real simple question. Define rich. [ laughter ] I mean give me a number, Is it $50,000, $100,000, 200,000? Everybody keeps talking about who we’re going to tax. How can you define that?

OBAMA: You know, if you’ve got book sales of $25 million, then you qualify.

[ laughter ] [ applause ]

OBAMA: Yes.

WARREN: No, I’m not asking about me.

OBAMA: Look, the - here’s how I think about it. Here’s how I think about it. And this is reflected in my tax plan. If you are making $150,000 a year or less, as a family, then you’re middle class or you may be poor. But $150,000 down you’re basically middle class, obviously depends on the region where you’re living.

WARREN: In this region, you’re poor.

OBAMA: Yes, well - depending. I don’t know what housing practices are going. I would argue that if you’re making more than $250,000, then you’re in the top three percent, four percent of this country. You’re doing well. Now, these things are all relative. And I’m not suggesting that everybody is making over $250,000 is living on easy street. But the question that I think we have to ask ourselves is, if we believe in good schools, if we believe in good roads, if we want to make sure that kids can go to college, if we don’t want to leave a mountain of debt for the next generation. Then we’ve got to pay for these things, they don’t come for free, and it is irresponsible [to act as if they come for free].

I believe it is irresponsible intergenerationally for us to invest or for us to spend $10 billion a month on a war and not have a way of paying for it. That, I think, is unacceptable. So nobody likes to pay taxes. I haven’t sold 25 million books but I’ve been selling some books lately, and so I write a pretty big check to Uncle Sam. Nobody likes it. What I can say is under the approach I’m taking, if you make $150,000 or less, you will see a tax cut. If you’re making $250,000 a year or more, you’re going to see a modest increase. What I’m trying to do is create a sense of balance, and fairness in our tax code. One thing I think we can all agree on, is that it should be simpler so that you don’t have all these loopholes and big stacks of stuff that you’ve got to comb through, which wastes a huge amount of money and allows special interests to take advantage of things that ordinary people cannot take advantage of.

And here’s the exchange with Senator McCain on the same issue (again, my emphasis added):

WARREN: Ok, on taxes, define “rich.” Everybody talks about taxing the rich, but not the poor, the middle class. At what point - give me a number, give me a specific number - where do you move from middle class to rich?

Is it $100,000, is it $50,000, is it $200,000? How does anybody know if we don’t know what the standards are?

MCCAIN: Some of the richest people I’ve ever known in my life are the most unhappy. I think that rich should be defined by a home, a good job, an education and the ability to hand to our children a more prosperous and safer world than the one that we inherited.

I don’t want to take any money from the rich — I want everybody to get rich.

(LAUGHTER)

I don’t believe in class warfare or re-distribution of the wealth. But I can tell you, for example, there are small businessmen and women who are working 16 hours a day, seven days a week that some people would classify as - quote - “rich,” my friends, and want to raise their taxes and want to raise their payroll taxes.

Let’s have - keep taxes low. Let’s give every family in America a $7,000 tax credit for every child they have. Let’s give them a $5,000 refundable tax credit to go out and get the health insurance of their choice. Let’s not have the government take over the health care system in America.

(APPLAUSE)

So, I think if you are just talking about income, how about $5 million?

(LAUGHTER)

But seriously, I don’t think you can - I don’t think seriously that - the point is that I’m trying to make here, seriously — and I’m sure that comment will be distorted — but the point is that we want to keep people’s taxes low and increase revenues.

And, my friend, it was not taxes that mattered in America in the last several years. It was spending. Spending got completely out of control. We spent money in way that mortgaged our kids’ futures.

(APPLAUSE)

My friends, we spent $3 million of your money to study the DNA of bears in Montana. Now I don’t know if that was a paternity issue or a criminal issue…

(LAUGHTER)

… but the point is, it was $3 million of your money. It was your money. And, you know, we laugh about it, but we cry - and we should cry because the Congress is supposed to be careful stewards of your tax dollars.

So what did they just do in the middle of an energy crisis when in California we are paying $4 a gallon for gas? Went on vacation for five weeks. I guarantee you, two things they never miss - a pay raise and a vacation — and we should stop that and call them back and not raise your taxes. We should not and cannot raise taxes in tough economic times.

So, it doesn’t matter really what my definition of “rich” is because I don’t want to raise anybody’s taxes. I really don’t. In fact, I want to give working Americans a better shot at having a better life, and we all know the challenges, my friends, if I could be serious.

Americans tonight in California and all over America are sitting at the kitchen table — recently and suddenly lost a job, can’t afford to stay in their home, education for their kids, affordable health care. These are tough problems. These are tough problems. You talk to them every day…

WARREN: All the time.

MCCAIN: … everyday. My friends, we’ve got to give them hope and confidence in the future. That’s what we need to give them, and I can inspire them. I can lead, and I know that our best days are ahead of us.

(APPLAUSE)

Stark contrast, indeed.  And it would be so even if both candidates had received this question ahead of time and prepared all they wanted for this question–”cone of silence” or not.  These exchanges are just the latest clarification of the two candidates’ fundamentally different views on:  (i) the role of government in income redistribution (determining what’s “fair”); (ii) the ideal size of government; and (iii) what happens to tax revenues when you cut tax rates. 

And here’s a better copy of the text of Senator Obama’s response to his last question, which Pastor Rick for some reason did not ask of Senator McCain:

WARREN: OK. I’ve got 30 seconds. What would you tell the American public if you knew there wouldn’t be any repercussions?

[ laughter ]

OBAMA: Well, you know what I would tell them is that solving big problems, like for example, energy, is not going to be easy and everybody is going to have to get involved. And we are going to have to all think about how are we using energy more efficiently and there’s going to be a price to pay in transitioning to a more energy-efficient economy and dealing with issues like climate change. And if we pretend like everything is free, and there’s no sacrifice involved, then we are betraying the tradition of America.

I think about my grandparents’ generation, coming out of a depression, fighting World War II; you know, they’ve confronted some challenges we can’t even imagine. If they were willing to make sacrifices on our behalf, we should be able to make some sacrifices on behalf of the next generation. 

Last night CNN broadcast the “Saddleback Civil Forum on the Presidency,” live from the church of Pastor Rick Warren (of Purpose-Driven Life fame).  Here is the CNN story that contains links to the video (in four parts).  And here is a link to the written transcript, now available on Rick Warren’s website.

The whole forum–back to back interviews of the two candidates separately, but on the same tough questions–was really well done.  It seems this format is really effective at helping the public really get to know how the candidates think on the issues–I mean how they really think and deeply feel about the issues, and not just how they debate with their opponent about them.

Two highlights for me:  (i) the question on “who is rich”–i.e., at what income level does the candidate consider a family “rich”–and I believe it was asked with reference to taxes, or at least was answered that way by both; and (ii) Obama’s response to the very last question on what he would tell the American public if he “knew there wouldn’t be any repercussions.”

On the question of who’s rich regarding taxes, the candidates answered very differently, as to be expected.  Obama made reference to his $250,000+ standard.  McCain began with a flippant mention of $5 million, but eventually got to his supply-side (really, Laffer Curve) claim that you have to cut taxes to raise revenue, and that the deficit problem was due to spending, not to tax cuts.  (This AP story by Charles Babington and Beth Fouhy highlights part of that McCain response.)

I was moved by Obama’s answer to Pastor Rick’s last question, on what he would tell the American public (in 30 seconds) if he knew there wouldn’t be any “repercussions.”  In his response, Obama made reference to shared sacrifice and fiscal responsibility–the (moral) issue of what we leave for future generations (I’m cutting and pasting from the all-caps text and then editing/correcting here, so sorry this isn’t very pretty):

YOU KNOW, WHAT I WOULD TELL THEM IS THAT SOLVING BIG PROBLEMS LIKE FOR EXAMPLE ENERGY IS NOT GOING TO BE EASY AND EVERYBODY’S GOING TO HAVE TO GET INVOLVED AND WE ARE GOING TO HAVE TO ALL THINK ABOUT HOW ARE WE USING ENERGY MORE EFFICIENTLY AND THERE IS GOING TO BE A PRICE TO PAY IN TRANSITIONING TO A MORE ENERGY EFFICIENT ECONOMY AND DEALING WITH ISSUES LIKE CLIMate CHANGE.  IF WE PRETEND LIKE EVERYTHING IS FREE AND THERE IS NO SACRIFICE INVOLVED THEN WE ARE BETRAYING THE TRADITION OF AMERICA.

I THINK ABOUT MY GRANDPARENT’S GENERATION COMING OUT OF A DEPRESSION, FIGHTING WORLD WAR TWO; YOU KNOW THEY’VE CONFRONTED SOME CHALLENGES WE CAN’T EVEN IMAGINE.  IF THEY WERE WILLING TO MAKE SACRIFICES ON OUR BEHALF, WE SHOULD BE ABLE to be TOLD to MAKE SOME SACRIFICES ON BEHALF OF THE NEXT GENERATION.

Last Friday, the American Enterprise Institute’s Alex Brill and Alan Viard published this column on “The Folly of Obama’s Tax Plan,” in which they point out that all of Senator Obama’s proposed tax cuts for the middle class have the unfortunate side effect of raising marginal tax rates–effective tax rates on the next dollar earned–over certain ranges of the “middle-income” spectrum.  They were chastised by pgl over on Angry Bear for their “basic dishonesty.”

But in defense of Alex and Alan, their column is not dishonest, and is probably not even intended to “distort” or even “confuse” (characterizations of the column used on Angry Bear and the Economists for Obama site that pgl quotes from).  It’s just that Alex and Alan are trying to make a big deal out of a small point, and a small point that has hardly any policy relevance. 

That point is that adding greater progressivity to a tax system (raising relative tax burdens on the rich or lowering relative tax burdens on the poor)–something Senator Obama is clearly trying to do–necessarily means raising marginal tax rates somewhere along the income distribution, in order to increase how steeply average tax rates rise with income.  In the case of refundable tax credits, these introduce progressivity by creating negative average tax rates (i.e., net income received rather than net taxes paid) at low income levels, but as income rises and the credits are phased out, the effective marginal tax rate equals the rate of reduction of the credit.  And if you boost the value of any existing tax credit but keep its qualifying ranges of income the same, well, you’re necessarily going to be phasing out more benefits faster, i.e., boosting the effective (positive) marginal tax rate.  Economists sometimes obsess about these phaseout marginal tax rates, because we like to worry about the adverse incentive effects of these tax rates on labor supply and saving–the idea that people might not work as hard or as many hours if they know that in earning more income, the value of their refundable tax credits will go down.  Even if the credits don’t go down by anywhere close to the amount of extra income–i.e., even without an effective marginal tax rate that’s less than 100%–economists worry that the “substitution effect” of this higher marginal tax rate (caused by the negative average tax rate) could be a decline in how much people work.

But this is a “problem” with any tax preference that’s targeted to a certain range of income (it doesn’t just apply to refundable tax credits), so there’s no way to avoid it without “de-targeting” the preference and spending a heck of a lot more money, on tax cuts for everybody.  The adverse economic effects of a much more costly tax cut, going to more people than is really justified given the purpose of the tax cut, far outweigh any potential benefit from reducing marginal tax rates and the possible substitution effects associated with the phaseouts of tax benefits.

This marginal tax rate criticism is often levied against the Earned Income Tax Credit (EITC) when economists feel like getting negative (i.e., insist on staying “dismal”) about a tax credit that otherwise delights most economists.  The EITC is a refundable tax credit that phases in at lower income levels, plateaus over a range of income, and then phases out over a higher range of income, as explained on this Tax Policy Center page.  Economists like the phase-in range of the EITC, where the rising credit with income means the marginal tax rate is negative–creating an incentive, rather than a disincentive, to work.  Economists dislike, however, or at least fret about, the phase-out range of the EITC, where the phasing out of the credit adds to the effective marginal tax rate.

But I say it’s much ado about nothing.  Theoretically, for the phaseout of a tax preference to adversely affect work incentives, it must be true that the worker is able to choose his or her hours of work in a continuous manner–that is, that I could choose to work 30 hours per week instead of 35, for example.  Some workers can do this, but many cannot.  It must also be the case that the worker is aware of the positive marginal tax rate faced at each decision point–aware that if he or she works an hour more, or 5 hours more, that his or her tax credit will go down by $__.  Most people are much more keenly aware of their average tax rates and their take-home pay, than their marginal tax rates and their net wage rates “at the margin.”

Empirically, studies on the EITC have shown that there’s just not much to worry about in terms of disincentive effects associated with the phasing out (i.e., the targeting) of tax credits.  A summary of recent empirical research on the EITC by the National Bureau of Economic Research explains that (emphasis added):

In Behavioral Responses to Taxes: Lessons from the EITC and Labor Supply (NBER Working Paper No.11729), NBER researchers Nada Eissa and Hilary Hoynes review a large number of economic studies of the EITC and conclude that the main lesson from the accumulated evidence is that real responses to taxes are important. The second lesson is that, while the EITC stimulates people to join the work force, there is no evidence that it prompts them to work fewer hours. This difference, the authors write, “has several important implications for the design of tax-transfer programs and the welfare evaluation of taxation.“

In other words, the implications for policy design are that we don’t need to worry about these potentially high marginal tax rates when tax credits are phased out, because:  (i) there’s no way to avoid them when targeting a tax credit, and (ii) there’s no evidence that the disincentive effects are significant (regardless of the theoretical potential).

So the point that Alex Brill and Alan Viard make in their column is not dishonest.  It’s just not very interesting (outside of a course in the microeconomics of public finance) and certainly not very policy relevant.

I may be kind of old and past my dancing days now, but I still remember the trick to looking good at those school dances, even when you’re not “the total package”…

When you’re just standing there, stand next to the ugly person.

When you’re dancing, dance near the klutzy person.

And when you’re engaging in conversation, converse around the stupid person.

Now, it may still be that the Obama tax plan would be voted the “belle of the ball,” but it wouldn’t be because of its beauty in an absolute sense, only because of its beauty measured relative to some less attractive standards.  The Obama campaign likes to compare different aspects of their tax plan to the different less attractive standards around the room.  This is what’s known among budget geeks as a “baseline issue”–but what might be easier to understand as ”how to look good at the dance.”

(In a nice article by Lori Montgomery in last Sunday’s Washington Post, Len Burman of the Tax Policy Center referred to this as a “yardstick” issue.)

So I bring this up because in today’s Wall Street Journal, Obama advisors Jason Furman and Austan Goolsbee speak of the beauty of the Obama tax plan.

The Obama tax plan is both a net tax cut, relative to (ugly) current law…

Overall, Sen. Obama’s middle-class tax cuts are larger than his partial rollbacks for families earning over $250,000, making the proposal as a whole a net tax cut and reducing revenues to less than 18.2% of GDP — the level of taxes that prevailed under President Reagan.

…and a fiscally-responsible, tax plan, relative to (stupid) Bush tax policy extended…

Sen. Obama is focused on cutting taxes for middle-class families and small businesses, and investing in key areas like health, innovation and education. He would do this while cutting unnecessary spending, paying for his proposals and bringing down the budget deficit.

And the Obama tax plan is fair in its redistribution of income, relative to the unfair (klutzy) tax changes since 2001…

Sen. Obama believes a focus on the middle class is appropriate in the wake of the first economic expansion on record where the typical family’s income fell by almost $1,000. The Obama plan would cut taxes for 95% of workers and their families with a tax cut of $500 for workers or $1,000 for working couples…[H]e would repeal a portion of the tax cuts passed in the last eight years for families making over $250,000…In an Obama administration, the top 1% of households — people with an average income of $1.6 million per year — would see their average federal income and payroll tax rate increase from 21% today to 24%…

…yet also keeps top tax rates relatively low (beautiful) compared with the tax rates of the (already beautiful) late 1990s…

But to be clear: He would leave their tax rates [those of families over $250,000] at or below where they were in the 1990s…[T]he top 1%…would see [an] average…tax rate…less than the 25% these households would have paid under the tax laws of the late 1990s.

So I have to wonder when Jason and Austan hint at the economic smartness of the Obama plan by citing a Brad DeLong estimate of the economic cost of the (dumb, or at least “fiscally reckless”) McCain tax plan due to its effect on the federal debt:

Sen. McCain has put forward the most fiscally reckless presidential platform in modern memory. The likely results of his Bush-plus policies are clear. As Berkeley economist Brad Delong has estimated, the McCain plan, as compared to the Obama plan, would lower annual incomes by $300 billion or more in real terms by 2017, costing the typical worker $1,800 or more due to the effect of large deficits on national savings and thus capital formation.

… If that’s really ”as compared to the Obama plan”, then isn’t there an extra economic cost (beyond the revenue cost) associated with the level of debt added by the Obama plan, too?… in other words, relative to current law?  If this calculation is linear, for example, and if we use Tax Policy Center estimates for the cost of the McCain and Obama tax plans (I know the Obama campaign is using a much larger figure for McCain), then the Obama tax plan adds “just” $2.8 trillion to the federal debt over ten years (not counting interest), while the McCain tax plan adds $4.2 trillion.  So Obama’s plan costs two-thirds what McCain’s plan does.  Does that mean (doing the algebra) that Brad DeLong would calculate that the Obama tax plan would involve $600 billion in reduced annual incomes due to the reduction in national saving–which is $300 billion less than the perhaps $900 billion under the McCain tax plan?

So I guess I need to ask Brad:  is the Obama plan still “smart” and “pretty” on the economic growth front in an absolute sense, and not just compared with the McCain plan–you know, that ugly, dumb thing? 

Two nice points made in the Opinions section of today’s Washington Post–an editorial on the talk of a “second stimulus”, and a column by Robert Samuelson on the candidates’ ever-changing energy proposals.

The editorial worries about a “second stimulus” being too politically appealing for the economic costs of such a bill to get in the way:

We understand the political logic of a second stimulus; the economic case is less convincing. Any fiscal stimulus must be targeted, timely and temporary. That is, it must put money in the hands of people who are likely to spend it quickly — while not committing the federal government to new long-term spending. Some Democratic proposals, such as an increase in food stamps or extended unemployment insurance, would meet these criteria, even as they help the neediest ride out the tough times. Infrastructure spending, by contrast, is dubious as stimulus. It takes too long and passes through too many hands. As you might expect, Mr. Byrd’s “stimulus” bill is chock-full of election-year goodies…

…The government can pump only so much borrowed money into the economy before the long-term costs — inflation, higher interest rates — start to outweigh the short-term benefits. And with next year’s federal deficit projected to reach nearly $500 billion, those potential costs loom large, indeed. Federal Reserve Chairman Ben S. Bernanke, who supported the fiscal stimulus this year, seems cool to an extra dose now. As Mr. Bernanke notes, we still don’t know the results of the first stimulus.

(And as I’ve recently remarked, it’s not only too soon to label the first round a “flop” regarding its effect on consumption, it’s not at all clear that if the first round encouraged more saving than hoped, that that’s a bad thing…)

And Robert Samuelson worries that the recent Obama proposal to open up the strategic petroleum reserve, and the ol’ McCain proposal for the gas tax holiday, are bad signs–indicating that the campaign rhetoric can get in the way of seeing the real overlap in some real (good) energy policy ideas the two candidates have.  He frets over:

…the messy process by which democracies reach consensus. “Crises are the only times when we are capable of making difficult decisions,” says former Democratic representative Phil Sharp, who heads the think tank Resources for the Future. High pump prices, he says, “are drawing both parties toward the center”: Republicans will be more open to regulation, Democrats to offshore drilling. The next president will find it easier to act. Maybe. But the preamble has involved so many exaggerations and simplicities that it’s uncertain whether the ultimate response would make us better off — or worse off.

I want to be optimistic and say we don’t need to get too worked up over these antics.  It’s just the campaign talking.  I’m hopeful that policymakers won’t confuse the need for short-term, demand-side (and perhaps deficit-financed) stimulus, with the (legitimate) need for more adequate, longer-term investments in our infrastructure–which ought to go along with the corresponding longer-term increases in national saving needed to finance those investments.  And I’m hopeful that Senators McCain and Obama actually do have a lot of overlap in their ideas for energy policy, and that we’ll see more of those good (but not easy) ideas once one of them is in the White House.

Wow… this is beautiful.  I’ve just come up for air (temporarily) from the depths of my big home clean-up project (I will post on it later this week), so I only learned of this Sunday NYTimes column by Ben Stein–a Republican and a McCain supporter, as well as an economist and an actor (remember “Bueller? Bueller?…Anyone?”)–today. 

Despite it being a little nutty for him as a conservative economist and a McCain supporter to be admitting such things, Ben makes a few big points which should sound strangely familiar to faithful EconomistMom readers.  Let me paraphrase as EconomistMom, but offering Ben’s supporting quotes:

Ben Stein’s Point #1:  There is no such thing as a free tax cut–the Bush tax cuts being no exception.

The sad truth of the last two two-term Republican presidents is that their economic premise, the key part of their economic game plan, simply has not done what it’s supposed to do.

That is, cutting taxes, especially on upper-income Americans, does not generate so much economic activity that it replaces all the lost I.R.S. take and then some. At least those have been the results so far.

…when President Bush drastically cut taxes after he was first elected, the I.R.S. take from individual income taxes fell and did not recover its 2001 level until 2006.

Ben Stein’s Point #2:  Nor have the Bush tax cuts “starved the beast.”

A conservative purist might rejoin here that it would be fine if income tax receipts fell, because we would then have a smaller government and a freer society.

That would be nice, but far from true. Instead, government just keeps growing. Government spending grew dramatically under President Reagan, very nearly doubling, and leaving us with a federal deficit vastly bigger than the one he inherited. I know that a large chunk of that increase was to rebuild the military. I heartily approved of it.

But if you want to have a military buildup — and we need one now, desperately — that’s usually a reason to raise taxes, not cut them.

Under the current president, we have had the same story. As income tax receipts fell, military and other spending rose rapidly. 

Ben Stein’s Point #3:  Yes, the fiscal challenge is primarily a spending one, but if we have no good strategies to control that spending, it’s got to be considered a “revenue problem,” too.

The facts of life are that federal spending is almost all untouchable: the military, Social Security, Medicare, interest on the debt, pensions. The discretionary part is tiny.

Every category of federal spending is likely to grow. This means that if we don’t raise taxes, if we keep doing what we’re doing, the immense deficits and debt will not go away — and will probably grow.

Ben Stein’s Point #4:  We can either raise taxes now, on those we know can afford it, or we’ll have to raise taxes much more on our children and grandchildren, who we’re not sure will be able to afford it. 

The question is simply this: Do we want to step up to the plate like responsible people — I hate to say this, but the last responsible people who actually did this were named Bill and Bob (Clinton and Rubin) — and shoulder our responsibilities? Or do we just kick the can down the road a bit and leave the mess for our children and their children?

And if we do raise taxes, should people who are barely getting by pay them or should people who are getting by very nicely pay them?

I don’t like taxing rich people or anyone I like. But our government — run by the people we elected — needs the revenue. Do we pay it or do we make our children pay it? Dwight D. Eisenhower and Bill Clinton knew the answer: You behave responsibly and balance the budget except in rare circumstances.

Beautiful, Ben!  May I pay tribute to you by saying:  “Taxes? Taxes?…Anyone?”

In today’s Washington Post, Sebastian Mallaby opines (in “A Moment for Fiscal Courage”) that the economy’s in too bad a shape to expect anything but more deficit-financed fiscal stimulus.  But he urges that fiscal restraint must be demonstrated nonetheless, lest our line of credit further evaporate and further threaten the stability and longer-term health of our economy.  He concludes with this prescription (my emphasis added):

The best way to demonstrate that a stimulus won’t bust the budget and, therefore, to create room for a bigger one is to address the budget’s greatest problem head-on. A short-term stimulus should be coupled with a medium-term plan to fix entitlements.

Yeah, right, you’re thinking; telling politicians to fix entitlements is like telling alcoholics to drink milk. But if today’s economic mess teaches anything, it is the danger of mortgaging the future and living beyond one’s means. The federal entitlement programs, which are projected to drive an eightfold increase in the nation’s debt-to-GDP ratio by 2050, are the governmental equivalent of a no-doc loan with a spring-loaded reset. If ever there will be a time to speak honestly with the American people about entitlements, surely this is it.

But reform of those “entitlement programs” (referring primarily to Social Security, Medicare, and Medicaid), although surely needed over the longer term, won’t demonstrate fiscal discipline over the “medium term”–which I consider within the next decade (or even two). 

Over the next 10 years, the expiring tax cuts (in particular, the “Bush tax cuts” enacted in 2001 and 2003, which will expire at the end of 2010)–and how we choose to renew and pay for them–represent a much larger, executable policy lever than Social Security or the health entitlement programs.  If you look at the long-term budget projections of the Congressional Budget Office (CBO), in the next 10 and 20 years, the projected growth in Social Security spending (+0.7% of GDP in 10 years and +1.7% of GDP in 20 years) will be far less than the difference between projected revenues in the “extended baseline” scenario compared with the “alternative fiscal” scenario (+1.7% of GDP in 2018 and +2.3% of GDP in 2028).  Policymakers wouldn’t touch Social Security benefits within that 10-20 year timeframe anyway, even if they might enact reforms by then.  And although the growth in Medicare and Medicaid spending over 20 years is still larger (+3.4 to 3.7% of GDP), CBO’s projects little difference in this health spending between their two scenarios (that’s the 0.3% of GDP range)… Why?  Because at this point we don’t know enough about policy options that would significantly reduce health spending–even if we recognize that’s the big fiscal problem for the longer run, and even if we’re working hard to keep learning what we can do about it.

So here’s what I see as the “medium-term” fiscal courage we really have the opportunity to muster:  comply with pay-as-you-go (PAYGO) rules on tax cuts going forward–i.e., stick to revenue neutrality relative to the current-law baseline.  I’ve said it before, that revenue neutrality in a strict pay-go sense is hard to do, but that’s exactly what makes it “fiscally courageous.”  Neither of the presidential candidates has pledged to do that, yet it’s what I see as the very first test of the next President’s and the next Congress’ commitment to getting our fiscal condition and the longer-term prospects for the U.S. economy back in order–i.e., their very first real test in fiscal courage.  So far, neither Senator McCain nor Senator Obama seems willing to be as fiscally courageous as the House Democrats were in the House-passed budget resolution–a budget plan that achieved a balanced budget within four years (i.e., a first presidential term) using real numbers based on a mathematically-transparent, but obviously politically-difficult, rule:  pay for the tax cuts you want to keep. 

(UPDATE 8/12:  see this 8/10 Washington Post story by Lori Montgomery on the revenue baseline issue and the candidates.)

Combining the expiration of the Bush tax cuts with a renewed commitment to pay-go (as measured against current law) would provide impetus for a much needed fundamental reexamination and reform of the federal tax system.  If we can find ways to raise needed revenues more equitably and efficiently, it will make tackling our longer-term fiscal challenges–those facing us for generations to come–much easier.

So I’m willing to give up on short-term fiscal courage, given the gloomy state of the current economy and the political reality of this being an election year.  And I can understand the lack of medium-term fiscal courage being voiced by the presidential candidates while they are short-term campaigning.  But once the new President’s in office, his first test of fiscal courage will be what to do with the tax cuts, and I’ll be waiving my pay-go banners, cheering him on.

In an opinion piece in today’s Washington Post, Michael Tomasky asks “whatever happened to that Obama [who spoke at the 2004 Democratic Convention]…that enemy of excessive partisanship and evangelist of national unity?”  Tomasky argues that the Obama campaign has (disappointingly) moved the “post-partisanship” message to the “rhetorical back burner,” offering four theories as to why:

Theory No. 1: There’s only room in a campaign for one big theme at a time, and the Obama team has settled on “change.” That’s fair enough. Change is undemanding and direct. It requires no presumed level of information, whereas describing a “post-partisan future” counts on voters’ knowing that we’re in a partisan time and being upset by that or, heck, even knowing what partisanship is to begin with. The urge to keep it simple is understandable.

Theory No. 2: Post-partisanship is too abstract. Obama has taken lots of fire from pundits and GOP operatives for supposedly being too highfalutin’, a propensity he now feels he must guard against. (Of course, this is one of the planet’s dumbest arguments: Humble people don’t run for president, and that goes for John McCain, too.) So Obama’s more recent rhetoric has tended to emphasize nuts and bolts — his plans for Iraq, Afghanistan and the world and his prescriptions for the economy. Again, understandable.

Theory No. 3: The Obama team may feel that they’ve already established the purple theme sufficiently. They may be right; I don’t see their internal polling results. But my sense is that if you asked the average voter today to name three or four things about Obama, few would say, “He wants to bring the country together.” Even a year ago, many more would have.

Theory No. 4: It could be that the post-partisanship theme is simply less resonant now than it was in 2004. Back then, in an election that was a referendum on President Bush, the United States really was a 50-50 country. But with Bush weak and Karl Rove gone, Democrats can be forgiven for thinking that polarization is now a less pressing issue and that the equation tilts more in their favor today. Still, the McCain campaign shows every sign of planning to run — quite counter to the candidate’s earlier pronouncements — a Rove-style, divide-and-conquer campaign. (The man who vowed to run a substantive, honorable campaign is bringing us Paris Hilton?) Obama is giving as well as getting on this front, so we’ll certainly see our share of partisan politics between now and Nov. 4.

But Tomasky argues that a unifying, “post-partisan” (centrist) approach is an “electoral winner and a governing essential”–explaining it this way (emphasis added):

It’s an electoral winner because Democrats can’t really triumph in divide-and-conquer elections. No, it’s not that they’re too noble for them. It’s just that they’re not as good at it as the Rove Republicans are, and progressive core positions don’t translate as well into fear-mongering rhetoric. The Democrats fear-monger pretty effectively about Social Security — as well they should — but beyond that, it’s hard to scare people into fearing that the other guy is going to cut your taxes too much or be too tough on our enemies.

Of course, Obama must attack McCain and return fire when fired upon, but he needs to do something more. He must get some percentage of people to vote their hopes, not their fears, as Bill Clinton used to put it. As McCain sprints rightward on a range of issues and dedicates himself to a negative campaign designed to scare 51 percent of the voters about Obama’s euphemistic “otherness” and alleged lack of preparedness, a dose of trans-partisan optimism will make a useful contrast.

And the one-America theme will be crucial if he actually wins. As president, Obama will need to unite liberals and moderates of both parties and isolate the conservative blocs in the House and especially the Senate to get anything done. But that’s getting ahead of ourselves.

I think I get it.  Some Democrats like to “fear monger” about Social Security because there are some Republican ideas about Social Security that they should genuinely fear (and I agree with that).  But many of those same Democratic “fear mongers” see the position of those who advocate for fiscal responsibility as ”opposition fear mongering”–failing to understand that one cannot “fear monger” one’s way toward a center position.  As Michael Tomasky points out, it’s not a very effective “fear monger” position to scare people about their taxes being too low.

I know… the movie I.O.U.S.A. does try to hype up the federal debt problem by pointing to some scary numbers which are not necessarily the numbers economists would emphasize.  But the numbers are not dishonest, just dramatic (and simple).  This is a movie after all, and would you really think it would have made it to the big screen without a little extra drama (and simplicity)?

But the point is that “fear mongering” is a strategy designed to polarize people–to drive them toward one side of any issue, not to persuade people to come to the center and “talk to each other.”  Fiscal hawks such as the Blue Dog Democrats can’t be accused of shouting scary things from one side of the playground about their enemies on the other side of the playground.  They can only be accused of shouting scary things from the center of the playground–the rhetorical equivalent of “you guys better come out and start playing nicely with each other (and me) right now–or else!”  Yes, that’s admittedly not the smoothest social strategy… and perhaps that’s why the Blue Dogs (and centrists in general) don’t win too many popularity contests.

At any rate, here at this blog I’ve tried to emphasize a “unite and conquer” strategy, not a “fear mongering,” “divide and conquer” one.  So I love it when folks from both sides of the ”playground” come to visit.  But I hope to encourage a ”play nicely” in the center rule.  No “fear mongering” allowed, no gratuitous shouting and name calling at other visitors whom one has decided are their “enemies.”  While such rules of behavior may cause some to leave my playground, at least I’m not running for office.

As for Senator Obama, well, I think we can understand that whatever position he seems to be taking or not taking at the moment regarding “post-partisanship,” it’s what his campaign has deemed the best strategy for getting elected, and is not necessarily at all a sign of how he would govern should he become President Obama, when surely such unifying, post-partisanship will be essential.   

Actually, I’m working pretty hard around home today, so you know, I haven’t had time to focus on the blog…  But I did read this morning’s paper (Washington Post) and caught three cartoons very relevant to recent topics on this blog.

First, Mike Peters for the Dayton Daily News on Obama’s (and McCain’s) energy policy:

and Rex Babin for the Sacramento Bee on the U.S. budget deficit, compared with the Iraq budget surplus:

…and finally, Nick Anderson for the Houston Chronicle, on Paris Hilton’s energy policy (and candidacy?):