Sorry about the site being off line the past couple days. Why is still a mystery to me (my version of “tech support” unfortunately tends toward my own mere “wishful thinking”), but it appears we’re back! I am traveling this weekend but will be catching up early next week with my latest pre-election thoughts on the fiscal cliff. Thanks for hanging in there with me and staying tuned!
In my column in this week’s Tax Notes–in which Grover Norquist has been named 2011 “tax person of the year,” by the way (more on that later)–I list a few new year’s resolutions for tax policy (emphasis and brief descriptions added):
[Here are] some New Year’s resolutions for those who make, study, and care about U.S. tax policy: (1) don’t view tax policy in a vacuum [recognize the interaction of tax policy with the rest of the federal budget and government's role in general]; (2) plan ahead for expiring provisions [look ahead to what's coming due in the next year, and start the policy debates and analysis now rather than in the 11th hour]; (3) accurately analyze short-term versus longer-term economic effects [how are the considered policies helpful or harmful to the economic goals of highest priority?]; (4) set revenue targets and stick to them [use the budget process and budget committees to bring tax policy into the deficit reduction effort]; (5) treat tax expenditures more like expenditures [recognize they're more like spending-side subsidies than simple tax cuts, and scrutinize them to evaluate whether their benefits are worth their costs]; (6) don’t be hypocritical about fiscal responsibility [don't fuss over the small-change items while giving a huge pass to the big-ticket ones]; (7) don’t be so afraid to agree with the other side [there's huge bipartisan common ground on goals for tax and fiscal reform if policymakers would only stop picking fights]; and (8) get specific about good tax policy [study, analyze, and better promote the specific tax policies that experts recognize as economically smart so that policymakers are forced to notice and respond].
Note that this list is more broadly applicable to fiscal policy–tax and spending–more generally, but I was writing for Tax Notes, of course.
The biggest item on this year’s expiring tax provisions list is of course (and yet again) the Bush tax cuts–or as I sometimes refer to them, the Bush/Obama tax cuts. Who knows, if policymakers keep doing the same old thing with them, by next year they could become the “Bush/Obama/Romney [or Santorum or Gingrich or Paul]” tax cuts!
My Tax Notes column reprinted the CBO table above, just to highlight the point that these expiring tax cuts–just the ones set to expire by the end of this year–are worth $4 to $5 trillion over the next ten years, without interest costs. (Remember the “go big” goal?)
Happy New Year to my EconomistMom readers! More from me later this week.
Saturday 9 am: I know something is wrong with the formatting of my site (the colorblocking and layout), at least from my computer this morning…. I will try to figure this out later today! The words are all there though; please pardon the mess.
Hopefully I can clean it up later. –Diane
(Graphic above from Washington Post online: Should Congress extend the Bush tax cuts?)
It’s a big “rag on the Bush tax cuts” week in the Washington Post–I think because this is one of the biggest looming issues Congress and the Administration will be coming back to after August “recess.”
It began with Ruth Marcus’ column on Wednesday, where she wrote:
…Which takes us back to the matter of whether it would be risky to let any of the Bush tax cuts expire. As a practical matter, Democrats and Republicans agree that the cuts should remain in place, at least temporarily, for families making less than $250,000 a year. That’s a debatable point. Former Federal Reserve Board chairman Alan Greenspan, whose blessing was responsible for propelling the tax cuts forward in the first place, said recently that Congress should let them lapse.
The real disagreement is over extending the high-end tax cuts, and on this even some supposedly fiscally responsible Democrats — I’m talking to you, Kent Conrad — have gone wobbly. The no-new-taxes-now crowd cautions against raising taxes in a recession — a fair point, except that there are more efficient ways to spur the economy than giving more money to those least likely to spend it. Alternatively, they cite — and inflate — the supposed impact on small business of raising the upper-end rates.
This would be more convincing if the Republican line were something other than “no new taxes, ever.” The economic and fiscal circumstances may change, but the prescription remains the same. And the patient is too ill to tolerate another dose of this quack medicine.
And in the Sunday paper (already available online as of Friday), the Bush tax cuts are the focus of the “5 Myths” series as well as “Topic A.” Bill Gale of the Brookings Institution writes about “5 myths about the Bush tax cuts”. My favorite myths of the five are #1 (on the tax cuts as “stimulus”) and #5 (on the effect of the tax cuts on the longer-term fiscal outlook)–because Bill argues there’s not much to “love” in either case:
1. Extending the tax cuts would be a good way to stimulate the economy.
As a stimulus measure, a one- or two-year extension has one thing going for it — it would be a big intervention and would provide at least some boost to the economy. But a good stimulus policy can’t just be big; it should also offer a lot of bang for the buck. That is, each dollar of government spending or tax cuts should have the largest possible effect on the economy. According to the Congressional Budget Office and other authorities, extending all of the Bush tax cuts would have a small bang for the buck, the equivalent of a 10- to 40-cent increase in GDP for every dollar spent.
Why? As the CBO notes, most Bush tax cut dollars go to higher-income households, and these top earners don’t spend as much of their income as lower earners. In fact, of 11 potential stimulus policies the CBO recently examined, an extension of all of the Bush tax cuts ties for lowest bang for the buck…The government could more effectively stimulate the economy by letting the high-income tax cuts expire and using the money for aid to the states, extensions of unemployment insurance benefits and tax credits favoring job creation…
5. Continuing the tax cuts won’t doom the long-term fiscal picture; entitlements are the real problem.
One theory holds that the country’s long-term budget shortfall is “just” an entitlements problem, the result of rising costs associated with growing Social Security rolls and increased health-care spending (via Medicare and Medicaid). Republicans like this idea because it plays down tax increases as a potential solution. Democrats like it because it makes the recent health-care package seem like even more of a triumph.
But it just isn’t true. The deficits we face over the next decade reflect a fundamental imbalance between spending and revenue, one that goes beyond entitlements. Based on projections by the CBO, Alan Auerbach of the University of California at Berkeley and myself, among others, even if the economy returns to full employment by 2014 and stays there for the rest of the decade, the continuation of current fiscal policies, including the Bush tax cuts, would lead to a national debt in the range of 90 percent of GDP by 2020. That’s already the highest rate since just after World War II — and Medicare, Medicaid and Social Security aren’t expected to hit their steepest spending increases until after 2020.
According to these same projections, the yearly deficit would rise to 6 to 7 percent of GDP by 2020. The Bush tax cuts would account for a significant chunk of this, considering that in each year they are in effect, the revenue lost because of them amounts to nearly 2 percent of GDP.
Compounding the problem: By increasing the government’s debt, the tax cuts have already led to higher interest payments on that debt. So even if all of the cuts expire on Dec. 31, we will still be paying for them for years to come.
And under this Sunday’s “Topic A,” it seems that no matter where fiscal policy economists fall on the ideological spectrum, it’s hard to find one who thinks permanent extension of all of the Bush tax cuts is a good idea. My response (just because this is my blog):
DIANE LIM ROGERS
Chief economist at the Concord Coalition and blogger at EconomistMom.com
President Obama will find it very difficult, if not impossible, to simultaneously keep two major policy promises: maintain the generously defined “middle class” portions of the Bush tax cuts and begin to restore fiscal sustainability by reducing the deficit to 3 percent of gross domestic product by 2015.
At the same time, current economic conditions suggest a continued need for deficit spending to assist in the recovery. Even if the Bush tax cuts are far from the most effective form of additional fiscal stimulus we could come up with, it may be all we can get right now, politically.
So one way Obama can avoid simply rubber-stamping the Bush tax cuts — and turning the policy he has labeled “fiscally irresponsible” into his own — while saving face on his promises would be to temporarily extend only those portions of the cuts he has proposed to permanently extend in his past two budgets. A one- or two-year extension would buy time for the economy to further recover, while providing policymakers with a realistic deadline to permanently reform the tax system to raise adequate revenue in a more efficient and equitable manner — in other words, to come up with a tax plan Obama would be proud to put his name on.
And in the informal survey of readers conducted on the page with Ruth’s column, as of Saturday 6 pm, 57 percent of respondents (out of nearly 1000) said we should let all the Bush tax cuts expire as scheduled. (Snapshot above.)
UPDATE (Saturday night): Stephen Colbert’s take on the issue. (Thanks to Len Burman for calling this to my attention via Facebook.)
STILL NOT WORKING THURS. 10/15…
My spam blocker isn’t working right again (Wed. 10/14), so all comments will be queued up for moderation again until I figure out it’s back to normal. Bear with me. The last time this happened it didn’t last too long. I will try to check every few hours except for overnight.
(***UPDATE Friday: My spam blocker is showing a little more life now, so I’m cautiously going to open up unmoderated comments today and just keep checking often. Keeping fingers crossed.)
I’ve been bombarded with spam comments (I mean real spam not just comments that are critical of me!) over the past couple days–so much so that until I figure out the problem, I want to hold all comments in a queue for me to review before they are published on the site. That will mean (if the moderation queue works properly) that your legitimate comments will not appear right away but only once I can sit down with my laptop and internet connection and “approve” them.
My being out of town for the next day means there will be a longer wait in the comments queue than I would ideally like to make you sit through. Perhaps when I’m back at the office I can open it up again and just swat away the spam as soon as I catch it. But ideally I will figure out how to more permanently fix it (or it will magically fix itself)–to get my automatic spam blocker to “reconnect” with my site again. I appreciate your patience.
Donald Marron and I agree about what’s wrong with the House climate bill passed last week–just another example of how economists on different sides of the political aisle often share more common ground than any other two people on different sides of the aisle. I’ve complained before about how odd it is to hear politicians who advocate for stronger environmental goals at the same time claiming that they don’t want a policy that actually raises energy prices. (News flash: then the policy wouldn’t actually change incentives, would it?) Donald emphasizes what a supreme waste of money the House-passed bill is. Even if on net it wouldn’t actually cost the government anything, the opportunity cost is huge:
The number one thing you should know about this bill is that the allowances are worth big money: almost $1 trillion over the next decade, according to the Congressional Budget Office, and more in subsequent decades.
There are many good things the government could do with that kind of money. Perhaps reduce out-of-control deficits? Or pay for expanding health coverage? Or maybe, as many economists have suggested, reduce payroll taxes and corporate income taxes to offset the macroeconomic costs of limiting greenhouse gases?
Choosing among those options would be a worthy policy debate. Except for one thing: the House bill would give away most of the allowances for free. And it spends virtually all the revenue that comes from allowance auctions.
As a result, the budget hawks, health expanders, and pro-growth forces have only crumbs to bargain over. From a budgeteer’s perspective, the House bill is a disaster.
The potential revenues from climate change/carbon policy are one of those actually desirable ways to raise revenue that economists (from both sides of the aisle) like to dream about. That and limiting or eliminating the tax exclusion for employer-provided health care–you know, those ideas that go over really well with politicians and lobbyists… We need these additional sources of revenue, because it’s clear our federal revenue base is insufficient and will remain that way even after the recession is over. I’ll write more on that tomorrow.
OK, I think I’m back up and newly scoured and sanitized… hopefully “safe” to read again. I’ll get back to posting within the next day. Thanks to all the loyal (Firefox) readers who actually noticed the problem and were missing me!
If you use Firefox as your browser, you might have seen there’s a problem/warning message that’s cropped up when you try to access this website–claiming that this website is an “attack site.” Meanwhile, I’m on vacation with one of my kids (in lovely San Francisco!) and haven’t been able to keep up with the posting OR the sleuthing. I’m not yet sure how serious the Firefox/Google warning is. (Internet Explorer fails to show any problem.) I’ll try to investigate further on Tuesday and hopefully fix any problems before I put up my next substantive post.
Thank you to the readers who alerted me to this problem. I will understand if now you “Internet Explorers” want to avoid me for a few days while I make sure I’m safe!
I already wrote this on my Facebook wall, but I’m so proud to hear the close-to-official word that my friends Jason Furman, Austan Goolsbee, and Peter Orszag will be at the top of President Obama’s economic team. From today’s Wall Street Journal story on the pick of Tim Geithner for Treasury Secretary:
Already, the backbone of an Obama economic team has emerged. Congressional Budget Office director Peter Orszag will be Mr. Obama’s budget director. Jacob Lew, a former Clinton budget director, will head the White House’s National Economic Council. Jason Furman, the economic policy director of the Obama campaign, is likely to be Mr. Lew’s deputy. And Austan Goolsbee, a University of Chicago economist and long-time policy confidante, is expected to chair the Council of Economic Advisers.
The team represents a re-emergence of more academic economists and technocrats after a Bush administration that elevated aluminum-company and railroad executives to be Treasury secretary.
I’ve already pointed out during the campaign that Jason and Austan understand the importance of fiscal responsibility, at this post. Jason was a member of the Concord Coalition’s Fiscal Wake-Up Tour for awhile, after all. And Peter has written about why deficits matter many times including with none other than Bob Rubin, and of course, Peter’s had to care about this full time in his job as director of the Congressional Budget Office over the past two years.