Tag Archives: Taxes

The fiscal cliff is just Act 2 of a 3-Act Play

2 Jan

I’m still mulling over the fiscal cliff deal that’s just been ratified by Congress.

My one thought so far is that part of the reason some progressives are saying it’s not so bad is that the deal, for the most part, focuses on taxes. And while the deal has the unfortunate element of making permanent a great many of Bush’s tax cuts, which were temporary, and not raising nearly the amount of revenue that might have been raised if the tax cuts had simply been allowed to expire ($3.9 trillion over a ten-year period), it does have the benefit that it raises about $600 billion in revenues, eliminates some tax benefits for the rich (though not nearly to extent that allowing the Bush cuts to expire would have), extends unemployment insurance for a year and protects the earned income tax credit for the poor.

But we have to remember that the deal is really only the second act of what seems to be shaping up as a three-act drama.  Act 1 was last summer, when Obama and the Republicans agreed to nearly $1 trillion in non-defense spending cuts over a ten-year period.  That set of cuts is now in place, promising, as the White House said last summer, to “reduce Domestic Discretionary Spending to the Lowest Level Since Eisenhower.”

Act 2 is the fiscal cliff deal. As I say above, it focuses mostly on taxes, and because it didn’t touch things like Social Security or Medicare, which Obama had been pushing for, some progressives feel relief. But it’s Act 2, as I said. If we keep in mind Act 1, what we have so far is $1 trillion in non-defense cuts and $600 billion in tax increases.

Which brings me to Act 3: the debt ceiling and delayed sequester negotiations that are set to begin in late February/early March. Unlike the negotiations over the fiscal cliff, where Obama simply could take away the Republicans’ tax cuts by waiting them out, the debt ceiling negotiations will put the GOP in a much stronger position. Obama wants something, and only the Republicans can give it to him. So now they’ll say to him: all the movement has to be on the spending side. And aside from the issue of cuts to the Pentagon, he’ll have very little to negotiate with.

Ed Kilgore describes the upcoming confrontation over the debt ceiling/sequester thus:

So the supposed moment of bipartisan satori that supposedly culminated with the House’s action last night has increased the already formidable sentiment within both parties to make the upcoming confrontation One for the Ages. I would guess that by sundown today about 95% of the Republicans in both Houses who voted for the “cliff” bill will have made public statements swearing bloody vengeance on the Welfare State in exchange for an increase in the debt limit. And even before the deal was sealed in the Senate, the president was already vowing not to make the concessions Republicans will demand.

When it comes to intransigence, whom are you going to believe? The Republicans or Obama. That’s why liberals, even those who aren’t that ruffled by the specifics of the fiscal cliff deal, are nervous.

Regardless of whom you believe, all of the action is going to happen on the spending side. So when the play’s over, what we’ll have is $600 billion in tax increases, and some number of trillions in spending cuts. Some of those cuts will come from the Pentagon, which is good, but…well, you see where I’m going.

Update (noon)

Here’s a good roundup of reactions to the deal.

Update (3 pm)

Digby has a must-read. She also makes an important point in her conclusion:

So you see what a bind we’ve been put it with this ridiculous austerity fetish? We’re going to be arguing about cutting even larger chucks of the budget at a time when we desperately need to be adding to it.

(Oh, and by the way, it’s not as if the tax hikes they just voted for could be used for any of that. Every penny of it is slated to pay down debt incurred during the time when the Republicans starved the beast and spent like sailors. What a racket.)

I didn’t deal with the whole austerity question here, though I have in the past. In a bad economy, tax hikes are always austerity measures. But the one hope is that the monies they provide will go to funding programs. In this case, the money is solely to pay down the debt. And if history is any guide, as soon as the GOP is a position to wreak their havoc, they’ll just run up the debt again. Unless someone finally makes the case for taxes as something other than a way of reducing debt and deficits, we’ll be stuck where we are.

Might We Not Want a GOP Congress Come November?

7 Sep

This post from Digby makes me wonder: is the only thing stopping Obama from getting his desired Grand Compromise of cutting social programs in order to reduce the deficit the GOP’s refusal to raise taxes?  If so, might we not want the GOP to hold onto Congress this November?

Things you think about at midnight.

The Thunder of World History

14 Apr

As you grit your teeth and bear down in these the last hours before Tax Day, remember this: Taxes, according to Joseph Schumpeter, are “the thunder of world history.”

The spirit of a people, its social structure, the deeds its policy may prepare, all this and more is written in its fiscal history, stripped of all phrases. He who knows how to listen to its message here discerns the thunder of world history.

That Old Centrist Magic: Jonathan Stein Responds to Jonathan Chait

8 Sep

 

In this past weekend’s New York Times Magazine, Jonathan Chait roiled the waters of progressive opinion by claiming that the left is a little delusional in its criticism of Obama for failing to do more to improve the economy. Accusing liberals and leftists of “magical thinking,” Chait wrote that the left overlooks a major obstacle Obama would have faced had he pursued a larger stimulus plan in early 2009: “everyone who mattered” said the stimulus should be smaller, not bigger. I had my suspicions that it was Chait who was being a little magical here, conjuring a past that wasn’t quite as he presented it, but it wasn’t till I heard from my old friend from grad school Jonathan Stein that I realized what a talent Chait truly is. So I asked Jonathan, who’s now an editor at Project Syndicate, to write something up; here’s his response.

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Barely a week after Barack Obama’s inauguration, with the US financial system on government life support, credit markets frozen, and asset prices seeking a bottom, roughly 200 economists—led by six Nobel laureates, including Kenneth Arrow, Paul Samuelson, and Robert Solow—signed an open “Letter to Congress” backing swift enactment of the American Recovery and Reinvestment Act (ARRA) of 2009. “To stop the hemorrhaging of jobs and pull the economy back from the edge,” they warned, “policymakers must act quickly and decisively…to boost employment and economic growth.”

Of course, many economists, preferring Hayek to Keynes, were duly mobilized against ARRA. Their recipe for recovery, standard fare in financial crises before the New Deal, would weaken aggregate demand further by forcing everyone—households, firms, and government—to start saving at the same time. The Keynesians, by contrast, worried that ARRA’s $787 billion fiscal stimulus would prove too little to offset the collapse in private consumption and investment. They were unequivocal in their support for the bill, but were plainly unconvinced that it would suffice: “This legislation may not be enough to solve all the economy’s problems, but it is urgently needed and an important step in the right direction.”

The point of rehearsing this history is not that the Keynesians were right, or that further stimulus is urgently needed. They were, and it is. But, now that the nebulizing myth of a “jobless recovery” has crystallized into a recession-in-waiting, those seeking to keep progressives on Obama’s bandwagon are finding it necessary to argue that the appropriate scale and scope of fiscal stimulus was—and remains—a foregone conclusion.

Jonathan ChaitIf you’re Jonathan Chait, for example, the stimulus debate never happened, or, if it did happen, the social stratum known as “everybody who mattered” (yes, “them”) stayed out of it. Or, if people who mattered took part, people who mattered more—like that “reliable barometer of elite opinion” Colin Powell—prudently dismissed the entire exercise.

Indeed, Chait allows Powell, of all people, to render the verdict on Obama’s domestic agenda—a verdict that progressives, too, presumably must accept: “[W]e can’t pay for it all.” Anyone who claims otherwise—namely, leftists now blaming Obama for having been dealt a weak economy and a recalcitrant Congress—has succumbed, as Chait unreflectively puts it, to “magical thinking.”

In fact, those who initially argued for a much bigger stimulus were quite realistic—and not only in economic terms. Economists like Brad DeLong, Paul Krugman, Jeffrey Sachs, and Joseph Stiglitz advocated a “go large” approach precisely because they foresaw—well before the emergence of the Tea Party—the difficulty of enacting a second stimulus bill. And, in contrast to Chait’s portrayal of the “liberal” position at the time, not only did they favor a larger stimulus; they also saw no tradeoff between short-term economic-recovery efforts and longer-term reforms. Universal health insurance, for example, would save money as well as lives.

Perhaps Chait really believes that these arguments, and their purveyors, didn’t matter in early 2009. And, given the left’s electoral weakness, perhaps he is right. Indeed, Obama’s political problem today is that pro-stimulus arguments aren’t particularly progressive anymore—or, to put it another way, reality, in the form of depressed private demand, has caught up to the left since ARRA’s impact began waning in the middle of last year. As Everett Ehrlich, a former undersecretary of commerce and chief economist at Unisys Corporation, put it in July 2010:

The economy is primed for growth. Banks hold over a trillion in nonborrowed reserves. Corporations have accumulated $1.8 trillion in cash. But a spark is needed to turn this kindling into a fire. Only government can do this—stimulus will never be more appropriate nor prospectively productive than it is now.

More than a year later, with headline unemployment pinned above 9% and the federal government’s borrowing costs at record lows (which is how bond markets tell the authorities to buy bridges and high-speed rail projects), Chait somehow still cannot find fault with Obama for failing to keep his matches dry. Back in 2009, Obama chose a smaller stimulus package (and allowed his opponents to lard it with non-stimulative tax cuts) in order to avoid alienating “moderate Republicans,” whose support he supposedly needed to advance the rest of his domestic agenda. This, according to Chait, is what progressives (those who mattered, at any rate) wanted at the time. And moderate Republicans, as we know, obliged en masse: all three of them voted for ARRA. One (Arlen Specter) went on to a distinguished year-long career as a Democrat before losing his Senate seat in 2010; the other two, Susan Collins and Olympia Snowe, have not supported Obama on any major legislation since.

Robert ReichChait believes that the Republicans’ credible filibuster threat before the 2010 election, and their subsequent takeover of the House, redeems Obama’s domestic record—if not fully, then enough that progressives should stop whining and stay onside. Indeed, Obama, in Chait’s view, has been as progressive as institutional constraints have allowed him to be. Why, he wants to know, did Robert Reich call Obama’s decision to extend the Bush administration’s tax cuts for the wealthiest income earners “an abomination”? Didn’t Obama wring from the Republicans payroll-tax cuts and an extension of federal unemployment benefits (as Reich had been advocating)? And, most alarmingly, if Obama had refused that deal, wouldn’t he “have to accept the likelihood that nearly a million fewer jobs would have been created and that we would have been at risk of a double-dip recession back then”?

Well, in that case, Obama would have been worrying about the wrong problem—or, rather, not worrying enough about the right one. As August’s employment data show, a recession deferred is not a recession denied. Even if we accept Chait’s jobs figure, net employment grew by just 360,000 from August 2010-August 2011, with the total increase (and then some) attributable to those whom the Bureau of Labor Statistics describes as “working part time because their hours had been cut back or because they were unable to find a full-time job.” And, to them—and to millions of other underemployed, casualized, non-organized, and de-unionized workers, and their families—the risk of a double-dip recession probably doesn’t seem quite so troubling as it does to Chait; after all, American wage earners, on average, have yet to recover from the first dip—in 1981.

That is why, for Reich, the payroll-tax cuts and extension of unemployment benefits that Obama received amounted to “peanuts.” When weighed against the size of the income-tax cuts that he extended—and against the unprecedented economic inequality fueled by the massive transfer of wealth from labor to capital over the past 30 years—that seems a fair assessment. Chait, however, rejects Reich’s claim that recent unemployment data would have left the GOP with no choice but to extend benefits. On the contrary, those peanuts were “forms of stimulus that Republicans would never have allowed without an extension of upper-bracket tax cuts in return.”

Fair enough. But, honey-glazed or not, peanuts are peanuts, not porterhouse. The issue is not that Obama—now supposedly focused squarely on short-term economic recovery—might have lost some stimulus had he insisted on letting the tax cuts expire; it’s that he failed to demand much more in exchange for reneging on a key campaign pledge. A public jobs program that provides workers with a living wage and secure benefits (and that establishes benchmarks for private-sector employers) is also a form of stimulus—and one that, unlike what Obama got, might have averted, rather than postponed, the risk of a double-dip recession.

At the very least, such a demand would have made some rich people more careful about what they wish for. See, that’s the thing about institutional constraints: acknowledging their existence should never mean turning them into a stalking horse for policy outcomes that run counter to your voters’ interests. Republicans understand that very well. For the GOP, bipartisanship is a tactic, not a program. As Chait points out, Bush enacted his income-tax cuts by relying on the congressional budget-reconciliation procedure, thereby avoiding the threat of a Democratic filibuster. So, why didn’t Obama use budget reconciliation prior to the 2010 mid-term election to restore the upper-bracket rates?

Chait has no answer to such questions, because Obama’s constraints have been largely ideological, not institutional. Indeed, Chait suggests time and again that Obama should have chosen differently—on the size of ARRA and the extension of the Bush-era tax cuts, no less. The arguments for choosing differently were made. They turned out to be right. Unfortunately, Obama still doesn’t think they matter. What he and Chait don’t understand is that, if institutional constraints are to be changed, these arguments matter much more than what can be won by ignoring them.

Jonathan Stein is an editor at Project Syndicate. The views expressed here are his own.

* * * * *

Hi. Me again. If you weren’t into that Marilyn rendition of this classic song—though you have to admit she does capture the feeble breathiness of Chait’s column pretty well—check out this version from Louis Prima and Keely Smith. The best version is Mel Torme’s, but I can’t find a video of it.

Update (10:30 pm)

Elias Isquith, who’s got a great blog over at League of Extraordinary Gentlemen, has an excellent post on this matter, with some good follow-up material from Chait and Elias’s response.  Check it out.

Update (11:30 pm)

Mike Konczal delivers a withering, if understated, reply to Chait. That guy is seriously, seriously smart.

Update (September 17, 3:30 pm)

The New York Times Magazine decided to use an excerpt from Jonathan Stein’s guest post as a response to Chait’s piece in their letters section!  Not bad, Jonathan S….

Why I’m Not Laughing with Jon Stewart

19 Aug

Jon StewartJon Stewart’s takedown of conservatives who complain that 51 percent of American households don’t pay any income taxes is getting a lot of laughs from the left. Color me unamused. On this one, I’m with the right. Well, sort of. Let’s just say—as a teacher used to say of my papers—they’re right for the wrong reasons.

It actually is a scandal that 51 percent of American households are not paying income taxes. Not because it means the majority of Americans are free-loaders but because it means the majority of Americans don’t make enough to money to pay taxes. (Though as the Center on Budget and Policy Priorities points out, that statistic comes from 2009, which wasn’t a good year for most Americans. Usually, the figure is somewhere between 35 and 40 percent, which still sucks. Also, the poor pay all sorts of other taxes, but that is a different issue.) More broadly, it means 1/2 the population doesn’t have the wherewithal to fund and sustain the basic operating costs of a democracy.  That’s not a system liberals ought to be defending.

Ever since Bill Clinton, one of liberals’ main strategies to improve the condition of the working poor has been the Earned Income Tax Credit, which bumps up low wages by essentially giving workers money in the form of  a tax refund.  (The EITC is also one of the reasons so many households don’t pay any taxes). That’s not a bad thing, as anti-poverty programs go.  But it’s become something of a fetish for Democrats who can’t stomach a real confrontation with the employing classes in this country. And that is a bad thing. It’s no accident that the EITC was first instituted in 1975. Though it was meant to address other issues, it was well timed to become the emblematic policy of an economy built on stagnant wages and a New Deal state in retreat.

Four decades later, wages are still stagnant, and the New Deal state is all but dead. So while I appreciate the class warfare of Stewart’s satire, I’m not eager to join the encampment he’s defending.

Tax and Spend

20 Jun

One problem with liberals in the tax debate is that they don’t realize just how little Americans actually get from the government. When the government doesn’t provide you with universal health care, a decent pension, good schools, or accessible and affordable public transportation, why should you want to pay taxes? The answer, of course, is not for Americans to pay less but for government to spend more. As Thomas Geoghegan explains here, “people are willing to pay taxes that they spend on themselves.”

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