“The Great Pretenders”: GOP Deficit Hypocrisy
Republicans love to harp on deficit reduction when a Democratic president releases a budget. But when they’re in power themselves, they couldn’t care less.
Now we are treated to the semiannual spectacle of watching Republicans pretend they care about the deficit. They will hammer at this repeatedly as discussion progresses on the president’s budget budget, which projects a deficit of more than $1 trillion for this year and $901 billion for next. Obama and the Democrats generally have a history of quaking when this deficit talk starts up. But the best thing they can do now is stick to their guns and quote Dick Cheney: “Deficits don’t matter.” Growth matters. And for growth, we need investment.
First, the Republican hypocrisy. I hope you are aware by now that they don’t actually care about deficits. They just care about money being spent on things they don’t like, which outside of overpriced ships the Navy probably doesn’t need and more reinforced steel for the border fence includes pretty much everything. If, say, instead of seeking to spend more money for transportation, Barack Obama had proposed cutting the top marginal tax rate down to 8 percent, well, that would have had a completely disastrous impact on future deficits. But you wouldn’t have seen Republicans complaining about that, because the rich deserve more of their money back.
You also didn’t see Republicans complaining about deficits when George W. Bush was running them up. Oh, a few did. But the protests were infrequent and mousy. By and large, Republicans shuffled along. It is astonishing, isn’t it, to think back on the prescription-drug benefit from 2003. An unfunded, roughly $500 billion expansion of socialized medicine (Medicare), and Tom DeLay kept the floor open for three extra hours so that the small number of Republicans who tried to take the Republican position on this could be browbeaten into voting with the White House. That episode, engineered by DeLay, was as close as we’ve come to legislative fascism in this country in a long, long time, both in the sense of the strong-arm tactics used and in the way it posited that day is night and black is white.
Of course, in 2003 the deficit was “just” $374 billion. This, remember, was only two years after Bush took office, met by a surplus of $237 billion. So he added $611 billion to the deficit in two short years, by diddling around with indefensible tax cuts for the wealthy (remember how they goosed the economy? Didn’t think so) and passing the aforementioned Medicare expansion to shore up the senior vote. Admittedly, Obama outpaced Bush. He added $1 trillion in a year. But we all know why. Well, some of us know why. The economy was going to die, and it needed money. Wall Street and the banks didn’t have it, so the government had to supply it.
The only problem with this was that it didn’t supply enough. I’ve started reading Noam Scheiber’s The Escape Arti$ts, his new book about the Obama economic team’s successes and failures. Scheiber writes that Christina Romer, the administration’s first chief economist, got all the numbers on the economy from the Fed and other reputable sources and set out to determine how much federal intervention, free of political considerations, would be appropriate to prop up the collapsing economy. The number she and her staff settled on—$1.8 trillion—was so high that she didn’t even dare mention it at meetings. Obama, of course, did less than half that, which was the maximum that was politically possible.
After the heavy artillery fire he took for that, Obama decided he had to placate the deficit hawks, at least rhetorically, and so he did that for a while. But that collapsed, partly because the Republicans wouldn’t consider tax increases as part of the mix, and partly because he and the White House eventually figured out that trying to be moderate on these issues was both bad substance and lousy politics. It’s bad substance because, as much as it infuriates some people, government spending helps keep us afloat in hard times. And cutting that spending causes harm. For example, we are down about 610,000 government employees from the day Obama took office. Most of those are at the state and local level, and while it’s hard to say how many are a result of the drastic cuts in federal aid to states, certainly many layoffs stem from budget cuts. Those cuts reduce the deficit, but they add directly to the jobless rolls. Is that what we’ve needed for these past two years? Obviously not.
And it’s bad politics because, as the White House now seems to grasp, it’s time to draw contrasts, and the public is largely on Obama’s side. People kinda-sorta say they care about the deficit, but they don’t, really, in large numbers. And to the extent that they do care, they’d rather raise taxes on the wealthy than cut programs.
When the economy gets better, the deficit will start to heal itself. If the economy is truly picking up in the way the January jobs numbers suggest—and if unemployment goes down to around 8 percent by the end of the year—we’ll be poised for a recovery that will add jobs and tax revenue. At least, that is, until the next Republican president comes along and slashes taxes on multimillionaires, blowing another huge hole in the deficit (Mitt Romney’s hole, for example, would be $600 billion in 2015 alone). If Romney is actually elected, the same Republicans who are going to spend the next few months nattering about Obama’s irresponsibility will be marveling at President Romney’s courage.
But Obama standing firm against the deficit hypocrites will render a Romney presidency even more unlikely than it already is. Republicans use deficit politics to scare Democrats, and Democrats often respond exactly as Republicans hope. It’s time they stopped being afraid.
By: Michael Tomasky, The Daily Beast, February 14, 2012
A “Rich Guy’s Dilemma”: Mitt Romney’s Big Tax Reveal
One of the stickier dilemmas awaiting Mitt Romney’s campaign is the intersection between his personal wealth and his economic program. Romney is a very rich guy who enjoys a low tax rate, which is a political problem. Combine that with his tax plan, which locks in the Bush tax cuts and then cuts taxes even more, you have a ready-made political theme for the Obama campaign to deploy against him should he win the nomination.
At the same time, Romney has not wrapped up the nomination. And conservative elites are saying that his plan doesn’t go far enough in cutting taxes for himself and his economic peers. So Romney is pulled between two competing forces — Republican supply-siders who want him to cut taxes for the rich even more, and general election swing voters who not only don’t want to cut taxes for the rich at all but think they need to go higher.
It’s pretty significant, then that Romney is planning to roll out an updated and (apparently) more detailed version of his tax proposal, via Jennifer Rubin:
Will he do more on taxes? “Yes,” [Romney] responds promptly. “We’ve talked about two immediate things we can do: Bring the corporate tax down from 35 percent to 25 percent, and eliminate cap-gains for people in the middle [class].” He said he would roll out the full tax reform plan “as soon as it gets through modeling.” Romney is not the candidate to charge forward without data. It doesn’t sound like a flat tax. He talks about “lowering rates and lowering deductions and exemptions.” (That sounds more akin to the plan suggested by Rep. Paul Ryan (R-Wis.).) He promises, with a not-so-subtle shot at his critics, “You can be sure I won’t be doing it to lower taxes on the top one percent. It will be pro-growth.”
But what does that mean exactly? Saying he won’t be “doing it to lower taxes on the top one percent” could mean two completely different things. It could mean he won’t be lowering taxes on the top one percent — perhaps he’ll keep the current effective tax rates on the top one percent steady. Or it could mean that he will be cutting taxes for the one percent, but he’ll just insist that he’s doing it because he cares about growth — the fact that people like himself will be getting a tax cut is merely the accidental byproduct of his pro-growth plan.
Which will it be? His choice will help signal how worried Romney really is about Rick Santorum’s polling surge. If Romney cuts taxes for the rich even more in his new plan than his old one, it shows he feels compelled to lock down the supply-siders against Santorum. If he cuts taxes for the rich less, then it shows he’s not taking Santorum all that seriously. And, of course, his decision will hold pretty important implications for the general election – either Romney will be narrowing the target profile he offers Obama or else he’ll be making it even wider.
By: Jonathan Chait, Daily Intel, February 13, 2012
“The World We Live In”: Yes, Tax Cuts Increase The Deficit
On Thursday, House Republicans unanimously rejected a resolution from Rep. Gary Peters stating, among other things, that the Bush tax cuts added to the deficit. If you read the text they were voting on, it’s pretty clear that it wasn’t built for bipartisanship: It’s phrased to suggest that Bush was a liar and Republican governance was a fraud. That kind of thing doesn’t pick up votes across the aisle.
But there’s a more important economic debate here. Republicans occasionally flirt with the idea that tax cuts don’t increase deficits. Senate minority leader Mitch McConnell has said this directly. Speaker John Boehner has decreed that tax cuts don’t need to be offset, but spending proposals do. But there’s a very easy way to see that Republicans don’t really mean this: They believe that tax cuts cause deficits when Democrats are behind them.
The ongoing debate over the payroll tax is a good example. When Republicans proposed a payroll tax cut as stimulus in 2009, it wasn’t offset. When they agreed to it in the 2010 tax deal, it wasn’t offset. But since it has become the White House’s favored policy, House Republicans — the same House Republicans who passed the CUTGO rules stating that spending proposals had to be paid for but tax cuts didn’t — are insisting the payroll tax cut be offset.
Then there’s the Bush tax cuts. When Republicans tally up Obama’s deficits over the last few years, they’re adding $620 billion for the two-year extension of the Bush tax cuts. When they project his deficits for the next five years, they’re assuming the extension of the Bush tax cuts. And they’re doing so explicitly. Earlier in the week, I worked with the Center on Budget and Policy Priorities on a column summing up the projected budgetary impact of every single piece of legislation Obama had signed into law. In the end, my numbers showed, Obama has passed policies adding about a trillion dollars to the deficit. But Keith Hennessey, who directed the National Economic Council under George W. Bush, responded that I had ignored the trillions of dollars in deficits “from policies President Obama proposes to enact in the future (like extending most but not all tax cuts rates beyond 2012)”.
And Hennessey is right. Not about my analysis, which was restricted to actual policies, not proposed policies (should I also have subtracted $4 trillion from the deficit because Obama favors a deficit deal of that size?). But about the Bush tax cuts, which will add trillions of dollars to the deficit if Obama extends all or most of them in 2012.
Finally, there is a particularly odd claim you occasionally hear about the Bush tax cuts: Revenue increased in their aftermath. Dan Holler, the communications director for the Heritage Action, tweeted as much at me yesterday. “revenues increased between 2003 and 2007…how does @ezraklein argue Bush policies ‘pushed revenues’ down?”
This relies on mixing up the effects of inflation, economic growth, and taxes. The normal way to measure how much revenues a given tax regime is pulling in is to look at taxes as a percentage of GDP. In 2001, taxes revenues were 19.5 percent of GDP. In 2002, they fell to 17.6 percent of GDP. In 2003, 16.2 percent of GDP. In 2004, 16.1 percent of GDP. Some of that is the 2001 recession. But at no point in Bush’s presidency, and at no point since, have taxes returned to 19 percent of GDP.
Or, to put it slightly differently, if tax cuts actually increased revenues, then it would have been absurd for George W. Bush to propose tax cuts as a way of paying down the surplus. In that world, tax cuts would have made the surplus larger, and given the government even more of the people’s money. We would end up in a fiscal paradox, with the government constantly trying to give back its surplus, but ending up with an even larger surplus as a result. But that’s not the world we live in.
By: Ezra Klein, The Washington Post, February 3, 2012
Mitt Romney’s Tax Plan: Very Progressive By 15th Century Standards
The Tax Policy Center has completed an analysis of the distributional effects of Mitt Romney’s tax plan, and as might be expected it’s quite good for you if you’re raking in the big bucks, and not particularly helpful if you’re not. For the bottom 80% of the income distribution, federal tax rates would drop between 0.6% and 3.4%. For the top 20%, they’d drop 5.9%; for the top 1%, they’d drop 8.6%. That means the regular-joe taxpayer at the middle of the distribution gets a cut of about $1,400, while a taxpayer in the top 1% gets a cut of $171,000. Kevin Drum cracks wise:
[C]onservatives are right to believe that Romney isn’t to be trusted. Sure, he lowers tax rates on millionaires by 9 percentage points, and you may think that’s a pretty sweet deal for the rich. But come on. Newt Gingrich would lower them by 24 percentage points. (No, that’s not a typo.) Rick Perry lowers them by 20 percentage points. Herman Cain lowers them by 15 points. Frankly, Romney is hardly even trying here.
Along similar lines, and because I’ve been reading about this stuff lately, I’d like to point out that in the long historical context the tax rates Mr Romney is proposing are still extremely progressive. In fact, up until at least the 15th century or so, tax rates in the Western world were generally higher for poor people than they were for rich people. In early Renaissance Florence, as Tim Parks explains in his highly readable “Medici Money“, almost all state revenues were raised from excise taxes on consumption, while the holdings of the wealthy were exempt from almost any form of routine taxation. This state of affairs persisted until 1427, when the cost of hiring mercenaries to protect the city from the Duke of Milan, the French, and basically everyone else in the free-for-all of Italian politics rose so high that they had to introduce a universal tax called the catasto. This exempted about a third of the poorest households, while everyone over a certain level of income had to pay a flat tax of 0.5% on their wealth—a wildly progressive move in its day.
Meanwhile in Flanders, as John Munro writes in “The Usury Doctrine and Urban Public Finances in Late-Medieval Flanders (1220-1550): Rentes (Annuities), Excise Taxes, and Income Transfers from the Poor to the Rich“, state finance came to rely increasingly on issuing annuities paying an annual income. This was because the Catholic church’s rulings on usury made it increasingly difficult for sovereigns to borrow at interest. The Pope said it was okay to issue the annuities as long as the taxes used to pay them came from the produce of the land, safely removing them from the unnatural auto-reproduction of money implied in usury. That meant, again, that taxation mainly consisted of excise taxes on consumption, and “the obvious significance of this form of public-finance related taxation was that it was essentially very regressive, in representing a far greater burden on the poor than on the middle classes, let alone the rich.” Since most people who could buy and hold state annuities were rich, it was a pretty direct transfer of wealth from the poor to rentiers.
So, again, while it’s true that Mr Romney’s tax plans represent a large net transfer from the poor to the rich if you start from the baseline of current tax law, they’re actually pretty progressive if you’re willing to start from a pre-modern baseline.
By: Democracy in America, published in The Economist, January 6, 2012
Mitt Romney Has A Big Tax Problem
Mitt Romney has been insisting for a while that he will not cut taxes for the rich, which everybody took to mean that he would lock into place the enormous, expiring Bush-era tax cuts for the rich, but cut taxes no deeper than that. He has said so over and over again. Here he is saying, “If I’m going to use precious dollars to reduce taxes, I want to focus on where the people are hurting the most, and that’s the middle class. I’m not worried about rich people.” And here’s Romney insisting, “I’m proposing no tax cuts for the rich.”
Today the Tax Policy Center analyzes his plan, and it turns out that Romney would, in fact, cut taxes for the rich, even below current levels. The highest-earning one percent would get an additional tax cut averaging $82,000 a year. Romney’s plan would also raise taxes on the lowest quintile by an average of $157 a year.
That the leading Republican wants to cut taxes for the rich is not exactly man-bites-dog. But it is a huge political liability for him. Raising taxes on low-income earners is unpopular, cutting taxes for the rich is unpopular, and doing it when you’re a wealthy scion who looks like a wealthy scion is extremely unpopular. That’s why Romney has been furiously insisting he won’t cut taxes for the rich.
Ross Douthat, taking Romney’s claims at face value (like many of us did), confidently asserted yesterday that he has avoided exposing himself to the charge of cutting taxes for the rich. Romney, he wrote, is “campaigning instead on a revenue-neutral tax reform and a modest tax cut for middle class investors, neither of which leaves him particularly vulnerable to the charge of “giving massive tax breaks to the rich.”
Turns out he’s not. And his plan isn’t revenue-neutral, either. It would add $180 billion to the deficit in 2015.
What makes this report tougher for Romney is the timing. He’s already under pressure from conservatives upset with his pledge not to cut taxes for the rich. If he had already wrapped up the nomination, Romney could just say, “oops, we screwed up the plan,” and release a new one that holds taxes for the rich at their Bush-era levels and doesn’t raise them on the working class. But that would be a tricky move in the midst of a primary. Anyway, the changes he’d have to make would be very large — $180 billion a year is big money, requiring a major revamp of his plan.
By: Jonathan Chait, Daily Intel, January 5, 2012
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