“This Isn’t The Debate Republicans Want To Have”: Republicans Befuddled By Obama Plan To Cut Middle-Class Taxes
Even President Obama’s most fervent opponents must acknowledge that he’s getting quite good at putting them on the defensive. Facing a Republican Congress and with only two years remaining in his presidency, he seems to come up with a new idea every couple of weeks to drive them up a wall. So he certainly wasn’t going to let the State of the Union address go by without using the opportunity — days of pre- and post-speech commentary, plus an audience in the tens of millions — to its utmost.
At Tuesday’s speech, Obama will announce a series of proposals meant to aid middle class and poor Americans and address inequality, most particularly an increase in the child care credit and a $500 tax credit for working couples (here’s the White House’s fact sheet on the proposals). To pay for it, investment and inheritance taxes on the wealthy would be increased and some loopholes that small numbers of the super-rich (like one Willard Romney) exploit will be closed. While the SOTU is often the occasion for dramatic announcements that are soon forgotten, this one lands in the center a debate that is looking like it will shape the upcoming presidential race. Naturally, Republicans are not pleased.
But if you listen carefully to what they’re saying, you’ll notice that they are barely mentioning the proposals for middle-class tax breaks which are supposed to be the whole purpose of this initiative; instead, all their focus is on the increases America’s noble job creators would have to endure in order to pay for it.
“Slapping American small businesses, savers and investors with more tax hikes only negates the benefits of the tax policies that have been successful in helping to expand the economy, promote savings, and create jobs,” said Orrin Hatch. “More Washington tax hikes and spending is the same, old top-down approach we’ve come to expect from President Obama that hasn’t worked,” said John Boehner’s spokesperson. “This is not a serious proposal,” said Paul Ryan’s flak. “We lift families up and grow the economy with a simpler, flatter tax code, not big tax increases to pay for more Washington spending.” For the record, a “flatter” tax system means either the poor paying more or the rich paying less, though Republicans never say which they prefer.
Marco Rubio was on the same page. “Raising taxes on people that are successful is not going to make people that are struggling more successful,” he said on Face the Nation. “The good news about free enterprise is that everyone can succeed without punishing anyone.” That was about as close as any Republican came to actually talking about the tax cuts Obama is proposing (though this National Review editorial does discuss them, by arguing that it’s an attack on motherhood). That’s probably because Republicans been in favor of ideas like them in the recent past.
While Obama does want to provide new funds to make community college free to anyone who wants it, most of his proposals in this round use the tax code to help people of modest means, which is exactly what Republicans usually suggest when they’re forced to come up with an idea to help the poor or middle class. Since they believe that government programs to help ordinary people are useless almost by definition, the only way to give anyone a hand is with a tax cut. And yes, the hand they usually extend is toward the wealthy, whose burdens are so crushing that justice demands that lawmakers not rest until they can be afforded relief. But tax cuts are so magical they can help anyone, which is why Republicans been in favor of expanding the Earned Income Tax Credit and the child care tax credit before.
But paying for it by increasing investment and inheritance taxes on the wealthy, like Obama is proposing? Not on your life.
One thing’s for sure: as the economy improves, both parties are now being forced to address the underlying issues of stagnant wages and inequality that have been an anchor around ordinary people’s lives for the last few decades. It’s fair to say this isn’t the debate Republicans want to have, and it’s easy to mock them for their insistence that they’re really the party with something to offer the middle class and the poor. But it’s a lot more productive to just take them at their word and see what they actually propose to do.
So Mitt Romney says he has cast off his previous contempt for those of modest means and now wants to focus his 2016 presidential campaign on the issue of poverty? All right — what are his ideas? If they’re actually worthwhile, he should get whatever credit he’s due. If it’s more trickle-down policies and stern lectures about bootstrap-pulling, then we’ll know nothing has changed.
You can argue — and many will — that it’s pointless for Obama to introduce significant policy proposals like this when he knows they couldn’t make it through the Republican Congress. But what alternative does he have? He could suggest only Republican ideas, but he wouldn’t be much of a Democratic president if he did that. Or he could offer nothing at all, and then everyone would criticize him for giving up on achieving anything in his last two years. If nothing else, putting these proposals forward can start a discussion that might bear legislative fruit later on. Major policy changes sometimes take years to accomplish, so it’s never too early to start. And if Republicans have better ideas, let’s hear them.
By: Paul Waldman, Senior Writer, The American Prospect; Contributor, The Plum Line, The Washington Post, January 19, 2015
“Doesn’t Even Rise To The Level Of Pitiful”: Sorry, Republicans; The Keystone XL Pipeline Is Not A Jobs Agenda
In the new Congress, Republicans will have the majority in both the Senate and the House for the first time in eight years. As they get ready to take power, their rhetorical focus is clear: jobs, the economy, and more jobs.
So far, there are two main proposals on deck for the GOP. First, the Hire More Heroes Act, which would make it easier for small businesses that hire veterans to deny health care to their employees. Second, they want to immediately build the Keystone XL pipeline, a project that would transport oil from Canada to the Gulf Coast.
On their own, these are both extremely small-bore policies. But as a jobs agenda, this doesn’t even rise to the level of pitiful. It’s the latest evidence that Republicans continue to struggle with basic macroeconomics — and it does not bode well for the nation should they win the White House in 2016.
Let’s examine the Hire More Heroes Act first. ObamaCare requires that all businesses that have over 50 full-time employees provide health-insurance benefits. This law would exempt veterans from counting toward that cap, thus making it easier to expand a business over 50 employees if you hire veterans.
On its face, this might not even be a terrible idea. Health-care policy experts have long argued that funneling American health care through employer subsidies is bad, locking people into jobs they don’t like for fear of losing coverage, and increasing health-care spending. Rolling that system back very slightly might be a good thing. My problem is that there’s no reason to direct general social spending to veterans so preferentially.
But make no mistake, this is a tiny, tiny policy involving a relative handful of people and jobs.
Keystone XL is bigger in one respect. Generous estimates predict that the pipeline would create around 42,000 temporary jobs — about 2,000 construction jobs and the rest in supplying goods and services.
How many long-term jobs? Fifty. That’s right, 50 whole long-term jobs. (One more, and the pipeline would have to get health insurance for them! Unless they hired veterans, I suppose.)
Furthermore, the argument that Keystone XL would help by lowering gas prices just had the legs kicked out from under it, with the price of oil plummeting toward $50 per barrel with no sign of stopping. This was always a bogus argument, since the pipeline is a drop in the bucket compared with world supply, but now it makes even less sense.
To get a sense of the bigger picture, the U.S. economy pumped out probably close to 3 million jobs total last year. The GOP’s proposals, if enacted, will fail to make more than a small ripple in the job market.
The problem with the American economy is the same problem we’ve had since 2007: a lack of demand. With factories idle and workers unemployed, there’s not enough spending and not enough investment. Nations have two options for attacking this problem. First, spend money, through government investment in things like infrastructure, or handouts to citizens in the form of checks or tax cuts (fiscal policy). Second, use control of the money supply to ease credit and stimulate lending (monetary policy).
Republicans used to accept this framework, proposing a $713 billion government stimulus bill as recently as 2009. But they’ve since regressed intellectually to the pre–Great Depression era. The economic policy of the GOP today is almost indistinguishable from the days of Herbert Hoover and Andrew Mellon. Their platform is muddled on fiscal policy, proposing massive spending-side cuts coupled with large tax cuts for the rich — which in macro terms would cancel each other out. On monetary policy, they propose tighter money and reexamining the gold standard — which would slow the economy and throw people out of work. At best, it’s a large net negative for workers.
After the colossal failure of Hoover, when the Republican Party was largely locked out of national politics for a generation, they learned that parties ignore the lessons of Keynes at their peril. But it seems they will have to learn them again — and if they win full power in 2016, it will be at everyone’s expense.
By: Ryan Cooper, The Week, January 6, 2014
“Presidents And The Economy”: Serious Analyses Of The Reagan-Era Business Cycle Place Very Little Weight On Reagan
Suddenly, or so it seems, the U.S. economy is looking better. Things have been looking up for a while, but at this point the signs of improvement — job gains, rapidly growing G.D.P., rising public confidence — are unmistakable.
The improving economy is surely one factor in President Obama’s rising approval rating. And there’s a palpable sense of panic among Republicans, despite their victory in the midterms. They expected to run in 2016 against a record of failure; what do they do if the economy is looking pretty good?
Well, that’s their problem. What I want to ask instead is whether any of this makes sense. How much influence does the occupant of the White House have on the economy, anyway? The standard answer among economists, at least when they aren’t being political hacks, is: not much. But is this time different?
To understand why economists usually downplay the economic role of presidents, let’s revisit a much-mythologized episode in U.S. economic history: the recession and recovery of the 1980s.
On the right, of course, the 1980s are remembered as an age of miracles wrought by the blessed Reagan, who cut taxes, conjured up the magic of the marketplace and led the nation to job gains never matched before or since. In reality, the 16 million jobs America added during the Reagan years were only slightly more than the 14 million added over the previous eight years. And a later president — Bill something-or-other — presided over the creation of 22 million jobs. But who’s counting?
In any case, however, serious analyses of the Reagan-era business cycle place very little weight on Reagan, and emphasize instead the role of the Federal Reserve, which sets monetary policy and is largely independent of the political process. At the beginning of the 1980s, the Fed, under the leadership of Paul Volcker, was determined to bring inflation down, even at a heavy price; it tightened policy, sending interest rates sky high, with mortgage rates going above 18 percent. What followed was a severe recession that drove unemployment to double digits but also broke the wage-price spiral.
Then the Fed decided that America had suffered enough. It loosened the reins, sending interest rates plummeting and housing starts soaring. And the economy bounced back. Reagan got the political credit for “morning in America,” but Mr. Volcker was actually responsible for both the slump and the boom.
The point is that normally the Fed, not the White House, rules the economy. Should we apply the same rule to the Obama years?
Not quite.
For one thing, the Fed has had a hard time gaining traction in the wake of the 2008 financial crisis, because the aftermath of a huge housing and mortgage bubble has left private spending relatively unresponsive to interest rates. This time around, monetary policy really needed help from a temporary increase in government spending, which meant that the president could have made a big difference. And he did, for a while; politically, the Obama stimulus may have been a failure, but an overwhelming majority of economists believe that it helped mitigate the slump.
Since then, however, scorched-earth Republican opposition has more than reversed that initial effort. In fact, federal spending adjusted for inflation and population growth is lower now than it was when Mr. Obama took office; at the same point in the Reagan years, it was up more than 20 percent. So much, then, for fiscal policy.
There is, however, another sense in which Mr. Obama has arguably made a big difference. The Fed has had a hard time getting traction, but it has at least made an effort to boost the economy — and it has done so despite ferocious attacks from conservatives, who have accused it again and again of “debasing the dollar” and setting the stage for runaway inflation. Without Mr. Obama to shield its independence, the Fed might well have been bullied into raising interest rates, which would have been disastrous. So the president has indirectly aided the economy by helping to fend off the hard-money mob.
Last but not least, even if you think Mr. Obama deserves little or no credit for good economic news, the fact is his opponents have spent years claiming that his bad attitude — he has been known to suggest, now and then, that some bankers have behaved badly — is somehow responsible for the economy’s weakness. Now that he’s presiding over unexpected economic strength, they can’t just turn around and assert his irrelevance.
So is the president responsible for the accelerating recovery? No. Can we nonetheless say that we’re doing better than we would be if the other party held the White House? Yes. Do those who were blaming Mr. Obama for all our economic ills now look like knaves and fools? Yes, they do. And that’s because they are.
By: Paul Krugman, Op-Ed Columnist, The New York Times, January 4, 2015
“Making Stuff Up”: A Republican Ruse To Make Tax Cuts Look Good
As Republicans take control of Congress this month, at the top of their to-do list is changing how the government measures the impact of tax cuts on federal revenue: namely, to switch from so-called static scoring to “dynamic” scoring. While seemingly arcane, the change could have significant, negative consequences for enacting sustainable, long-term fiscal policies.
Whenever new tax legislation is proposed, the nonpartisan Congressional Budget Office “scores” it, to estimate whether the bill would raise more or less revenue than existing law would.
In preparing estimates, scorekeepers try to predict how people will respond to a new tax law. For example, if Congress contemplates raising the excise tax on cigarettes, scorekeepers consider existing trends in cigarette consumption, the likelihood that the higher taxes will induce some smokers to quit, and the prospect that higher prices will increase incentives for cigarette smuggling. There are no truly “static” revenue estimates.
These conventional estimates do not, however, include any indirect feedback effects that tax law changes might have on overall national income. In other words, they do not incorporate macroeconomic behavioral changes.
Dynamic scoring does. Proponents point out, correctly, that if a tax proposal is large enough, then those sorts of feedback effects can aim the entire economy on a slightly different path.
Such proponents argue that conventional projections are skewed against tax cuts, because they do not consider that cutting taxes could lead to higher economic output, which would make up at least some of the lost revenues. They maintain that dynamic scoring will, therefore, be both more neutral and more accurate than current methodologies.
But the reality is more complex. In order to look at the effects across the entire economy, dynamic modeling relies on many simplifying assumptions, like how well people can predict the future or how much they care about their children’s future consumption versus their own.
Economists disagree on the answers, and different models’ predicted feedback effects vary wildly, depending on the values selected for those uncertain assumptions. The resulting estimates are likely to incorporate greater uncertainty about the magnitude of any revenue-estimating errors and greater exposure to the risk of a political thumb on the scale.
Consider the nonpartisan scorekeepers’ estimates of the consequences of a tax-reform bill proposed last year by Representative Dave Camp, Republican of Michigan. Using different models and plausible inputs, the scorekeepers estimated that, under the bill, total gross domestic product might rise between 0.1 percent and 1.6 percent over the next decade — a 16-fold spread in projected outcomes. Which result should be the basis of congressional scorekeeping?
But the bigger problems lie deeper. Federal deficits are on an unsustainable path (as it happens, because of undertaxation, not excessive spending). Simply cutting taxes against the headwind of structural deficits leads to lower growth, as government borrowing soaks up an ever-increasing share of savings.
The most optimistic dynamic models get around this by assuming that the world today is in fiscal equilibrium, where the deficit does not grow continuously as a percentage of gross domestic product. But that’s not true. If you add the reality of spiraling deficits into those models, they don’t work.
To make these models work, scorekeepers must arbitrarily assume either that we tax more and spend less today than is really the case — which is what they did for the Camp bill — or assume that a tax cut today will be followed by a spending cut or tax increase tomorrow. Economists describe such a move as “making counterfactual assumptions”; the rest of us call it “making stuff up.”
In practice, these models are political statements. They show the biggest economic effects by assuming that tax cuts are financed by unspecified future spending cuts. The smaller size of government, not the tax cuts by themselves, largely drives the models’ results.
Further, the models are not a step toward more neutral revenue estimates, because they assume that, while individuals make productive investments, government does not. In reality, government spending contributes significantly to economic output. Truly dynamic modeling would weigh the forgone economic returns of government investments against the economic gains from lower taxes.
The Republicans’ interest in dynamic scoring is not the result of a million-economist march on Washington; it comes from political factions convinced that tax cuts are the panacea for all economic ills. They will use dynamic scoring to justify a tax cut that, under conventional scorekeeping, loses revenue.
When revenues do in fact decline and deficits rise, those same proponents will push for steep cuts in government insurance or investment programs, because they will claim that the models demand it. That is what lies inside the Trojan horse of dynamic scoring.
By: Edward D. Kleinbard, Law Professor at the University of Southern California and a former Chief of Staff of the Congressional Joint Committee on Taxation; Op-Ed Contributor, The New York Times, January 2, 2015
“Minimum-Wage Increases; The Justice Of Redistribution”: To Not Be Victims, Workers Must Be Compensated For Value Of Their Work
As we enter the new year, 3 million low-wage workers in 21 states will gain a small increase in their wages, thanks to increases in state minimum wages. People you know will see a wage increase — your neighbor, your teenage kid, the person who serves you coffee and donuts.
The minimum-wage increase is a good thing because it increases income in a small way to the workers on the low rungs of our economy. A stagnant minimum wage redistributes income from workers to owners and managers and, ultimately, shareholders and customers. As the minimum wage has failed to keep up with inflation and productivity increases, our political economy has redistributed significant income from low-wage workers to owners over the past 40 years. One reason this happened is that workers have no leverage vis-à-vis corporations. They are price takers for their labor.
Minimum-wage increases reverse this redistribution so that workers win back a little bit of what they have lost. Minimum wages should be associated with value added instead of the powerlessness of workers to demand higher wages. But minimum-wage workers are not compensated for the value of their work for their employers. Raising the wage begins to remedy that undercompensation. If the wage goes too high, then employers will not hire workers, because their compensation exceeds the value of their work. But as we have seen, this is not the case with minimum-wage increases, which simply means that for the past decades workers have been paid less than the value of their work for employers.
How does increasing the minimum wage redistribute income? An increase in the wage results in a decrease in the payments to managers and profits for the establishment. That’s redistribution. We can argue that this might not happen because of productivity increases by the worker, but that merely means that the productivity increases (or a portion thereof) that might have gone to the employer instead go to the employee — hence redistribution from owners to workers. Redistribution also can occur between worker and customer. If a restaurant increases prices due to an increase in the minimum wage, in an attempt to avoid a decrease in profits, then the customers pay more. These customers have the disposable income to patronize restaurants. We can make the assumption that the customers have greater incomes than the people who wait on them. Thus, an increase is again redistributive, with the increase coming from increased prices paid by customers. Imagine: In Seattle an Amazon IT person goes out to lunch. (It feels like they all do.) Instead of paying $15 at the Skillet truck, they pay $17. They have lost $2, and the Skillet truck workers will have seen an increase in their wages. Redistribution to minimum-wage workers is good for them and pushes up the floor for the bottom half of all wages.
We too often equate increasing the minimum wage with living standards and poverty levels. This is dangerous for several reasons, including the fact that it sets a precedent for slicing and dicing the minimum wage: Do you have dependents? Do you pay for your own health insurance? How old are you? Are you paying for tuition yourself? All these are important questions, but taken to their logical conclusion, they move the minimum wage into welfare policy, so that an 18-year-old student could get paid less than a 25-year-old who is on her parents’ health insurance, and she might get paid less than a single mom with one kid, who could get paid less than a spouse in a household with three kids, etc. These are life situations best handled by social policy, social insurance and the appropriate provisions of public goods and services. But a focus on the minimum wage as welfare policy debases the fact that we should be raising the minimum wage because we should be insuring that workers are paid the value of their work. That is, such a focus disrespects workers as workers.
A lot of liberals don’t want to call increases in the minimum wage “redistributive.” It brings the reality of class conflict too close to the surface, apparently, and portrays workers as workers, not as victims. But in order for workers to not be victims, they must be compensated for the value of their work. That is not happening now, not in these United States. These state minimum-wage increases begin to reverse the damage, precisely because they are redistributive, from the owners of capital to the workers they employ. That is a good thing — and an excellent beginning for the new year!
By: John R. Burbank, ; The Blog, The Huffington Post, December 31, 2014
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