“A Little Hard To Swallow”: The ‘Pressing’ Need For More Tax Breaks For The Rich?
President Obama delivered a pretty interesting speech on the economy yesterday, but towards the end, he completely abandoned his prepared text, ignoring the teleprompter to reflect on something that clearly bothered him on a personal level.
“[J]ust last month, at least one top Republican in Congress said that tax cuts for those at the top are – and I’m quoting here – ‘even more pressing now’ than they were 30 years ago. More pressing. When nearly all the gains of the recovery have gone to the top 1 percent, when income inequality is at as high a rate as we’ve seen in decades, I find that a little hard to swallow that they really desperately need a tax cut right now, it’s ‘urgent.’
“Why? What are the facts? What is the empirical data that would justify that position? Kellogg Business School, you guys are all smart. You do all this analysis. You run the numbers. Has anybody here seen a credible argument that that is what our economy needs right now?”
Almost every word of this was ad libbed. Presented with the Republican argument that the wealthy really need yet another tax cut, the president seemed genuinely gobsmacked. To appreciate the degree to which Obama was amazed, watch the video – go here and forward to the 48:02 mark.
Of course, the president wasn’t making up any of the allegations themselves – a leading congressional Republican really did argue last month that tax breaks for the very wealthy are “even more pressing now” than a generation ago.
The congressman is none other than House Budget Committee Chairman Paul Ryan (R-Wis.), who recently suggested combating poverty is one of his top priorities.
Here’s the interview the far-right Wisconsinite did with the conservative Weekly Standard.
“I’m a classic growth conservative. I believe that the best way to help families, the best way to help the economy is to reduce rates across the board,” Ryan said when asked about Utah senator Mike Lee’s plan to increase the child tax credit and create two income tax brackets of 15 percent and 35 percent. “Growth occurs on the margin, which is a wonky way of saying, if you want faster economic growth, more upward mobility, and faster job creation, lower tax rates across the board is the key-it’s the secret sauce.
“Some conservatives have argued that reducing the top rate is less urgent now than it was during the Reagan administration, when the top rate was cut from 70 percent to 50 percent and then cut again from 50 percent to 28 percent. But Ryan says that cutting the top rate is “even more pressing now” than it was back then “because the American economy was so dominant in the global economy and capital was not nearly as mobile as it is today.”
As a substantive matter, this serves as a reminder of why it’s tough to take Paul Ryan seriously as an alleged wonk. As Matt Yglesias explained after the Ryan interview was published, “The idea that globalization, which tends to increase the overall size of the economy while also increasing inequality, makes tax cuts for the rich even more urgent strikes me as a little bit hard to defend intellectually.”
But as a political matter, let’s not lose sight of the larger context. Sen. Mike Lee (R-Utah) has floated a tax cut plan that focuses primarily on the middle class. Paul Ryan is drawing a distinct between Lee’s approach and his own – Ryan wants the tax cuts focused on the rich.
In light of everything we’ve seen, in light of the enormous class gap, in light of the already low U.S. tax rates as compared to most of the world, Ryan’s ideas about tax breaks for the wealthy just won’t budge.
Is it any wonder the president is astonished?
By: Steve Benen, The Maddow Blog, October 3, 2014
“Two Different Fantasies”: The Coming Conservative Tax Cut Deficits Will Make Bush’s Look Puny
For going on a year now, a group of reform-minded conservatives has been gently coaxing more pious coreligionists into supporting a tax reform plan that would violate the first commandment of supply-side economic theory.
In a broad sense, the two groups share similar goals. Both want to distribute income upward. The difference is that reformicons would like to limit the amount of upward redistribution to preserve some significant spoils for middle-class workers with children. They’ve rallied behind legislation, drafted by Senator Mike Lee (a Tea Party favorite from Utah) that would lower the top marginal tax rate only modestly—from about 40 to 35—while creating generous new tax credits for families with kids. The supply siders, as you probably guessed, want to ply those spoils into even larger rate cuts for the wealthy. The poor are left almost entirely out of the equation.
Under normal circumstances, the two camps would resolve a policy dispute like this by splitting the baby (the proverbial one; not the human one that comes with a generous tax-subsidy). But as supply-side stalwart Congressman Paul Ryan explained recently, asking rate-cutters like him to check their rate-cutting ambitions would be like asking Lance Armstrong to share his “secret sauce” with mid-tier racers—not much help for them, at the expense of his competitive edge. And on the flip side, the reformicons can’t yield too much to the supply siders, because at some point the political payoff (more money for the middle class) would disappear along with the whatever supposed incentive the credits would create for people to start families.
Enter Ramesh Ponnuru, a high-profile reformicon, with a plan to win Ryan over using clever spin. Just pretend the Lee plan’s child tax subsidies are comparable to tax cuts for investors, except the investors here are parents rescuing the country from a bleak demographic future, and the tax cuts are actually new tax expenditures.
“You can’t draw up a realistic budget with a top tax rate of 25 percent and a large child credit,” Ponnuru writes for Bloomberg. “(You might not be able to draw up a realistic budget with a top rate of 25 percent even without the credit.) You probably can, however, draw up one with a lower top rate than we have today and better treatment for investment — including parents’ investment in the next generation. Because that mix of policies would leave many millions of middle-class families ahead, it may well be easier to enact than a plan that concentrates solely on reducing the top rate. Supply-siders, that is, might achieve more of the rate reduction they seek if they embrace the credit.”
This is another way of saying that the politics of the Lee plan are vastly more appealing than the politics of the Ryan plan. The tax blueprint in Ryan’s budget is such a political disaster that it would likelier die in committee than become law in some less radical form, leaving Ryan with no rate reduction at all. Under the circumstances, he’d be better off settling for less-severe rate cuts and plying some of the projected deficits into the pockets of the middle class.
That’s absolutely true. But for supply-sider zeal, it would settle the argument under the prevailing terms. Yet those terms omit something fundamental to both plans: deficits. Neither party to the conversation has used the word deficit even once. And when you introduce the idea that both of these plans—not just Ryan’s—are deficit-financed (or financed with implicit tax increases on the poor and middle classes) it becomes hard to fathom why a tug of war between the reformicons and the supply-siders is necessary at all.
Lee offsets his tax cuts by eliminating and reducing a swath of tax expenditures. Nevertheless, they would increase deficits $2.4 trillion over ten years. Ryan’s plan would probably increase them by twice as much (before offsets, which he’s never specified). There isn’t a point along the connecting line where this trespasses into fantasy. These are just two different fantasies. Under the circumstances, the smart play isn’t for the reformicons to out-debate the supply siders, or to negotiate with them, but to buy them off. Give Ryan a big rate cut. Keep the middle-class child subsidies. Don’t bother paying for either, in full.
This, as Ponnuru sort of implies, would be deeply irresponsible. But it would enjoy the dual benefits of papering over the rift and solving the GOP’s miser problem, in much the same way that George W. Bush solved his regressivity problem in 2001 by cutting everyone’s taxes (the wealthy merely got a hefty bonus tax cut).
Instead Lee is teaming up with Senator Marco Rubio to narrow the $2.4 trillion shortfall. Perhaps they’ll succeed. But they’ll also have widened the conservative rift, leaving them a plan that’s intended to forge an alliance between the ruling and working classes, but does less for the former than the supply siders and less for the latter than Democrats. Actually legislating will almost certainly require surrendering to one faction or the other.
By: Brian Beutler, The New Republic, August 26, 2014
“The Secret Sauce”: Paul Ryan; “I’m Keeping Tax Cuts For The Rich”
Reducing the top tax rate has been the Republican Party’s highest priority for a quarter century. Since the 2012 election, a handful of apostates have gently urged it to change course. Paul Ryan, who remains the most powerful figure within the party, has just given an interview to John McCormack, and he has a message for the reformers who want to change course: forget it. Ryan, reports McCormack, “made it clear that he disagrees with some conservatives who are willing to accept a high top tax rate in order to increase the child tax credit.”
If the significance of Ryan’s statement here doesn’t immediately strike you, let me explain. Starting in the early 1980s, supply-side economics emerged as the Republican Party’s policy doctrine. Supply-side economics holds that the marginal tax rates hold the key to economic growth, and thus that even tiny changes to tax rates can unleash massive changes to economic performance. Accordingly, Republicans have valued low tax rates over absolutely everything else.
In the 2012 election, that commitment turned into a major liability for the party. The Republican ticket ran on a somewhat sketchily defined plan to reform taxes, the impact of which would have been to give the richest one percent a huge tax cut and impose higher taxes on the middle class.
The Republican reformers have, correctly, identified the commitment to reducing the top tax rate as a major (or even the major) liability. The most important theme of “Room to Grow,” a policy manifesto by “reform conservatives,” is that the GOP should abandon supply-side economics. In some ways, this is the key to many other policy choices the party faces. If they keep their traditional commitment to low top tax rates above all else, there’s simply no money to spend elsewhere. On the other hand, if Republicans stop proposing to cut rich peoples’ taxes by hundreds of billions of dollars, they’ll be able to spread that money around on other things — tax credits for middle-class families, maybe some kind of health insurance — that would benefit a vastly larger bloc of voters. The policy champion for this bloc is Utah Senator Mike Lee, who has at least tried (the math is tricky) to craft a tax-reform plan that would hold taxes for the rich constant while expanding the child tax credit.
The reformists cast their argument in the most soothing possible tones. Cutting marginal tax rates was the correct policy in 1980, they agree. (It is axiomatic among Republicans that everything Ronald Reagan did was correct, even the things that contradicted other things he did.) But the world has changed, tax rates have fallen, and what worked for 1980 does not apply today.
With predictable fury, supply-siders have denounced this heresy. You can get a flavor of the intra-party debate in columns appearing in places like Forbes or The Wall Street Journal, the later of which retorts, “Good economic policy doesn’t have a sell-by date. (Adam Smith? Ugh. He is just so 1776.)”
Ryan has positioned himself as a reformist in some ways. He acknowledged that calling people who get government benefits “takers” is mean. On the other hand, Ryan is a longtime, deeply devoted supply-sider. As a teenager, he immersed himself in The Way the World Works and Wealth and Poverty, the two foundational texts of the supply-side economics worldview (both of which happen to be barking mad), which teach the absolute primacy of marginal tax rates.
So Ryan is cross-pressured here, between a faction that is attempting to excise the party’s weaknesses and his own most fundamental convictions. His answer to McCormack is surprisingly blunt:
“I’m a classic growth conservative. I believe that the best way to help families, the best way to help the economy is to reduce rates across the board,” Ryan said when asked about Utah senator Mike Lee’s plan to increase the child tax credit and create two income tax brackets of 15 percent and 35 percent. “Growth occurs on the margin, which is a wonky way of saying, if you want faster economic growth, more upward mobility, and faster job creation, lower tax rates across the board is the key—it’s the secret sauce.”
That’s Ryan’s conviction. He disagrees with Lee that subsidizing middle-income families with children ought to be the party’s priority. He still believes marginal tax rates are the “secret sauce.” To Ryan’s credit, in this case, he is not hiding it.
By: Jonathan Chait, Daily Intelligencer, New York Magazine, August 20, 2014
“GOP’s New Plutocratic Populism”: A Bizarre Vision Of The Working Class
Fresh off his victory over Tea Party challenger Matt Bevin, Senate Minority Leader Mitch McConnell headed to the American Enterprise Institute Thursday to make himself over as a GOP populist. The party, as you’ve heard, has decided it needs “middle-class outreach” – since it’s given up on outreach to women, Latinos, African-Americans and the LGBT community – and thus some intellectuals and politicians have tried to craft “a middle class agenda.”
While the party should continue to stand for the free market and business interests, McConnell said, it had to face facts: “For most Americans whose daily concerns revolve around aging parents, long commutes, shrinking budgets and obscenely high tuition bills, these hymns to entrepreneurialism are as a practical matter largely irrelevant. And the audience for them is probably a lot smaller than we think.”
That, you’ll recall, was the takeaway from Mitt Romney’s 2012 campaign, where the plutocrat’s self-satisfied slogan “You built that!” was meant to mock Obama’s declaring that nobody builds a business entirely alone, but seemed to mock anyone who drew a paycheck, which is most of us.
But what is the tangible help McConnell and his friends are now offering to middle-class families? Very little, it turns out. McConnell had the audacity to present his union-busting National Right to Work Act as a pro-middle class reform, ignoring the way the labor movement actually built the middle class from the 1940s through the 1970s. Oh well.
The AEI event also included Sens. Mike Lee and Tim Scott, along with House Majority Leader Eric Cantor and writers like Ross Douthat, Ramesh Ponnuru and Reihan Salam, who contributed to a collection of essays on the new middle-class agenda called “Room to Grow.” They talked about helping single mothers, tackling student debt and ending corporate cronyism. But they offered very few ideas that would make a difference, and their good ideas are strangled by GOP orthodoxy. Lee wants to develop a package of tax cuts and credits for the middle class, for instance, but it adds $2.4 billion to the deficit so he hasn’t worked out his numbers.
The Utah Tea Party favorite also proposes to help the middle class while cracking down on the poor: Since he believes poverty programs create a “disincentive to work,” he wants to cut them and step up work requirements for those who do get help. “We don’t want people to have to make that kind of awful choice” between welfare and work, Lee told a reporter, so we’ll cut back welfare and make it harder to access. Bless his heart.
Ending corporate cronyism seems like a place the two parties might find common ground, but every time Democrats and a few Republicans put together a proposal for cutting the tax loopholes that make the tax code so unfair, conservatives squash it.
Still, let’s give the folks behind “Room to Grow” credit for trying, again, to buck the prevailing pro-plutocrat direction of their party. In the conservative Washington Free Beacon, Matthew Continetti praised the agenda, but offered a caveat. “I do not doubt for a moment that if the Republican Party adopted Room to Grow as its platform tomorrow, then both the GOP and the country would enjoy a better future,” he wrote. But he remembered a similar reception for Douthat and Salam’s widely praised “Grand New Party: How Republicans Can Win the Working Class and Save The American Dream,” and concluded the GOP “is no closer to embracing the ideas of Salam [and] Douthat…than it was when we celebrated the publication of ‘Grand New Party’ at the Watergate in 2008.”
Continetti deserves credit for explaining exactly why that is:
The outreach Republicans make to single women and to minorities inevitably repels the groups that give the party 48 percent of the popular vote—Christians and seniors and men. As has been made abundantly clear, 48 percent of the popular vote does not a presidential victory make. But 48 percent is not quite something to sniff at either. That number can always go down.
So if the GOP can craft an agenda that it can sell to Christian senior men, this middle-class thing is a go. Otherwise, it’s going to have to wait for people with the courage to sacrifice part of that 48 percent to get to 51 percent.
By: Joan Walsh, Editor at Large, Salon, May 23, 2014
“Aligned Agenda’s”: The Tea Party and Wall Street Might Not Be Best Friends Forever, But They Are For Now
“Our problem today was not caused by a lack of business and banking regulations,” argued Ron Paul in his 2009 manifesto End the Fed, which outlined a theory of the financial crisis that only implicated government policy and the Federal Reserve, while mocking the idea that Wall Street’s financial engineering and derivatives played any role. “The only regulations lacking were the ones that should have been placed on the government officials who ran roughshod over the people and the Constitution.”
There seems to be some confusion about the relationship between the Tea Party and Wall Street. New York magazine’s Jonathan Chait says the two “are friends after all,” while the Washington Examiner‘s Tim Carney insists that the Tea Party has loosened the business lobby’s “grip on the GOP.” So let’s make this clear: The Tea Party agenda is currently aligned with the Wall Street agenda.
The Tea Party’s theory of the financial crisis has absolved Wall Street completely. Instead, the crisis is interpreted according to two pillars of reactionary thought: that the government is a fundamentally corrupt enterprise trying to give undeserving people free stuff, and that hard money should rule the day. This will have major consequences for the future of reform, should the GOP take the Senate this fall.
On the Hill, it’s hard to find where the Tea Party and Wall Street disagree. Tea Party senators like Mike Lee, Rand Paul, and Ted Cruz, plus conservative senators like David Vitter, have rallied around a one-line bill repealing the entirety of Dodd-Frank and replacing it with nothing. In the House, Republicans are attacking new derivatives regulations, all the activities of the Consumer Financial Protection Bureau, the existence of the Volcker Rule, and the ability of the FDIC to wind down a major financial institution, while relentlessly attacking strong regulators and cutting regulatory funding. This is Wall Street’s wet dream of a policy agenda.
Note the lack of any Republican counter-proposal or framework. The few that have been suggested, such as David Camp’s bank tax or Vitter’s higher capital requirements have gotten no additional support from the right. House Republicans attacked Camp’s plan publicly, and Vitter’s bill lost one of its only two other Republican supporters immediately after it was announced. So why is there a lack of an agenda? Because the Tea Party thinks that Wall Street has done nothing wrong.
The story of the crisis, according to the right, goes like this: The Community Reinvestment Act and other government regulations forced banks into making subprime loans, and the “affordability goals” of government-sponsored enterprises made the rest of the subprime that crashed the economy. The Federal Reserve pumped a credit bubble, as it always does when it tries to push against recessions. In other words, the financial crisis in 2008 was entirely a government creation, and could have been solved by just putting all the financial firms into bankruptcy. There’s no such problem as “shadow banking,” and to whatever extent Wall Street misbehaved, it was only the result of the moral hazard created by the assumption that there would be bailouts. Or as Senator Marco Rubio said in his 2013 State of the Union response, we suffered “a housing crisis created by reckless government policies.”
This narrative is an easy one to believe for people who distrust government, but it’s far from the facts. The CRA didn’t even cover the fly-by-night institutions making the vast majority of subprime loans. The GSEs lost market share during the housing bubble and subprime loans account for less than 5 percent of their losses. Low interest rates likely account for only a quarter of housing price shifts, and even then, low interest rates likely offset capital coming into the country from abroad.
The mainstream account of the crisis, as Dean Starkman pointed out in The New Republic, is that we’re all to blame—or, as Georgetown law professor Adam Levitin wrote in his recent survey of the crisis, that it was a “perfect storm.” Starkman argues that the Everyone-Is-To-Blame narrative is partially responsible for the lack of serious homeowner help in the Home Affordable Modification Program. As he demonstrates in his piece, “there’s a big and growing body of documentation about what happened as the financial system became incentivized to sell as many loans as possible on the most burdensome possible terms.”
The lack of any Republican policy on financial reform is the result of several factors. Mitt Romney thought it would be a liability to put forward his own agenda in 2012. By voting nearly unanimously against Dodd-Frank, Republicans were able to make this moderate, lukewarm response to the crisis look like a partisan takeover of finance (financial reform is hard and may not work, so all the better to have Democrats own the issue so they can be clubbed with it later). Rather than wage total war against Dodd-Frank through partisan outfits, the smartest minds on the right are weakening the law through law firms and K Street. And the conservative infrastructure has been solely focused on privatizing the GSEs completely.
This lack of policy has allowed the far right and Austrian School acolytes to occupy the intellectual space in the party. It’s the minority party for now, but all it takes is a few Senate seats changing hands before the Tea Party narrative becomes the prevailing one on the Hill—and nothing would delight Wall Street more.
By: Mike Konczal, The New Republic, March 21, 2014
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