“GOP Reversion To Form”: When Did “Tax Reform” Become A Tax Hike?
One of the issues baffling non-conservatives in assessing the latest stage of the fiscal conflict in Washington is that Republicans are treating Democratic demands for loophole-closing on the wealthy exactly like it’s a tax rate increase. That’s odd, since it’s Republicans who have continuously injected loophole-closing–or as they usually call it, “tax reform”–into the debate. For years they’ve discussed it as a possible way to finance a revenue-neutral tax rate cut. Paul Ryan made it (or at least a very vague version of it) central to the math and marketing of his various budget proposals. During most of the 2012 campaign, Mitt Romney touted “tax reform” in the more traditional way, as a magic asterisk that would both limit revenue losses from the tax rate cuts he was proposing, and would also (even less plausibly) prevent his overall plan from changing the distribution of the tax burden. After the election, “tax reform” became part of the package Republicans supported as a “fiscal cliff” measure to maintain all the Bush tax rate cuts.
But Republicans have always been reluctant to talk about tax reform if it’s used for any purpose other than reducing tax rates or avoiding higher tax rates, even though conservative economists tend to support loophole-closing as an efficiency measure worth taking in isolation from rate changes.
So once the battle over tax rates ended (temporarily) with the so-called “fiscal cliff” agreement, Republicans quickly declared not just tax rates but any additional revenues as off-limits in future agreements. So even though you’d think they’d be at least as open to a tax-reform-for-entitlement-reform deal as they were for a tax-rates-for-entitlement-reform deal last year, that has not been the case. It’s tax rates that continue to drive GOP tax policies, even in the absence of any real chance that they will soon be raised or lowered.
Here’s how Jonathan Chait explains what he calls this “reversion to form:”
The answer to this piece of the mystery is clear enough: Republicans in Congress never actually wanted to raise revenue by tax reform. The temporary support for tax reform was just a hand-wavy way of deflecting Obama’s popular campaign plan to expire the Bush tax cuts for the rich. Conservative economists in academia may care about the distinction between marginal tax rates and effective tax rates. But Republicans in Congress just want rich people to pay less, period. I can state this rule confidently because there is literally not a single example since 1990 of any meaningful bloc of Republicans defying it.
What has aided the easy reversion to form, with low taxes for the rich dominating all other considerations, is the pent-up rage and betrayal John Boehner has engendered among his most conservative members. Almost nothing Boehner has done since taking over as speaker has endeared him to his ultras. Every subsequent compromise creates more embitterment, and the last few moves have provoked simmering rage.
Conservatives had to swallow a tax hike, and then swallow an increase in the debt ceiling. Boehner has, incredibly, had to promise his members that he will not enter private negotiations with Obama.
The pressure for confrontation as a method has built up to the point where seemingly no deal Boehner could reach would leave him safe.
So Republicans aren’t open to the tax reforms they’ve supported in the past, or to entitlement reforms they’ve been demanding for years (though this particular issue is complicated by the fact that they only want “entitlement reforms” if they significantly reduce actual benefits; anything else can’t possibly be a “reform”). They have truly painted themselves into a corner this time, and that’s why we are going to have a sequester followed quite possibly by a government shutdown if Democrats resist making the domestic spending part of the sequester permanent.
By: Ed Kilgore, Contributing Writer, Washington Monthly Political Animal. February 26, 2013
“Frontmen For American Austerity”: Sequestration Is Not Enough For Simpson And Bowles
Sequestration?
Cue the return of Alan Simpson and Erskine Bowles, frontmen for American austerity.
If sequestration is not averted by the end of the month, America will experience an arbitrary austerity agenda that shifts burdens from the wealthy onto working families. It makes across-the-board cuts to vital services. As President Obama noted Tuesday, sequestration would impose “automatic brutal spending cuts” to job creation, infrastructure and education initiatives. It would, as well, slash funding for air traffic control, federal prosecutions and Federal Emergency Management Agency grants that make it possible for states and local governments to hire needed firefighter and emergency personnel.
Even the parts of the sequester that are appealing—squeezing the bloated Department of Defense budget—will tend to harm low-wage federal employees rather than billionaire defense contractors.
Most troublingly, sequestration will slow, and perhaps stall, the economic recovery. “This is not an abstraction,” says President Obama. “People will lose their jobs.”
By any measure, the sequester is austerity.
But it’s not enough austerity for Simpson and Bowles.
The former Republican senator and defeated Democratic senate candidate who praises Paul Ryan’s budget don’t particularly like the death-by-slow-cuts of sequestration. They prefer a full frontal assault on the most vulnerable Americans and a redistribution of the wealth upward.
As President Obama has noted, Washington has already reduced the deficit by $2.5 trillion.
But the co-chairs of the failed National Commission on Fiscal Responsibility and Reform now want another $2.4 trillion.
To wit, in a “rehashed” plan to “Fix the Debt,” Simpson and Bowles are busy promoting schemes to “modernize…entitlement programs to account for” an aging population. That’s code for schemes to delay the point at which the hardest working Americans can get access to Social Security and Medicare.
Simpson and Bowles are arguing specifically for the adoption of “chained CPI.” That’s the assault on Social Security cost-of-living increases that Congressman Keith Ellison, D-Minnesota, correctly identifies as “a benefit cut.”
“It’s a bad idea and it’s a stealth way to give people less,” Ellison explained in a recent interview. “It is a benefit cut—and here’s the real problem with it being a benefit cut: It would be absolutely horrible if it were a benefit cut but the cut was designed to extend the life of Social Security and to make the program more solvent. But that’s not why they’re doing it. They’re doing it so that they can preserve somebody else to have a tax cut and to not raise taxes on the top 2 percent.”
Ellison is right. As is invariably the case with austerity schemes, Simpson and Bowles—and the billionaire-funded “Fix the Debt” group they head—are proposing cuts to the top marginal tax rate for wealthy individuals and corporations.
The United States can and should address debts and deficits. And there are sound plans to do so, including the “Balancing Act” advanced by Ellison and other members of the Congressional Progressive Caucus. That initiative rejects austerity and proposes a growth agenda based on tax fairness and investments in education and job creation.
That’s not Simpson-Bowles, which Nobel Prize–winning economist Paul Krugman dismisses as “terrible” economics. That’s responsible policy that avoids the “brutal cuts” of sequestration and the even more brutal cuts of full-fledged austerity.
“Almost $2 trillion has been cut over the past two years from teachers, firefighters, police officers, loans for college students, and infrastructure investments,” the congressman says of the warped federal budget priorities proposed by austerity advocates. “The American people shouldn’t continue to pay the price for massive tax breaks for millionaires and billions of dollars in subsidies to oil companies.”
By: John Nichols, The Nation, February 19, 2013
“Makers, Takers, Fakers”: A Major Rhetorial Shift For The Party Of Sneering Plutocrats
Republicans have a problem. For years they could shout down any attempt to point out the extent to which their policies favored the elite over the poor and the middle class; all they had to do was yell “Class warfare!” and Democrats scurried away. In the 2012 election, however, that didn’t work: the picture of the G.O.P. as the party of sneering plutocrats stuck, even as Democrats became more openly populist than they have been in decades.
As a result, prominent Republicans have begun acknowledging that their party needs to improve its image. But here’s the thing: Their proposals for a makeover all involve changing the sales pitch rather than the product. When it comes to substance, the G.O.P. is more committed than ever to policies that take from most Americans and give to a wealthy handful.
Consider, as a case in point, how a widely reported recent speech by Bobby Jindal the governor of Louisiana, compares with his actual policies.
Mr. Jindal posed the problem in a way that would, I believe, have been unthinkable for a leading Republican even a year ago. “We must not,” he declared, “be the party that simply protects the well off so they can keep their toys. We have to be the party that shows all Americans how they can thrive.” After a campaign in which Mitt Romney denounced any attempt to talk about class divisions as an “attack on success,” this represents a major rhetorical shift.
But Mr. Jindal didn’t offer any suggestions about how Republicans might demonstrate that they aren’t just about letting the rich keep their toys, other than claiming even more loudly that their policies are good for everyone.
Meanwhile, back in Louisiana Mr. Jindal is pushing a plan to eliminate the state’s income tax, which falls most heavily on the affluent, and make up for the lost revenue by raising sales taxes, which fall much more heavily on the poor and the middle class. The result would be big gains for the top 1 percent, substantial losses for the bottom 60 percent. Similar plans are being pushed by a number of other Republican governors as well.
Like the new acknowledgment that the perception of being the party of the rich is a problem, this represents a departure for the G.O.P. — but in the opposite direction. In the past, Republicans would justify tax cuts for the rich either by claiming that they would pay for themselves or by claiming that they could make up for lost revenue by cutting wasteful spending. But what we’re seeing now is open, explicit reverse Robin Hoodism: taking from ordinary families and giving to the rich. That is, even as Republicans look for a way to sound more sympathetic and less extreme, their actual policies are taking another sharp right turn.
Why is this happening? In particular, why is it happening now, just after an election in which the G.O.P. paid a price for its anti-populist stand?
Well, I don’t have a full answer, but I think it’s important to understand the extent to which leading Republicans live in an intellectual bubble. They get their news from Fox and other captive media, they get their policy analysis from billionaire-financed right-wing think tanks, and they’re often blissfully unaware both of contrary evidence and of how their positions sound to outsiders.
So when Mr. Romney made his infamous “47 percent” remarks, he wasn’t, in his own mind, saying anything outrageous or even controversial. He was just repeating a view that has become increasingly dominant inside the right-wing bubble, namely that a large and ever-growing proportion of Americans won’t take responsibility for their own lives and are mooching off the hard-working wealthy. Rising unemployment claims demonstrate laziness, not lack of jobs; rising disability claims represent malingering, not the real health problems of an aging work force.
And given that worldview, Republicans see it as entirely appropriate to cut taxes on the rich while making everyone else pay more.
Now, national politicians learned last year that this kind of talk plays badly with the public, so they’re trying to obscure their positions. Paul Ryan, for example, has lately made a transparently dishonest attempt to claim that when he spoke about “takers” living off the efforts of the “makers” — at one point he assigned 60 percent of Americans to the taker category — he wasn’t talking about people receiving Social Security and Medicare. (He was.)
But in deep red states like Louisiana or Kansas, Republicans are much freer to act on their beliefs — which means moving strongly to comfort the comfortable while afflicting the afflicted.
Which brings me back to Mr. Jindal, who declared in his speech that “we are a populist party.” No, you aren’t. You’re a party that holds a large proportion of Americans in contempt. And the public may have figured that out.
By: Paul Krugman, Op-Ed Columnist, The New York Times, January 27, 2013
“Public Goals, Private Interests”: In Debt Campaign, Business Executives And Former Legislators Defending Their Narrower Interests
When Jim McCrery, a former Louisiana congressman, urged lawmakers last month to pursue entitlement cuts and tax reform, he was introduced on television as a leader of Fix the Debt, a group of business executives and onetime legislators who have become Washington’s most visible and best-financed advocates for reining in the federal deficit.
Mr. McCrery did not mention his day job: a lobbyist with Capitol Counsel L.L.C. His clients have included the Alliance for Savings and Investment, a group of large companies pushing to maintain low tax rates on dividend income, and the Win America Campaign, a coalition of multinational corporations that lobbied for a one-time “repatriation holiday” allowing them to move offshore profits back home without paying taxes.
In Washington’s running battles over taxes and spending, Mr. McCrery and his colleagues at Fix the Debt have lent a public-spirited, elder-statesman sheen to the cause of deficit reduction. Leading up to the fiscal negotiations, they set up grass-roots chapters around the country, met with President Obama and his aides, and hosted private breakfasts for lawmakers on Capitol Hill. In recent days, Fix the Debt has redoubled its efforts, starting a new national advertising campaign and calling on Mr. Obama and Congress to revise the tax code and reduce long-term spending on entitlement programs.
But in the weeks ahead, many of the campaign’s members will be juggling their private interests with their public goals: they are also lobbyists, board members or executives for corporations that have worked aggressively to shape the contours of federal spending and taxes, including many of the tax breaks that would be at the heart of any broad overhaul. While Fix the Debt criticized the recent fiscal deal between Mr. Obama and lawmakers, saying it did not do enough to cut spending or close tax loopholes, companies and industries linked to the organization emerged with significant victories on taxes and other policies.
“Some of these folks who are trying to be part of the solution have also been part of the problem,” said Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities, a liberal-leaning advocacy group, and a former economic adviser to Vice President Joseph R. Biden Jr. “They’ve often fought hard against the kind of balance that we need on the revenue side. Many of the people we’re talking about are associated with policies that would make it a lot harder to fix the debt.”
Sam Nunn, a former Democratic senator from Georgia who is a member of Fix the Debt’s steering committee, received more than $300,000 in compensation in 2011 as a board member of General Electric. The company is among the most aggressive in the country at minimizing its tax obligations. Mr. McCrery, the Louisiana Republican, is also among G.E.’s lobbyists, according to the most recent federal disclosures, monitoring federal budget negotiations for the company.
Other board members and steering committee members have deep ties to the financial industry, including private equity, whose executives have aggressively fought efforts to alter a tax provision, known as the carried interest exception, that significantly reduces their personal income taxes.
Erskine B. Bowles, a co-founder of Fix the Debt, was paid $345,000 in stock and cash in 2011 as a board member at Morgan Stanley, while Judd Gregg, a former Republican senator from New Hampshire and a co-chairman of Fix the Debt, is a paid adviser to Goldman Sachs. Both companies have engaged in lobbying on international tax rules.
Mr. Gregg also sits on the boards of Honeywell and IntercontinentalExchange, a company that has warned investors that a tax on financial transactions would lower trading volume and curtail its profits. The two companies paid Mr. Gregg almost $750,000 in cash and stock in 2011.
In all, close to half of the members of Fix the Debt’s board and steering committee have ties to companies that have engaged in lobbying on taxes and spending, often to preserve tax breaks and other special treatment.
Fix the Debt does not endorse specific tax proposals. Instead, it advocates broad principles for debt reduction, including “comprehensive and pro-growth tax reform, which broadens the base, lowers rates, raises revenues and reduces the deficit.” A spokesman, Jon Romano, said that the executives involved with the campaign were committed to tax reform, even if it closed loopholes that benefited their companies.
“All the people involved in this campaign have said from the beginning that everything has to be on the table,” Mr. Romano said. “Our C.E.O.’s, our state chapters, our small-business leaders — they are all willing to give something up for the sake of the country.”
Those involved with the campaign say they have tried to separate their advocacy for Fix the Debt and their private work for clients. Vic Fazio, a former Democratic congressman from California who is on the campaign’s steering committee, is a lobbyist at Akin Gump, a firm whose clients include KKR, a leading private equity shop, and the Private Equity Growth Capital Council, an industry trade group.
Mr. Fazio said that he and other people involved with the campaign had tried to set aside their parochial interests and had assumed that any grand bargain between Mr. Obama and Congress would include some elements they did not like.
“The people who have signed up to work with Fix the Debt are people with lots of tax preferences that are important to their business model,” Mr. Fazio said. “But they go along with it because they think there is an overriding benefit to their companies and to the country.”
But so far, at least, the companies and industries most closely linked to Fix the Debt have been aggressive in defending their narrower legislative interests.
The fiscal deal preserved the carried interest loophole, eliminated most of a large prospective increase in dividends taxes and preserved a tax break, known as the active financing exception, that allows G.E. and other multinational companies to avoid paying United States taxes on overseas profits.
The deal also forestalled large automatic cuts in military spending, a boon to contractors like Honeywell. The company’s chief executive, David M. Cote, is a co-founder of Fix the Debt; the group’s “core principles,” which call for retrenchment in entitlement programs like Social Security, make no mention of military spending, which constitutes about a fifth of the federal budget.
“It’s easier to get face time in Washington as a deficit hawk than as a corporate hack,” said Kevin Connor, the director of the Public Accountability Initiative, a watchdog group. “They are spending millions, but they are protecting billions in defense contracts and tax giveaways that would otherwise be on the chopping block.”
Yet after an election in which many industries, including Wall Street, bet heavily against Mr. Obama, Fix the Debt has also had more credibility among Democrats than some traditional business groups like the United States Chamber of Commerce. The chamber, by far the largest business advocacy group in Washington, staunchly opposed proposals to raise taxes before the fiscal deal.
At a news conference in New York on Tuesday, Mr. Bowles suggested that Fix the Debt was just getting started.
“I’m not a quitter,” he said at the event, which was sponsored by Nasdaq, the country’s second-largest stock exchange. “We’re going to stay until we get the job done.”
By: Nicholas Confessore, Nelson Schwartz, Contributor; The New York Times, January 9, 2013
“That Terrible Trillion Deficit”: Another Disingenuous Attempt To Scare And Bully The Body Politic Into Abandoning Social Programs
As you might imagine, I find myself in a lot of discussions about U.S. fiscal policy, and the budget deficit in particular. And there’s one thing I can count on in these discussions: At some point someone will announce, in dire tones, that we have a ONE TRILLION DOLLAR deficit.
No, I don’t think the people making this pronouncement realize that they sound just like Dr. Evil in the Austin Powers movies.
Anyway, we do indeed have a ONE TRILLION DOLLAR deficit, or at least we did; in fiscal 2012, which ended in September, the deficit was actually $1.089 trillion. (It will be lower this year.) The question is what lesson we should take from that figure.
What the Dr. Evil types think, and want you to think, is that the big current deficit is a sign that our fiscal position is completely unsustainable. Sometimes they argue that it means that a debt crisis is just around the corner, although they’ve been predicting that for years and it keeps not happening. (U.S. borrowing costs are near historic lows.) But more often they use the deficit to argue that we can’t afford to maintain programs like Social Security, Medicare and Medicaid. So it’s important to understand that this is completely wrong.
Now, America does have a long-run budget problem, thanks to our aging population and the rising cost of health care. However, the current deficit has nothing to do with that problem, and says nothing at all about the sustainability of our social insurance programs. Instead, it mainly reflects the depressed state of the economy — a depression that would be made even worse by attempts to shrink the deficit rapidly.
So, let’s talk about the numbers.
The first thing we need to ask is what a sustainable budget would look like. The answer is that in a growing economy, budgets don’t have to be balanced to be sustainable. Federal debt was higher at the end of the Clinton years than at the beginning — that is, the deficits of the Clinton administration’s early years outweighed the surpluses at the end. Yet because gross domestic product rose over those eight years, the best measure of our debt position, the ratio of debt to G.D.P., fell dramatically, from 49 to 33 percent.
Right now, given reasonable estimates of likely future growth and inflation, we would have a stable or declining ratio of debt to G.D.P. even if we had a $400 billion deficit. You can argue that we should do better; but if the question is whether current deficits are sustainable, you should take $400 billion off the table right away.
That still leaves $600 billion or so. What’s that about? It’s the depressed economy — full stop.
First of all, the weakness of the economy has led directly to lower revenues; when G.D.P. falls, the federal tax take falls too, and in fact always falls substantially more in percentage terms. On top of that, revenue is temporarily depressed by tax breaks, notably the payroll tax cut, that have been put in place to support the economy but will be withdrawn as soon as the economy is stronger (or, unfortunately, even before then). If you do the math, it seems likely that full economic recovery would raise revenue by at least $450 billion.
Meanwhile, the depressed economy has also temporarily raised spending, because more people qualify for unemployment insurance and means-tested programs like food stamps and Medicaid. A reasonable estimate is that economic recovery would reduce federal spending on such programs by at least $150 billion.
Putting all this together, it turns out that the trillion-dollar deficit isn’t a sign of unsustainable finances at all. Some of the deficit is in fact sustainable; just about all of the rest would go away if we had an economic recovery.
And the prospects for economic recovery are looking pretty good right now — or would be looking good if it weren’t for the political risks posed by Republican hostage-taking. Housing is reviving, consumer debt is down, employment has improved steadily among prime-age workers. Unfortunately, this recovery may well be derailed by the fiscal cliff and/or a confrontation over the debt ceiling; but this has nothing to do with the alleged unsustainability of the deficit.
Which brings us back to ONE TRILLION DOLLARS.
We do indeed have a big budget deficit, and other things equal it would be better if the deficit were a lot smaller. But other things aren’t equal; the deficit is a side-effect of an economic depression, and the first order of business should be to end that depression — which means, among other things, leaving the deficit alone for now.
And you should recognize all the hyped-up talk about the deficit for what it is: yet another disingenuous attempt to scare and bully the body politic into abandoning programs that shield both poor and middle-class Americans from harm.
By: Paul Krugman, Op-Ed Columnist, The New York Times, December 16, 2012
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