“Behold, The ‘Laffering Laughing’ Stock”: The Remarkable Persistence Of Crackpot Economics In The GOP
The most horrifying article you can read today is not about Ayatollah Khamenei’s troubling comments on the Iran nuclear deal, it’s this piece from Jim Tankersley of The Washington Post about how all the GOP presidential candidates are lining up to receive the wisdom of Arthur Laffer as they formulate their economic plans. This is the rough equivalent of doctors seeking to lead the American College of Pediatricians competing to see which one can win the favor of Jenny McCarthy. Behold:
As the 2016 GOP primary season takes off, Laffer is more in demand than ever before, with Republican candidates embracing tax-cut-for-the-rich policies even as they bemoan economic inequality. Candidates have been meeting with him in recent weeks, and on Friday in Nashville, he says, his schedule includes Rick Perry at 10 a.m., Ben Carson at noon, Jeb Bush at 1:15 p.m. and Bobby Jindal at 5. Dinner is scheduled with Ted Cruz. He has already met at least once with Wisconsin Gov. Scott Walker. …
Some time ago, Laffer recounted, he sat down with Sen. Rand Paul of Kentucky, who was hoping the economist would bless his flat-tax plan. Laffer critiqued it instead as having too many complicated, economy-distorting features. He recalled Paul expressing disappointment he couldn’t endorse it.
After that sit-down, Paul’s advisers kept calling Laffer, he said. When Paul announced his presidential run this week, he touted a tax plan far more in line with Laffer’s vision.
Laffer’s theory is that cutting taxes for the wealthy not only brings an explosion of economic growth but pays for itself; give millionaires and billionaires a break, and the resulting economic activity will be so spectacular that more revenue will come in despite the lower rates. Laffer reduced this idea to the famous “Laffer curve,” which he supposedly sketched on a napkin in 1974 and thereby seduced generations of Republican politicians. It took the perfectly sensible idea that if all income was taxed at 100 percent then no one would have any incentive to work, and turned that into a claim that virtually any reduction in the top rate will increase revenues—and the converse as well, that increasing the top rate will always reduce revenues and stifle growth.
If that were true, then the Clinton years would have been a period of dismal economic doldrums, followed by the glorious George W. Bush boom. In fact, Laffer’s theory has been as thoroughly disproven as phrenology or the notion that the stars are pinholes in the blanket Zeus laid across the sky; Republican economist Greg Mankiw famously referred to those who believe Laffer as “charlatans and cranks.” But in a world where Mike Huckabee convinces people that the Bible contains a secret cancer cure and baseball players wear titanium necklaces in the belief that doing so will align their humours or some such nonsense, there will always be a market for crackpottery, particularly the kind that offers a justification for the thing you already want to do.
And this is why Republicans continue to seek Arthur Laffer’s wisdom and repeat the completely, thoroughly, 100 percent false claim that cutting taxes for the wealthy will always increase revenue. They want those tax cuts for ideological and moral reasons, and when someone with a claim to expertise tells them that not only is there no cost but that such cuts will actually help the little people too, well that’s just too seductive for words. When the world shows them that cutting taxes on the wealthy actually reduces revenue, it doesn’t make them revise their belief that doing so is right and just, because that belief isn’t subject to the test of evidence.
Candidates get a lot of flack for having advisers or supporters who have committed various sins, even if there was no reasonable way the candidate could have been expected to know about or approve those sins, and they won’t have any impact on what the candidate would do if elected. We’ll spend days hounding a candidate because some consultant he hired sent out some offensive tweets five years ago, or because someone who endorsed him said something outrageous at a rally. But here we have a case in which candidates are voluntarily and knowingly asking for the advice and approval of one of America’s foremost economic quacks, specifically for the purposes of formulating policy that would affect every American’s life. Is anybody going to ask them what the hell they’re doing?
By: Paul Waldman, Senior Writer, The American Prospect, April 10, 2015
“It’s Better To Let Your Constituents Lose Their Coverage”: Paul Ryan To States; Help Us Sabotage Health Care
On the fifth anniversary of the Affordable Care Act becoming law, there’s value in reflecting on the systemic advances, which we did earlier. But it’s also a good time to look ahead and consider where the policy fight is headed.
Congressional Republicans, for example, who’ve already voted literally several dozen times to repeal the law, released budget plans last week that would – you guessed it – uproot the American health care system, replacing it with an alternative that Republicans can neither explain nor identify.
As if that weren’t quite enough, the GOP budget plans would likely double the uninsured rate, while eliminating $1 trillion in tax revenue that pays for the ACA. Because the Republican budget blueprint relies on bizarre gimmicks and fraudulent arithmetic, the plan offers no explanation for how it would cover the $1 trillion loss and no details about how Congress would help the millions of families that would lose access to affordable medical care after Republicans take their benefits away.
The GOP budget also makes no effort to address the possibility that Republican justices on the Supreme Court may soon scrap subsidies to consumers in two-thirds of the country in the ridiculous King v. Burwell case. House Ways & Means Committee Chairman Paul Ryan (R-Wis.), however, is on the case – he doesn’t have a policy solution, but Ryan has a plan to persuade state policymakers to help congressional Republicans’ broader game plan.
Rep. Paul Ryan urged state lawmakers to resist setting up state insurance exchanges if the Supreme Court rules that key parts of the Affordable Care Act can only continue if they do so.
“Oh God, no… The last thing anybody in my opinion would want to do, even if you are not a conservative, is consign your state to this law,” the Wisconsin Republican told state legislators Thursday during a conference call organized by the Foundation for Government Accountability, a conservative think-tank.
Ryan reportedly went on to say, “If people blink and if people say, ‘This political pressure is too great, I’m just going to sign up for a state-based exchange and put my constituents in Obamacare,’ then this opportunity will slip through your fingers.”
The right-wing Wisconsinite is known for some pretty extreme postures, but this is a brazen move, even for Paul Ryan.
If the Republican justices gut the Affordable Care Act, it’s likely Americans would see a bifurcated system: consumers in states run by Democrats would continue to receive subsidies to afford quality medical coverage, while millions of consumers in Republican-run states would go without. Or put another way, if your state created its own exchange marketplace, very little will change. If your state has referred consumers to healthcare.gov to enroll, you and your neighbors may be in big trouble.
If the high court’s ruling sides with the right, it’s quite likely that some Republican-led states would scramble to create their own exchange in order to help their citizens. Indeed, leading GOP officials in states like Michigan and Ohio have already indicated an intention to do exactly that in order to prevent their constituents from suffering.
That’s what Paul Ryan is responding to – he’s effectively telling these state officials, “No, wait, it’s better to let your constituents lose their coverage. Helping families keep their coverage is what the White House wants, so don’t do it.”
And what about the “opportunity” Ryan mentioned on Friday? As the congressman sees it, if the Supreme Court sides with Republicans, and if states agree to let their citizens go without, then they’ll be able to take advantage of the new GOP alternative to the Affordable Care Act. What’s in it? Paul Ryan doesn’t know. What will it cost? Paul Ryan doesn’t know. How many people will it cover? Paul Ryan doesn’t know. When can we see it? Paul Ryan doesn’t know.
Why in the world would state officials listen to such ridiculous advice, putting their own constituents in jeopardy? Paul Ryan doesn’t know – and neither does anyone else.
By: Steve Benen, The Maddow Blog, March 23, 2015
“Trillion Dollar Fraudsters”: We’re Looking At An Enormous, Destructive Republican Con Job, And You Should Be Very, Very Angry
By now it’s a Republican Party tradition: Every year the party produces a budget that allegedly slashes deficits, but which turns out to contain a trillion-dollar “magic asterisk” — a line that promises huge spending cuts and/or revenue increases, but without explaining where the money is supposed to come from.
But the just-released budgets from the House and Senate majorities break new ground. Each contains not one but two trillion-dollar magic asterisks: one on spending, one on revenue. And that’s actually an understatement. If either budget were to become law, it would leave the federal government several trillion dollars deeper in debt than claimed, and that’s just in the first decade.
You might be tempted to shrug this off, since these budgets will not, in fact, become law. Or you might say that this is what all politicians do. But it isn’t. The modern G.O.P.’s raw fiscal dishonesty is something new in American politics. And that’s telling us something important about what has happened to half of our political spectrum.
So, about those budgets: both claim drastic reductions in federal spending. Some of those spending reductions are specified: There would be savage cuts in food stamps, similarly savage cuts in Medicaid over and above reversing the recent expansion, and an end to Obamacare’s health insurance subsidies. Rough estimates suggest that either plan would roughly double the number of Americans without health insurance. But both also claim more than a trillion dollars in further cuts to mandatory spending, which would almost surely have to come out of Medicare or Social Security. What form would these further cuts take? We get no hint.
Meanwhile, both budgets call for repeal of the Affordable Care Act, including the taxes that pay for the insurance subsidies. That’s $1 trillion of revenue. Yet both claim to have no effect on tax receipts; somehow, the federal government is supposed to make up for the lost Obamacare revenue. How, exactly? We are, again, given no hint.
And there’s more: The budgets also claim large reductions in spending on other programs. How would these be achieved? You know the answer.
It’s very important to realize that this isn’t normal political behavior. The George W. Bush administration was no slouch when it came to deceptive presentation of tax plans, but it was never this blatant. And the Obama administration has been remarkably scrupulous in its fiscal pronouncements.
O.K., I can already hear the snickering, but it’s the simple truth. Remember all the ridicule heaped on the spending projections in the Affordable Care Act? Actual spending is coming in well below expectations, and the Congressional Budget Office has marked its forecast for the next decade down by 20 percent. Remember the jeering when President Obama declared that he would cut the deficit in half by the end of his first term? Well, a sluggish economy delayed things, but only by a year. The deficit in calendar 2013 was less than half its 2009 level, and it has continued to fall.
So, no, outrageous fiscal mendacity is neither historically normal nor bipartisan. It’s a modern Republican thing. And the question we should ask is why.
One answer you sometimes hear is that what Republicans really believe is that tax cuts for the rich would generate a huge boom and a surge in revenue, but they’re afraid that the public won’t find such claims credible. So magic asterisks are really stand-ins for their belief in the magic of supply-side economics, a belief that remains intact even though proponents in that doctrine have been wrong about everything for decades.
But I’m partial to a more cynical explanation. Think about what these budgets would do if you ignore the mysterious trillions in unspecified spending cuts and revenue enhancements. What you’re left with is huge transfers of income from the poor and the working class, who would see severe benefit cuts, to the rich, who would see big tax cuts. And the simplest way to understand these budgets is surely to suppose that they are intended to do what they would, in fact, actually do: make the rich richer and ordinary families poorer.
But this is, of course, not a policy direction the public would support if it were clearly explained. So the budgets must be sold as courageous efforts to eliminate deficits and pay down debt — which means that they must include trillions in imaginary, unexplained savings.
Does this mean that all those politicians declaiming about the evils of budget deficits and their determination to end the scourge of debt were never sincere? Yes, it does.
Look, I know that it’s hard to keep up the outrage after so many years of fiscal fraudulence. But please try. We’re looking at an enormous, destructive con job, and you should be very, very angry.
By: Paul Krugman, Op-Ed Columnist, The New York Times, March 20, 2015
“Don’t Let The GOP Buy Your Vote, Stupid”: The GOP Has Zero Credibility When It Comes To Fiscal Responsibility
If you want to understand exactly how the Republicans plan to buy the votes needed to win the 2016 presidential election, look no further than “The Economic Growth and Family Fairness Tax Plan.”
Heard of it? The plan, which is being touted with Willy Loman-esque desperation by Sens. Marco Rubio and Mike Lee, seeks to fix our “antiquated and dysfunctional…federal tax system.” And it’s won slow clap after slow clap from Republican-friendly conservatives at Americans for Tax Reform, National Review, and The American Enterprise Institute, whose James Pethokoukis raves, “Lee and Rubio might have cooked up the first great tax cut plan of the 2000s.”
Yeah, not so much. Despite some good features that would likely spur economic growth—such as reducing corporate tax rates by 10 percentage points, switching to a territorial collection system, and capping business-income rates filed on individual Schedule C forms—what the plan does is return us to the early years of the George W. Bush presidency, when budget continence was never allowed to get in the way of shoveling cash to targeted voters.
Recall, for instance, how Bush and a Republican Congress pushed through an unfunded (and unnecessary) Medicare prescription drug plan back in 2003 as a straight-up gift to seniors, who had voted Democratic in 2000. Mission accomplished: Bush went from getting just 47 percent of the senior vote against Al Gore in 2000 to pulling 52 percent of the 65-plus crowd against John Kerry in 2004.
At least Bush was pissing away theoretical budget surpluses that were falsely projected to last far into the future. After years of record-setting deficits and mounting national debt, today’s politicians certainly don’t have that excuse. Yet last year’s Republican budget resolution called for net spending increases every year for the next 10 years, starting at $3.7 trillion and culminating in projected spending of $5 trillion in 2024 (in current dollars). And given the whopping increases in real per-capita spending under a Republican president and Congress during Bush’s first term in office, the GOP has zero credibility when it comes to fiscal responsibility.
There’s no doubt that a spending hawk such as Lee, who has proposed a balanced-budget amendment in the past, knows that. Yet at the heart of his and Marco Rubio’s plan is a massive giveaway to parents in the form of a new $2,500 child tax credit (this would be added to an already existing $1,000 child credit) with no phase-out due to income. However, because it’s “limited to the sum of total income and payroll tax liabilities, including employer-side payroll tax liability,” it means that low-income parents won’t be able to claim the full amount.
The expanded child credit is a big reason why, as AEI’s Pethokoukis grants, the plan would “lose something like $4 trillion in federal tax revenue over a decade, maybe half that if you apply ‘dynamic scoring’ that factors in the effects of economic growth.” (Dynamic scoring attempts to model changes in people’s behavior to changes in the tax code. While the method is easily abused, its core insight—that we change our consumption patterns when costs and benefits vary—is sound.)
But unlike cutting taxes on business activity or trimming top marginal tax rates, expanding the child tax credit has nothing to do with spurring economic growth. This is something that conservatives grant in most contexts. As Curtis S. Dubay of the Heritage Foundation wrote just last year, “Increasing the credit would be a targeted tax cut that would put more money in the pockets of people who qualify for the expansion. However, it would not improve economic growth like rate reductions would because a [child tax credit] increase would not reduce those disincentives on productive activities.”
The free-market Tax Foundation agrees. In fact, in an analysis of the Rubio-Lee plan, it ran both static and dynamic scores of the plan. On its static score for the next 10 years, the Tax Foundation found the Rubio-Lee plan meant serious reductions in annual federal revenue. For instance, switching to just two tax brackets of 15 percent and 35 percent would mean $31 billion less each year compared to current law. The full expensing of business equipment would lead to another annual loss of $78 billion, while the changes to the business taxes would cut $210 billion. And the expanded child tax credit would mean the feds would forgo another $173 billion.
Yet in its dynamic score of the same provisions, something different happens. The consolidation of tax brackets yields an average annual net gain of $5 billion, full expensing yields of $115 billion, and the changes in business taxes pulls in a net of $210 billion a year. But the expanded child tax credit? It still shows an average annual loss of $173 billion.
So the expanded child tax credit has nothing to do with promoting growth. Indeed, as my frequent co-author Veronique de Rugy points out at National Review, the generally accepted best way to promote economic growth via tax policy is by cutting high marginal rates. But because of the size and scope of Rubio and Lee’s expanded child tax credit they can’t reduce the top individual rate below 35 percent without punching an even bigger hole in revenue. “If bolstering the economic status of families is the point of all this,” she writes, “the way to go is lower tax rates, not a tax credit.”
In their explanation of the plan, Rubio and Lee claim that the expanded child tax credit is simply a way of abolishing what they call “the Parent Tax Penalty.” I’m sure I’m not the only one who has trouble following the logic here: “As parents simultaneously pay payroll taxes while also paying to raise the next generation that will pay payroll taxes, parents pay more into the old-age entitlement systems.” Huh? Parents pay to raise their children, yes. When those kids enter the workforce, they (not their parents) will pay taxes on their wages. Forget those “It’s a child, not a choice” bumper stickers. Kids today apparently are to be most valued for their ability to pay into unsustainable old-age retirement plans that need to be scrapped, not propped up.
Questions abound: If the amount of income subject to Social Security taxes is capped, doesn’t it also make sense then to phase out the credit above certain income levels? What about all the tax dollars that flow to children (and their parents) during their first 18 to 21 years? And if the expanded child tax credit is supposed to credit parents for future tax payments made by their children (yes, getting complicated), then why are low-income parents’ credits “limited to the sum of total income and payroll tax liabilities”? Aren’t we crediting parents for their kids’ future tax payments?
I’d argue instead that the “family fairness” portion actually has very little to do with the future past the 2016 election. Expanding the child tax credit, especially in a way that keeps the full amount for middle- and upper-class parents while limiting the amount low-income parents can get, is a pretty obvious (and obnoxious) way to buy votes among likely Republican voters. Especially when we all know that the GOP has no intention of trimming $173 billion out of federal spending to pay for it.
We’re long past the time for a serious conversation about how much government we want to buy and at what price. If the Obama years are any indication, the Democrats are genuinely uninterested in having that conversation. (The president’s latest budget proposal would increase spending over the next decade by more than 50 percent and end the period with bigger annual deficits than we have today.) But the Republicans, who are supposed to know better and be better on fiscal issues, are part of the problem too.
Every bit as much as the tax-and-spend Dems they love to attack, the Party of Reagan ushered in “the Golden Age of Government by Groupon.”
The only question that remains is how much our kids and grandkids will hate us for how much debt—I mean “family fairness”—we’ve amassed in their name.
By: Nick Gillespie, The Daily Beast, March 13, 2015
“Dynamic Scoring Isn’t A Magical Tool”: Here’s How Conservatives Rig The Budget Game In Washington
When Republicans decided not to retain Doug Elmendorf as head of the Congressional Budget Office (CBO), Democrats became concerned that conservatives would try to rig the budget process. When the GOP required the CBO to use dynamic scoring for its legislative scores, Democrats became even more concerned. Those fears have proven overblown. The new CBO chair, whom Republicans announced last week, is Keith Hall, an economist at the Mercatus Center who was the commissioner of the Bureau of Labor Statistics under President Barack Obama. He’s a credible economist, not a partisan hack.
If you still want to see the budget gamed, though, look no further than the Tax Foundation’s score of Senators Marco Rubio and Mike Lee’s tax plan. The Foundation says that under a static scoring model, which doesn’t account for macroeconomic effects of the plan, the plan would cost the federal government $414 billion annually. That’s a huge amount of money. The government collects about $3 trillion a year in tax revenue, meaning the Rubio-Lee plan would be a 12.5 percent cut, a bold but unsurprising figure. Before Lee teamed up with Rubio, he released a first draft of his tax plan that reduced government revenue by an average of $240 billion a year. The new plan has even more tax cuts.
But when the Tax Foundation applies a dynamic scoring model to estimate the revenue effects of Rubio-Lee, the findings get downright wild. The Foundation projects that once the economy adjusts to the changes, it will grow enough to generate $508 billion (in 2015 dollars) in additional revenue each year. That would leave the American taxpayer with a cool $94 billion net annual gain.
To understand why this is so ridiculous, look at the Joint Committee on Taxation’s dynamic scoring estimates for the tax plan former Representative Dave Camp released last year. (The JCT produces revenue estimates for CBO.) The JCT used eight different dynamic scoring models and provided eight different estimates. “The increase in projected economic activity is projected to increase revenues relative to the conventional revenue estimate by $50 to $700 billion, depending on which modeling assumptions are used, over the 10-year budget period,” the report concluded. Now, $700 billion is nothing to sneer at, but that’s over a ten-year period. The Tax Foundation’s dynamic scoring model raised nearly that amount of additional revenue every single year.1
This is a slightly different comparison, because JCT’s numbers come from the 10-year period while the economy adjusted to the tax plan versus the Tax Foundation’s numbers, which are from after the economy full adjusted. The difference is still stark.
Once the Foundation releases the full report Monday, Rubio and Lee will surely cite the numbers ad nauseam to gin up favorable coverage and analyses of the proposal. The Tax Foundation is giving Rubio and Lee a major political boost by producing such a friendly score.
I’m sure the Foundation’s economists would disagree that they are doing the two senators a huge favor. They would say that the Rubio-Lee plan is far friendlier to economic growth than Camp’s plan was. Maybe they’re right. But it’s not that much friendlier. These numbers are far beyond any realistic estimate of Rubio-Lee’s macroeconomic effects. And it’s basically impossible to produce realistic estimates to start. “Theoretically dynamic scoring is the right thing to do,” Peter Orszag, who was director of CBO under President Barack Obama from 2007 to 2008, told me in January. “Just practically, it’s problematic. When you’re forced to pick one model, you’re pushing scientific knowledge beyond reality. You’re forcing the organization to pick one ‘true’ model when the economic science hasn’t produced a single model that works.”
Many conservative economists agree. Douglas Holtz-Eakin, a former CBO director, has frequently said that dynamic scoring isn’t a magical tool to make huge tax cuts look fiscally responsible. Greg Mankiw, who was the top economist for President George W. Bush from 2003 to 2005, recently wrote in the New York Times that while dynamic scoring is theoretically correct, “there are also good reasons to be wary of the endeavor.”
If Republicans had required that the CBO and the JCT use the Tax Foundation’s dynamic scoring model, it would have been a major problem. At least now the two parties accept the CBO’s score as legitimate. If they demand a bill to be deficit-neutral, the CBO is the final arbiter. That would all change if the Tax Foundation’s models were used. Of course, the actual likelihood of that happening was never clear. But if Republicans had required such changes, Democrats would never have trusted any score on any legislation—and rightfully so.
The two sides have enough trouble agreeing to pass anything today. It would be that much harder if they couldn’t even agree on the scores of legislation. You can understand why Democrats were so nervous as Republicans debated how to change the agencies.
1This is a slightly different comparison, because JCT’s numbers come from the 10-year period while the economy adjusted to the tax plan versus the Tax Foundation’s numbers, which are from after the economy full adjusted. The difference is still stark.
By: Danny Vinik, The New Republic, March 5, 2015
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