“Why Obama’s Budget Matters”: Differences Within The GOP That Could Be Finessed In The Past Will Have To Be Dealt With Openly
When President Obama releases his budget on Monday, the words “dead on arrival” will be widely incanted because they are part of a quasi-religious Beltway ritual.
This year, those words will be misleading.
No one expects Obama’s budget to be enacted as he proposes it. Republicans responded even to early outlines of his plan with a wall of opposition. But this time around is different because, paradoxically perhaps, the fact that Republicans control both the House and Senate makes Obama’s role more rather than less important.
For the last four years, the budget game was three-cornered. The president played alongside an often radically conservative Republican House and a Democratic Senate with views of its own. Now, Obama’s plan will be the main public alternative to whatever the Republicans decide to do.
Moreover, the Republicans are responsible for passing a budget through two houses, so differences within the GOP that could be finessed in the past will have to be dealt with openly.
The most obvious will be on whether to continue cuts in the defense budget prescribed under the so-called sequester enacted in 2011. GOP defense advocates want to raise Pentagon spending substantially, libertarians want to keep both domestic and military spending low, and many mainstream conservatives will try to cut domestic spending even more to accommodate defense increases. The third option will almost certainly be a non-starter, not only with the president — he has a veto and will insist that any cuts be balanced between the two sides of the ledger — but also with many in the GOP rank-and-file.
Obama has declined to offer premature concessions to the Republicans in his own proposal, which further clarifies the stakes. At the same time, he has made things trickier still for his opponents by putting many of his ideas in a form that Republicans have supported in the past. That’s true even of some of his tax proposals.
The president is aware that the most damaging alliance in Washington has been the one between establishment deficit hawks, who continue to think that long-term deficits are the premier economic issue before the country, and Republican conservatives, who have used the legitimate concerns of the deficit hawks to justify deep cuts in government programs without any offsetting increases in revenues.
The president will call this bluff by putting $1.8 trillion in long-term deficit reduction on the table. But most of it will come on the revenue side. His argument here is straightforward: The bulk of the deficit reduction in the deals reached since 2011 has come from cuts in discretionary spending — that is, almost everything except the big retirement programs — which is now at its lowest level as a share of GDP in decades.
The deficit hawks who aren’t part of the ideological assault on the public sector know that the basic functions of government have already been cut too much and that some new domestic spending, particularly for infrastructure, is essential. Obama calls the question: If additional revenues are unacceptable, how is deficit reduction supposed to be achieved? There can’t be any “grand bargains” until conservatives acknowledge upfront that tax increases of some kind need to be part of any long-term solution.
But the biggest challenge to Republicans may be whether they are willing to go along with Obama on ideas that are plainly in their wheelhouse. One small but significant hope: Rep. Paul Ryan (R-WI) and Sen. Patty Murray (D-WA) have been pushing the idea that we need more evidence-based policymaking, and Obama is joining their campaign. This sounds like a no-brainer, but much needs to be done to integrate concerns about what works and what doesn’t into our governing routines.
Republicans have been trying hard to tout their concern about income stagnation and an increasingly frozen class structure. Obama will be pushing for a new initiative, “The Upward Mobility Project,” to provide more flexibility to local officials in a set of government programs if they can show how their efforts will help people climb occupational and income ladders. Projects of this sort are exactly what we should be thinking about.
When budget fights become melodramas over whether the government will shut down or default, we lose track of what the exercise is supposed to be about. Obama’s opening bid ought to be the start of a back-to-basics debate — an argument that will extend into the 2016 campaign — over what we actually want government to do, and how we propose to pay for it.
By: E. J. Dionne, Jr., Opinion Writer, The Washington Post; The National Memo, February 2, 2015
“Pitting Retirees Against The Disabled”: GOP Manufacturing A Social Security Crisis To Threaten Benefits For Millions Of Disabled Americans
When conservatives who like to whine about “welfare” are forced to be more specific, some go after the traditional if significantly less generous TANF program of cash assistance, or Medicaid, or those receiving subsidies under Obamacare. But more often these days, they attack either Disability Insurance or SNAP, programs that have experienced large increases in eligibility because of the economy or demographic trends or both.
Congressional Republicans failed last year to force the inclusion of a major reduction in SNAP eligibility in the 2014 Farm Bill. But now they appear to be going after DI, through the half-clever mechanism of pitting beneficiaries against the larger universe of Social Security retirement recipients. Here’s a quick description of the ploy from TPM’s Dylan Scott:
The incoming GOP majority approved late Tuesday a new rule that experts say could provoke an unprecedented crisis that conservatives could use as leverage in upcoming debates over entitlement reform.
The largely overlooked change puts a new restriction on the routine transfer of tax revenues between the traditional Social Security retirement trust fund and the Social Security disability program. The transfers, known as reallocation, had historically been routine; the liberal Center for Budget and Policy Priorities said Tuesday that they had been made 11 times. The CBPP added that the disability insurance program “isn’t broken,” but the program has been strained by demographic trends that the reallocations are intended to address.
The House GOP’s rule change would still allow for a reallocation from the retirement fund to shore up the disability fund — but only if an accompanying proposal “improves the overall financial health of the combined Social Security Trust Funds,” per the rule, expected to be passed on Tuesday. While that language is vague, experts say it would likely mean any reallocation would have to be balanced by new revenues or benefit cuts.
I have zero doubt Republicans will describe this rules change, now that it’s getting attention, as a measure to “protect Social Security,” even though DI is part of the same system, and the ploy may actually be aimed at producing “entitlement reforms” affecting retiree benefits as well as disability eligibility. But Democrats, led by Elizabeth Warren, do seem to be all over this with unusual alacrity:
“It’s ridiculous – but not surprising – that on the very first day of the new Congress, Republicans are manufacturing a Social Security crisis to threaten benefits for millions of disabled Americans – including 233,260 in Massachusetts alone,” Warren said on Facebook. “We can’t turn our backs on the promises we’ve made to our families, friends, and neighbors who need our help the most. House Republicans should stop playing political games to put America’s most vulnerable at risk.”
So we’ll probably see leading Republicans take a low profile on the issue for a while, as their friends in the conservative chattering classes probably ratchet up the talk about the freeloading bums on DI.
By: Ed Kilgore, Contributing Animal Blog, The Washington Monthly, January 7, 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
“A Massively Failed Experiment”: Why Conservatives Learned Nothing From Sam Brownback’s Failure
Kansas governor Sam Brownback had a plan when he got elected in 2010, and it was a plan that could only be enacted in a place like Kansas: Pass huge tax cuts, then watch the state transform into a kind of economic heaven on earth. Brownback surely could never have doubted it would work, since he and those in his party have been saying for decades that tax cuts deliver economic growth, rising tax revenues, general happiness, and shinier, more manageable hair.
You’ve probably heard the story: growth in Kansas did not, in fact, explode, but what did happen is that revenues plummeted, leading to severe cutbacks in education and other state services. Brownback nevertheless managed to get re-elected, because it was a non-presidential year and because it’s Kansas. So now he’s had a chance to reflect, and here’s how he’s looking at things, according to a Topeka newspaper:
As Gov. Sam Brownback’s first term comes to a close, the Republican governor has one regret — no, scratch that — one thing he would do differently.
“I probably would have chosen words better at different times, because you go through a campaign where you’ve got to eat the words you inartfully said,” Brownback said during a recent interview with The Topeka Capital-Journal.
The former U.S. senator — with the help of a Republican-controlled Legislature — slashed taxes, privatized portions of state government and pursued a staunchly conservative policy agenda during the past four years. And then Brownback fought off a competitive challenge from Democratic Rep. Paul Davis.
Atop the list of words and phrases that have proven controversial and given his opponents the greatest opportunity for mockery: predicting the Kansas tax cuts would act as a “shot of adrenaline” to the state’s economy and referring to the plan as an “experiment.”
In other words…
It’s obvious that he regrets calling it an “experiment” for no reason other than that word showed up in a bunch of Democratic attack ads. But as for the idea that tax cuts would give the Kansas economy a “shot of adrenaline”? Of course that’s what he said, because that’s what he believed. If you don’t believe that, you can’t call yourself a Republican.
It isn’t that there’s no truth to it—all else being equal, tax cuts put more money in people’s hands, so they can spend more, which will have some positive impact on the overall economy. The problem is that 1) the effect is never as large as Republicans expect it to be; 2) not only did Brownback’s tax cuts go mostly to the wealthy, who are less likely to spend the money, he actually raised taxes on poor people (there’s an explanation here), and 3) the benefits were swamped by the harm created by the inevitable cratering of state revenue.
But if you’re Sam Brownback, how do you account for such an outcome? It can’t possibly be that the theory on which the entirety of contemporary Republican economic policy rests is false. What’s he going to say—”It turns out that tax cuts don’t do much good”? Not in this universe.
It’s not just him. The failure of Brownback’s experiment may provide an effective rhetorical tool liberals can use against conservatives in economic debates, but it won’t actually change any conservatives’ thinking. The reason is that their belief in tax cuts doesn’t rest on the practical effects. That’s an argument that’s meant to appeal to everyone, since it concerns something (growth) that just about everyone thinks is good. But the real source of the conservative support for tax cuts is moral, not practical. They believe that taxes are inherently immoral — the government stealing from you the fruits of your labor (or inheritance or wise investments, as the case may be) to enact its nefarious schemes. Taxes should therefore be as low as possible. Conservatives also tend to believe that progressive taxation is doubly immoral, since it takes more from the most virtuous among us.
So my guess is that Brownback sees his experiment as a practical failure but a moral success, and other conservatives would agree. Not that he’d say so in quite those terms, because he knows how it would sound. But the only lesson he’s learned from his failure is to change the words he uses.
By: Paul Waldman, Contributing Editor, The American Prospect, December 23, 2014
“The Facts Aren’t On Mitch McConnell’s Side”: Sorry, GOP, Tax Cuts Don’t Pay For Themselves
As they prepare to take control of Congress, Republicans are looking to change the rules of the game. To lend budget-busting tax cuts the illusion of fiscal responsibility, conservatives would codify the notion that these cuts pay for themselves into congressional accounting rules.
Democrats should not allow this to happen. But if conservatives insist on fudging the numbers, liberals shouldn’t shy away from making creative budgetary arguments of their own.
The accounting device promoted by the right is known as “dynamic scoring,” and it’s politically significant because of the basic policy positions of the two parties. Conservatives tend to favor tax cuts, which come at the expense of social services. Liberals tend to support increasing social services, which come at the cost of higher taxation.
But conservatives have an end-run around this dynamic. They point to the Laffer curve, an economic theory proposing that we can cut tax rates without sacrificing tax revenue, thus avoiding cuts to social services. This is because tax policy has dynamic effects on the macro-economy — that is, cutting tax rates incentivizes people (and particularly high-earners, who gain the most from tax cuts) to work harder, invest more, and generate more economic growth. As the economic pie grows larger, tax revenue can remain constant even as tax rates fall.
Though logical in theory, this idea hasn’t really been borne out in practice. The Bush administration repeatedly predicted that tax cuts would boost overall revenue, but they assuredly did not. And they still don’t, as Kansans have learned during Gov. Sam Brownback’s “real live experiment” in conservative economics, which has only blown a hole in the state budget.
This is because any potential dynamic effects of tax cuts take a long time to materialize, which makes these future benefits extremely difficult to quantify today. And as Congress’ authoritative accountant, the CBO is in the business of attaching hard numbers to would-be laws.
Understandably, the CBO has resisted the uncertain and speculative math of dynamic scoring. But the underlying argument still infuses and skews our political debate. Republicans feel less constrained when proposing tax cuts, while Democrats struggle to shore up revenue sources for government service proposals.
Ostensible fiscal conservatives like Sens. Mitch McConnell (Ky.) and John Kyl (Ariz.) argue that tax cuts need not be paid for at all because they are inherently good for the economy. “[T]here’s no evidence whatsoever that the Bush tax cuts actually diminished revenue,” McConnell contends, in spite of overwhelming evidence that these cuts diminished revenue at historic rates.
Yet these same Republican leaders still insist that spending on unemployment benefits be accounted for by cuts or tax increases elsewhere, even though there’s little compelling economic reason to treat tax cuts and social insurance transfers like unemployment benefits differently. Both policies promote economic growth by increasing disposable income and thereby boosting consumption.
Liberals have largely failed to point this out and haven’t effectively countered conservative attacks on these transfer programs. Contrary to what Speaker John Boehner (Ohio) says, there’s no evidence that unemployment benefits reduce work ethic. And other transfer programs can be carefully structured to minimize any potential work disincentives.
Liberals can do more than play defense in these debates. They, too, can conjure creative arguments for how targeted spending programs can “pay for themselves.”
Take liberal proposals for new or expanded transfer programs like refundable tax credits, child allowances, and other income subsidies. These relieve some of the strain on the budgets of low-income and middle-class Americans. More disposable income means more consumption, which generates higher economic growth and higher overall income, producing more tax revenue. By this logic, transfer programs could pay for themselves, too.
In fact, targeted transfers to the poor and middle class would likely give a stronger immediate jolt to the economy than would tax cuts for the wealthy. Compared with the wealthy, the poor spend a much higher share of each additional dollar of disposable income that they receive, providing greater stimulus to the economy. Policy measures that alleviate inequality are thus a boon for economic growth.
This isn’t to say that liberals should sit back and let dynamic effects fund their policy priorities. Any responsible party must provide revenue sources for new tax or spending programs. But drawing on this rhetoric would level the playing field of our skewed politics. The parameters of our current debate — where liberal proposals must be paid for while conservative ones don’t — are stacked against the interests of average Americans in favor of the wealthy.
Conservatives want to muddy the numbers for our lawmaking process. For the sake of a fair debate, liberals can and must show that two can play at that game.
By: Joel Dodge, The Week, December 19, 2014
Share This Blog
Unknown Feed- An error has occurred; the feed is probably down. Try again later.
mykeystrokes.com 