“Self-Serving And Misguided”: Conservatives Want To Add Fantasy Thinking To The Budget
In yet another seemingly boring yet dramatic consequence of the midterm elections, Republicans and even some conservative Democrats are keen on adding “dynamic scoring” to the future budgeting process.
Top Republicans, eyeing full control of Congress next year, are considering changing the rules of the budget process so as to make tax cuts appear less harmful to the deficit.
They want to adopt a method called “dynamic scoring,” popular among conservatives since the 1970s, which scores budgets under the controversial assumption that tax cuts generate economic growth and make up for lost revenue — something critics have likened to “fairy dust.” The nonpartisan Congressional Budget Office, the official scorekeeper, does not use the method, but Republicans, and even some conservative Democrats, want it to.
“In practice, dynamic scoring is just another way for Republicans to enact tax cuts and block tax increases,” economist Bruce Bartlett argued in the New York Times in 2013. “It is not about honest revenue-estimating; it’s about using smoke and mirrors to institutionalize Republican ideology into the budget process.”
Of course, tax cuts do not, in fact, generate revenue. Tax cuts almost invariably cost revenue. The fantasy that tax cuts increase revenue is based on a back-of-a-napkin gimmick called the Laffer Curve, which states that at a certain point of unreasonably high taxes, cutting taxes will generate more revenue due to higher growth. The sleight of hand, of course, is in the inflection point of the curve. The tax rate would have to be ludicrously high for tax cuts to have enough of a stimulative effect to generate enough growth actually increase government revenue. We don’t even have to speculate about whether we’re anywhere close to that inflection point in the United States: the example of other social democracies demonstrates that higher rates do lead to higher government revenues, and the experience of the budget-busting Bush tax cuts demonstrates the inverse.
Conservatives have the problem that reality continues to be punishing to their worldview. Abstinence education doesn’t prevent teen pregnancy; tax cuts don’t generate revenue; climate change is real; supply-side economics doesn’t create sustainable growth; etc.
Their usual answer to be battered by the way the world actually works, is to spend oodles of money telling voters convenient fantasies. Dynamic scoring is just another way of inserting their self-serving and misguided wishful thinking into the reality-based budget system.
By: David Atkins, Washington Monthly Political Animal, October 4, 2014
“Tax Cuts Don’t Increase Revenue”: This Is What Happens When Republicans Actually Enact Their Radical Agenda
A persistent elite Washington trope, embodied by folks like Ron Fournier, says that bipartisanship is the key missing ingredient in our system of government. The two parties just need to stop their partisan bickering and join hands to hammer out serious, substantive compromises (read: slash social insurance).
It’s certainly the case that because of U.S. constitutional design, compromise is necessary during times of divided government — and the ones who won’t do it are ultraconservative Republicans. But there’s another model of governance that gets short shrift among the lovers of bipartisanship: letting election winners implement their agenda. By providing clear lines of accountability and making clear who is responsible for which policy, allowing an election winner to govern makes democracy work.
We see this today in Kansas of all places, where Gov. Sam Brownback is in an unexpectedly tight re-election race:
Although every statewide elected official in Kansas is a Republican and President Obama lost the state by more than 20 points in the last election, Mr. Brownback’s proudly conservative policies have turned out to be so divisive and his tax cuts have generated such a drop in state revenue that they have caused even many Republicans to revolt. Projections put state budget shortfalls in the hundreds of millions of dollars annually, raising questions of whether the state can adequately fund education in particular. [The New York Times]
Brownback’s tax cuts were passed back in 2012 with the help of Arthur Laffer, the conservative policy hand who has made his career insisting in the teeth of contrary evidence that tax cuts increase revenue. Multiple experts warned that the Brownback-Laffer plan would actually crater the state revenue collection, but Brownback ignored them and did what he wanted. The results are in, and it turns out when you cut taxes, you decrease revenue:
Kansas has a problem. In April and May, the state planned to collect $651 million from personal income tax. But instead, it received only $369 million. [The New York Times]
Naturally, the cuts have required more cuts to critical government services, and most of the tax benefits have been vacuumed up by the rich. Worse still, the promised job-creating effects have also failed to appear. On the contrary, Kansas has actually been performing worse than its neighbors on the jobs front.
In short, movement conservatism produces garbage economic policy. But the beauty is, now that fact is obvious to almost everyone in Kansas, including a bunch of Republicans. To his credit, Brownback actually believed in his ideas and put them in place. He is now paying the price for taking that risk.
Contrast that to the elite D.C. idea of bipartisanship, in which the ancient grandees from both parties get together, and through the magic of high-minded civil discussion, iron out a compromise to cut Social Security and Medicare, preferably by enough to be called a “Grand Bargain.” This has the not-coincidental effect of making it impossible for most people to figure out who is responsible for what — and very easy for either side to spin negative consequences as the other side’s fault.
Now, Brownback may well pull out a victory in the end. But Kansas is a very conservative state, and he ought to be cruising to a huge reelection. Future Republicans may well try to jam through similar tax policies copy-pasted from a conservative think tank’s guide to enriching the wealthy, but the colossal failure of the Brownback cuts will surely give them pause.
Government by the permanent D.C. establishment used to at least keep the country on two legs, but with ideologically well-sorted parties, one of them increasingly extreme, it’s come perilously close to breaking down multiple times. When considering reforms to the structure of government, as I believe will be necessary sometime in the future, we should keep in mind stories like this one. Democracy works best when the voters have meaningful and comprehensible choices.
By: Ryan Cooper, The Week, September 17, 2014
“Corporate Artful Dodgers”: We’re Heading Toward A World In Which Only The Human People Pay Taxes
In recent decisions, the conservative majority on the Supreme Court has made clear its view that corporations are people, with all the attendant rights. They are entitled to free speech, which in their case means spending lots of money to bend the political process to their ends. They are entitled to religious beliefs, including those that mean denying benefits to their workers. Up next, the right to bear arms?
There is, however, one big difference between corporate persons and the likes of you and me: On current trends, we’re heading toward a world in which only the human people pay taxes.
We’re not quite there yet: The federal government still gets a tenth of its revenue from corporate profits taxation. But it used to get a lot more — a third of revenue came from profits taxes in the early 1950s, a quarter or more well into the 1960s. Part of the decline since then reflects a fall in the tax rate, but mainly it reflects ever-more-aggressive corporate tax avoidance — avoidance that politicians have done little to prevent.
Which brings us to the tax-avoidance strategy du jour: “inversion.” This refers to a legal maneuver in which a company declares that its U.S. operations are owned by its foreign subsidiary, not the other way around, and uses this role reversal to shift reported profits out of American jurisdiction to someplace with a lower tax rate.
The most important thing to understand about inversion is that it does not in any meaningful sense involve American business “moving overseas.” Consider the case of Walgreen, the giant drugstore chain that, according to multiple reports, is on the verge of making itself legally Swiss. If the plan goes through, nothing about the business will change; your local pharmacy won’t close and reopen in Zurich. It will be a purely paper transaction — but it will deprive the U.S. government of several billion dollars in revenue that you, the taxpayer, will have to make up one way or another.
Does this mean President Obama is wrong to describe companies engaging in inversion as “corporate deserters”? Not really — they’re shirking their civic duty, and it doesn’t matter whether they literally move abroad or not. But apologists for inversion, who tend to claim that high taxes are driving businesses out of America, are indeed talking nonsense. These businesses aren’t moving production or jobs overseas — and they’re still earning their profits right here in the U.S.A. All they’re doing is dodging taxes on those profits.
And Congress could crack down on this tax dodge — it’s already illegal for a company to claim that its legal domicile is someplace where it has little real business, and tightening the criteria for declaring a company non-American could block many of the inversions now taking place. So is there any reason not to stop this gratuitous loss of revenue? No.
Opponents of a crackdown on inversion typically argue that instead of closing loopholes we should reform the whole system by which we tax profits, and maybe stop taxing profits altogether. They also tend to argue that taxing corporate profits hurts investment and job creation. But these are very bad arguments against ending the practice of inversion.
First of all, there are some good reasons to tax profits. In general, U.S. taxes favor unearned income from capital over earned income from wages; the corporate tax helps redress this imbalance. We could, in principle, maintain taxes on unearned income if we offset cuts in corporate taxes with substantially higher tax rates on income from capital gains and dividends — but this would be an imperfect fix, and in any case, given the state of our politics, this just isn’t going to happen.
Furthermore, ending profits taxation would greatly increase the power of corporate executives. Is this really something we want to do?
As for reforming the system: Yes, that would be a good idea. But the case for eventual reform basically has nothing to do with the case for closing the inversion loophole right now. After all, there are big debates about the shape of reform, debates that would take years to resolve even if we didn’t have a Republican Party that reliably opposes anything the president proposes, even if it was something Republicans were for just a few years ago. Why let corporations avoid paying their fair share for years, while we wait for the logjam to break?
Finally, none of this has anything to do with investment and job creation. If and when Walgreen changes its “citizenship,” it will get to keep more of its profits — but it will have no incentive to invest those extra profits in its U.S. operations.
So this should be easy. By all means let’s have a debate about how and how much to tax profits. Meanwhile, however, let’s close this outrageous loophole.
By: Paul Krugman, Op-Ed Columnist, The New York Times, July 27, 2014
“The Winds Are Shifting”: How Corporate America Is Losing The Debate On Taxes
If there is one clear loser in President Obama’s budget this year, it’s U.S. multinationals.
With six new ideas designed to plug some major leaks in the tax code, the 2015 budget proposes a total of more than $276 billion in higher taxes on overseas earnings for U.S. multinationals over the next decade, about $120 billion more than last year’s budget. (A sample of the policy just to give you an idea of how deep in the guts the administration is going: “Create a new category of Subpart F income for transactions involving digital goods or services.”)
So much for the White House’s attempts to strike common ground with big company chief executives, who have been howling for years about paying too much in taxes with the federal corporate tax rate at 35 percent. The companies have also poured money into an endless parade of coalitions with names like ACT, RATE, WIN, TIE AND LIFT.
The trouble with the executives’ complaints is that many companies don’t pay nearly the 35 percent rate. GE, for instance, in its most recent annual filing said it paid an effective tax rate of 4.2 percent. (See this graphic we ran last year showing taxes paid by companies in the Dow 30.) These firms insist that the high rate is merely forcing them to find complex ways to lower their tax bills. But with this budget, it’s clear the administration isn’t buying it.
“The problem is not an international tax system that unacceptably handicaps U.S. businesses,” said Ed Kleinbard, a professor at the University of Southern California’s Gould School of Law who has done extensive research on the way companies shuffle their income overseas to lower their tax bills. “Instead the problem is an international tax system both in the United States and other countries that U.S. multinational firms have demonstrated they are highly skilled at gaming.”
The president’s budget is the latest sign for corporate tax lobbyists that the winds are perhaps shifting against them. Last month’s tax reform plan from House Ways and Means Chairman Dave Camp (R-Mich.) also included a number of ideas unpopular with business, including a bank tax. His section on international tax reform was somewhat more generous to big firms, giving them a lower rate on overseas earnings with anti-abuse measures that Kleinbard says don’t go far enough.
Of course, expectations are low that either the president or Camp’s policies will ever make the leap to reality. But after spending hundreds of millions of dollars on lobbyists, corporate America is not exactly seeing its worldview reflected in these blue prints.
By: Jia Lynn Yang, WonkBlog, The Washington Post, March 5, 2014
“They Never Really Cared In The First Place”: Why Republicans Don’t Want To Acknowledge The Falling Deficit
An important budget memo was issued this week celebrating just how far the deficit had fallen over the last five years. But in one of the incongruities that define the political moment, the memo was issued by a Democrat, Senator Patty Murray of Washington, chairwoman of the Budget Committee, not a Republican.
The steep decline of the deficit is not something Republicans really want to talk about, even though their austerity policies were largely responsible for it. If the public really understood how much the deficit has fallen, it would undermine the party’s excuse for opposing every single spending program, exposing the “cost to future generations” as a hyped-up hoax. In fact, it would lead to exactly the conclusion that Ms. Murray reached in her memo to Senate Democrats: that the country can now afford to spend money to boost employment, stay competitive with the rest of the globe in education and research, and finally deal with the long-deferred repairs to public works.
In 2009, the deficit was more than $1.4 trillion, which was nearly 10 percent of the nation’s gross domestic product. This year, the deficit will be a little more than a third that size: $520 billion, or 3 percent of G.D.P. The Treasury Department said on Thursday that the deficit fell more sharply in the last fiscal year than in any year since the end of World War II.
Some of the deficit reduction — about 23 percent — is due to tax revenue increases, mostly from the deal to raise income tax rates to Clinton-era levels on households making $450,000 or more. And some is due to lower interest costs, and the slowing growth of health care costs, which is partly attributable to the health care reform law.
But about half of the reduction, the biggest part, is the result of $1.6 trillion in cuts over several years to discretionary spending demanded by Republicans in several rounds of budget negotiations. As a recent Times editorial noted, this has become the tragedy of the Obama administration, undoing the positive effects of the 2009 stimulus, keeping the economic recovery sluggish, and hurting millions of vulnerable people who depended on that spending for shelter, food and education.
Having prevailed over all of those liberal programs, why can’t Republicans acknowledge that the deficit has been vanquished? Just yesterday, they blocked a bill to provide expanded medical and education benefits for veterans, citing the looming deficit. “This bill would spend more than we agreed to spend,” said Senator Jeff Sessions of Alabama. “The ink is hardly dry and here we have another bill to raise that spending again.”
The answer, of course, is that Republicans never really cared about the deficit, having raised it to enormous proportions during the administration of George W. Bush. Their real goals were to stop government spending at any cost, and to deny President Obama even a hint of political victory or economic success.
And so Republicans will resist any attempt to use their budget triumphs for Democratic purposes. As Ms. Murray writes, that will create different kinds of deficits: a deficit of people working, of students studying, of roads and bridges and research projects that can lead to prosperity instead of the gloom of austerity.
By: David Firestone, Editor’s Blog, The New York Times, February 28, 2014
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