“Fool Me Once”: The Sequester Is Proof That Washington Thinks We Are All Idiots
The tales of sequester woe are starting to mount. Congressmen are complaining about cancelled White House tours, freaking out over potential furloughs of meat inspectors, and fretting over budget cuts in Yellowstone National Park. Republican officeholders are starting to realize that the parochial government services that businesses and consumers in their districts need and care about are getting hit.
And for what? We’ve argued that the primary deficit—the mismatch between the amount of money the government collects each year and the amount of money it spends each year—is melting away. We received further confirmation of this melting trend Wednesday, with the release of the latest Treasury Monthly Statement. It was overlooked, as it dropped just a couple hours before the new pope was announced. But it’s worth examining.
The headline was that February wasn’t a great month for the profit-and-loss sheet of the federal government. It took in $122.8 billion and spent $326 billion, notching a $203.5 billion deficit. That’s pretty grim. But February is always a bad month for receipts. And when you dig into the number, it is possible to see significant improvement.
Compared with February 2012, revenues in February 2013 were up an impressive 18.8 percent. Meanwhile, spending was actually down 2.6 percent from February 2012. So the February 2013 monthly deficit was 12 percent smaller than the February 2012 monthly deficit. This is not an anomaly. For the first five months of fiscal 2013, which started in October, revenues were $1.01 trillion, up 13 percent from the first five months of fiscal 2012, while spending was up just 2.1 percent. The deficit in the first five months of fiscal 2013 is $494 billion, down nearly 15 percent from the first five months of fiscal 2012.
To what do we owe this? Revenue is tied to growth. When the economy grows consistently, more people go to work, more people earn higher wages, and they pay more income and payroll taxes. Companies tend to make more profits, and even though they spend lots of time and effort dodging taxes, they still wind up paying more corporate income taxes. Meanwhile, as we’ve pointed out before, when jobs increase and the economy grows, spending on programs like unemployment benefits fall. That helps narrow the deficit, too. In February, spending on unemployment benefits was off 25 percent from the year before.
There’s another factor at play. And Republicans might want to avert their eyes for this next paragraph. On January 1, the government raised taxes. The payroll tax, which had been cut temporarily to 4.2 percent from 6.2 percent, went back up—a 48 percent increase. And so the 130 million or so Americans with payroll jobs have been paying higher federal taxes for the past two months. Meanwhile, as part of the fiscal cliff deal, higher income taxes were also put in place for high earners. They’re now paying more, too.
A funny thing happens when you raise taxes—you get more tax revenue.
Since the higher tax rates kicked in on January 1, Americans haven’t Gone Galt. They haven’t stopped working in protest of higher taxes and companies haven’t stopped hiring. In fact, they’ve been working more. As a result, revenue has been flooding into Washington. In the two months of the new tax regimen (January and February 2013), receipts are up 17 percent from the comparable period in 2012. Meanwhile, for all the charges of socialism, spending remains muted. A look at the daily Treasury statement suggests the higher revenue trend has continued through the first half of March.
The sequester, universally derided as a stupid way to get deficit reduction, is designed to bring $84 billion in deficit reduction in this fiscal year. Well, in the first five months of fiscal 2013, the deficit is already, wait for it, $85.8 billion smaller than it was in the first five months of fiscal 2012. And that’s all before the sequester takes full effect.
Quiet as it is kept, we are living in a great age of deficit reduction. If we project the numbers from the first five months of this fiscal year into the rest of it, it’s quite likely that the deficit will come in under $900 billion—even without the sequester. That’s high, and it is still a lot of money. But it would represent a deduction of nearly 20 percent from fiscal 2012. And with the economy continuing to grow steadily, the deficit as a percentage of GDP would shrink by an even larger margin.
Washington told itself it needed the sequester in order to make a significant dent in the annual deficit. With each passing month, and with each passing Treasury Monthly Statement, we’re learning that’s not true.
By: Daniel Gross, The Daily Beast, March 14, 2013
“What Might Have Been”: Republicans Continue To Ignore Results Of 2012 Elections
Greg Sargent had a good post this morning positing this counterfactual: Suppose Mitt Romney and his tax- and spending-cut agenda had won a decisive victory over President Obama last November and in reaction Senate Democrats (still controlling their chamber) had doubled down on a progressive agenda with calls for social safety net expansion, tax-hike-only deficit reduction, stimulus spending, and then had crowned that agenda with admonishments that President Romney had “failed to sincerely try to find common ground with them.”
This is, of course, the track Republicans have followed in the wake of their side’s 2012 loss: Steady on, refuse to adjust their policy course, and claim the other guy is being unreasonable and won’t compromise. But given the howls of outrage from the right at President Obama’s pursuing a liberal course after campaigning on it and winning, it’s not hard to imagine the what-might-have-been reaction to unabashed progressivism in the face of a Romney-Ryan administration. I don’t think that it’s a stretch to say that Obama’s victory was the main difference between the right declaring 2012 a clarion mandate election and a … uh … well, whatever they think the 2012 election was.
The fact is that if the old adage goes that “elections have consequences,” it might have to be rewritten thusly to take into account the modern GOP: “Primary elections have consequences.” For House Republicans (the group that is currently driving the party and its agenda) the past and future national elections hold less import than their 2012 and 2014 primary elections; the broad will of the voters—who by a solid margin re-elected a progressive president who campaigned on securing the safety net and increasing taxes—is less important than the desires of the GOP voters and activists in their carefully drawn congressional districts.
That’s why so many conservatives talk about responding to the 2012 elections with a more pronounced version of the same.
And, as I argued last week, to the extent that they acknowledge the 2012 elections, they seem to view it as an illegitimate expression of the national will: Too many city voters cast ballots, so it can be discounted.
By: Robert Schlesinger, U. S. News and World Report, March 11, 2013
“It’s Time To Tax Financial Transactions”: Here At Last Is An Idea Whose Time Has Come
On Friday at midnight, the sequester kicked in, triggering $85 billion in deep, dumb budget cuts that sent “nonessential personnel”— such as air traffic controllers — packing.
Not to worry, though: Wall Street’s day was pretty much like any other. Billions of dollars in profits were made off of trillions of dollars in financial transactions. And the vast majority of those transactions were conducted tax-free.
Moral of the story: What else is new?
Crash the economy? Free pass. Prevent planes from crashing? Pink slip.
We don’t need a team of policymakers to tell us this isn’t good policy, or that it needs changing. But on Thursday, we heard policymakers propose exactly that: a change.
Sens. Tom Harkin (D-Iowa) and Sheldon Whitehouse (D-R.I.), along with Rep. Pete DeFazio (D-Ore.), unveiled a bill that would place a light tax on all financial transactions — three pennies on every $100 traded.
The good news is that it’s a tax so small it could be mistaken for a rounding error. It’s so small, Wall Street could easily afford it and the average E-Trade investor would barely notice it. If this were a tax on coffee, it would cost you $1 for every 800 cups you bought at Starbucks.
But there’s even better news. This insignificant tax raises a significant amount of revenue — $352 billion over the next 10 years, or enough to refund about one-third of what the sequester will slash from the federal budget. It’s also enough to put many air traffic controllers back to work, Head Start teachers back in preschools, and crucial government programs back in business.
As the saying goes, “Nothing can resist an idea whose time has come.”
And after years of Wall Street excess, and at a moment when new revenues are badly needed, the time has surely come for a financial transaction tax .
Indeed, support for such a tax has never been stronger — or broader. Many on the progressive left have long favored it . Now, though, another group of bleeding-heart liberals, otherwise known as the American people, is on board. When it comes to cutting the deficit, 6 in 10 Americans prefer taxing the financial industry to cutting social spending.
But this idea doesn’t just have the masses on its side; it has the elites, and even some Republican elites. Once championed by the granddaddy of liberal economics, John Maynard Keynes, the banner of a financial transactions tax has been picked up by conservative economists including Sheila Bair, George W. Bush’s appointee to the Federal Deposit Insurance Corp.
After all, the tax isn’t just a good revenue raiser. It’s smart regulatory reform.
The high-frequency traders that now dominate our markets would be hardest-hit by the tax. A top economist recently concluded that their lightning speed, algorithm-driven trading drains profits from traditional investors. And analysts fear that such mass trading strategies could lead to disaster if markets behave unexpectedly.
The new tax would discourage these kinds of trades, which would be a good thing.
Europe, at least, seems to agree. Eleven nations, led by the conservative German government, are on track to start collecting the tax by January 2014. Expected revenues: $50 billion per year.
Of course, we’re talking about a tax on Wall Street.
It’s no wonder that, over the past few weeks, K Street appears to have upped the financial sector’s retainer. Their lobbying effort against the tax — here and in Europe — is in full swing.
Even the Obama administration has been convinced to come out against the tax in the United States. And they’re pressuring Europeans to water down their version by insulating American banks. What’s the logic driving this opposition?
Some have argued that, historically, these taxes have been ineffective because of widespread evasion. But they’re cherry-picking a few badly designed examples, such as Sweden’s lemon of a tax from nearly 30 years ago. This is like saying cars don’t work because you bought a Datsun in the ’70s.
Many countries have implemented such taxes effectively. The United Kingdom, for example, manages to raise more than $5 billion per year on a 0.5 percent tax on stock trades alone.
Another common argument is that the tax will be passed on to mom-and-pop investors. The just-introduced U.S. legislation addresses these concerns by providing tax credits for contributions to typical middle-class investment accounts, including 401(k)s. Investment funds would still be taxed on their trades, but this could encourage longer-term productive investment instead of the short-term speculation that adds little to no value to the real economy.
If the Obama administration is serious about fair taxation and a smart approach to the deficit, it should change its position. Rather than trying to derail Europe’s efforts, it should cooperate with Europe to ensure that the tax there is effectively enforced. And the administration should build support in Congress, including among Republicans.
Yes, we’ve all heard House Speaker John Boehner’s line that the debate over revenue raising is over. We also remember former President George H.W. Bush’s line, “Read my lips, no new taxes,” and how quickly his lips starting saying something else.
For tea partyers, wouldn’t a tax on Wall Street, the beneficiaries of the bailout they so reviled, be less objectionable than most other revenue options?
Sequestration is a septic wound, self-inflicted by lawmakers who can’t agree on anything. Here, at last, we have a smart idea with widespread support — Americans and Europeans, populists and economists, progressives and conservatives.
After Friday’s dumb budget cuts, a little smart policymaking would be nice for a change.
By: Katrina vanden Heuvel, Opinion Writer, The Washington Post, March 5, 2013
“Washington Political Reporting”: Ignoring The Sequester’s Inconvenient Truths
Republican strategy during the sequestration fight depends upon two political givens: widespread public ignorance, and the extreme reluctance of the traditional Washington news media to exhibit “liberal bias” by stressing inconvenient facts. After all, aren’t “both sides” equally responsible for the current budgetary impasse? And shouldn’t President Obama lead by making the GOP the proverbial offer it can’t refuse?
Exactly what such an offer might consist of remains vague. Mostly, it’s coulda, shoulda, woulda stuff from celebrity pundits like Bob Woodward, the Washington Post editor who spent much of last week on national TV demonstrating that he can’t distinguish a warning from an apology.
“You do not ever have to apologize to me,” Woodward had responded to an allegedly intimidating email from longtime White House source, Gene Sperling. “I also welcome your personal advice. I am listening.”
Wow, that must have been scary! Faced with incredulity after the inoffensive email became public, Woodward alibied that he’d never exactly called it threatening.
Which begs the question of why he was talking about it on TV. Look, people frequently wander into newspaper offices describing government plots against them—often spelled out in all caps, with lots of red-ink underlining and rows of exclamation points. Most often they’re gently shown the door.
But I digress. Sperling’s point was that Woodward was completely off base in saying President Obama had “moved the goalposts” by seeking to close tax loopholes enabling guys like Mitt Romney to pay lower income tax rates than his wife’s horse trainers.
Could there be anybody in America who didn’t know that?
Certainly not Bill Keller. To the former New York Times editor, Obama’s big sin was building “a re-election campaign that was long on making the wealthiest pay more in taxes, short on spending discipline, and firmly hands-off on the problem of entitlements.”
Keller thinks that had President Obama campaigned on Simpson-Bowles-style austerity so beloved of “centrist” pundits whose own finances are secure, “he could now claim a mandate from voters to do something big and bold.” Instead, a weakened president now sounds “helpless, if not acquiescent.”
True, Keller does concede that “much of the responsibility for our perpetual crisis can be laid at the feet of a pigheaded Republican Party, cowed by its angry, antispending, antitaxing, anti-Obama base.”
But nowhere in all this sonorous muck will you find a factual account of exactly what the White House proposes to resolve the sequester that congressional Republicans find so abhorrent.
To do so would endanger the whole centrist enterprise enabling Washington wise men like Woodward and Keller to masquerade as non-partisan and above the battle.
Which brings us back to Ezra Klein, boy pundit.
When last we encountered the 28 year-old Washington Post blogger, he’d done the unthinkable: phoned David Brooks and informed him that his column lampooning the Obama White House for proposing no plan was bollocks. He directed Brooks to the White House website, where a detailed deficit reduction proposal based upon spending cuts, entitlement reforms and revenue increases has been posted for months.
Also unthinkable, and much to his credit, Brooks admitted the error in the lede of his next column. Evidently, he’d been taken in by Speaker John Boehner, who’s been doing TV interviews for weeks now urging Obama and the Democrats to get off their collective asses.
So was it really possible, Klein wondered, that Republicans didn’t actually know about President Obama’s offer? He got himself invited to a GOP background briefing “with one of the most respected Republicans in Congress.” As a policy wonk, Klein was astonished to learn that Republicans in attendance had no idea that the Obama administration had put “chained CPI,” for example, on the table.
That’s a way of restraining the growth in Social Security payments by reconfiguring inflation. Most liberals bitterly oppose it.
Indeed, Klein found that on a whole range of issues, “top Republicans simply don’t know the compromises the White House is willing to make on Medicare and Social Security.”
So it’s all a big misunderstanding? Or was Klein simply being naïve?
The latter, chided friendly rival Jonathan Chait at New York magazine. “If Obama could get hold of Klein’s mystery legislator and inform him of his budget offer,” he predicted, “it almost certainly wouldn’t make a difference. He would come up with something—the cuts aren’t real, or the taxes are awful, or they can’t trust Obama to carry them out, or something.”
That’s precisely what happened. Klein posted a series of Twitter posts from influential GOP consultant Mike Murphy, downgrading “chained CPI” from an essential reform to a meaningless “gimmick” within hours of learning that the White House proposed it.
It’s all quite funny, from a cynical perspective, but perfectly illustrative of today’s GOP.
Meanwhile, Klein and Chait’s brand of irreverent, fact-driven journalism is a refreshing change in the clubby world of Washington political reporting.
By: Gene Lyons, The National Memo, March 6, 2013
“No Naivete”: Negotiating With The GOP Is A Dead End
The framing of this question may well reveal more about the state of American politics and media commentary on dysfunctional government than the responses. The implicit assumption is that President Obama’s personal relationships with individual Republicans (or the presumed lack thereof) and his supposed reticence in tabling bold proposals for resolving the nation’s fiscal problems is a (if not the) major reason so little progress has been made in reaching a bipartisan consensus. I believe that assumption is greatly at odds with reality and distracts readers from the core governing problems confronting the country today.
Presidential leadership is contextual—shaped by our unique constitutional arrangements and the electoral, partisan, and institutional constraints that flow from them. Under present conditions of deep ideological polarization of the parties, rough parity between the parties that fuels a strategic hyperpartisanship, and divided party government, opportunities for cross-party coalitions on controversial policies are severely limited. Constraints on presidential leadership today are exacerbated by the relentlessly oppositional stand taken by the Republicans since Obama’s election, their continuing embrace of Grover Norquist’s “no new tax” pledge, and their willingness since gaining the House majority in 2011 to use a series of manufactured crises to impose their policy preferences on the Democrats with whom they share power.
Ironically, Obama tried harder and longer than the results merited to work cooperatively with Republicans in Congress. He has learned painfully that his public embrace of a policy virtually ensures Republican opposition and that intensive negotiations with Republican leaders are likely to lead to a dead end. No bourbon and branch-water laced meetings with Republicans in Congress or pre-emptive compromises with them will induce cooperative behavior.
Obama has now set out on the right course in his dealings with Republicans in Congress. No naiveté about the opposition he faces but a determination to make some cooperation in the electoral interests of enough Republicans to break the “taxes are off the table” logjam and move forward with an economic agenda that makes sense to most nonpartisan analysts and most Americans.
By: Thomas Mann, Fellow in Governance Studies at the Brookings Institution, U. S. News and World Report, March 6, 2013
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