“The Secret Sauce”: Paul Ryan; “I’m Keeping Tax Cuts For The Rich”
Reducing the top tax rate has been the Republican Party’s highest priority for a quarter century. Since the 2012 election, a handful of apostates have gently urged it to change course. Paul Ryan, who remains the most powerful figure within the party, has just given an interview to John McCormack, and he has a message for the reformers who want to change course: forget it. Ryan, reports McCormack, “made it clear that he disagrees with some conservatives who are willing to accept a high top tax rate in order to increase the child tax credit.”
If the significance of Ryan’s statement here doesn’t immediately strike you, let me explain. Starting in the early 1980s, supply-side economics emerged as the Republican Party’s policy doctrine. Supply-side economics holds that the marginal tax rates hold the key to economic growth, and thus that even tiny changes to tax rates can unleash massive changes to economic performance. Accordingly, Republicans have valued low tax rates over absolutely everything else.
In the 2012 election, that commitment turned into a major liability for the party. The Republican ticket ran on a somewhat sketchily defined plan to reform taxes, the impact of which would have been to give the richest one percent a huge tax cut and impose higher taxes on the middle class.
The Republican reformers have, correctly, identified the commitment to reducing the top tax rate as a major (or even the major) liability. The most important theme of “Room to Grow,” a policy manifesto by “reform conservatives,” is that the GOP should abandon supply-side economics. In some ways, this is the key to many other policy choices the party faces. If they keep their traditional commitment to low top tax rates above all else, there’s simply no money to spend elsewhere. On the other hand, if Republicans stop proposing to cut rich peoples’ taxes by hundreds of billions of dollars, they’ll be able to spread that money around on other things — tax credits for middle-class families, maybe some kind of health insurance — that would benefit a vastly larger bloc of voters. The policy champion for this bloc is Utah Senator Mike Lee, who has at least tried (the math is tricky) to craft a tax-reform plan that would hold taxes for the rich constant while expanding the child tax credit.
The reformists cast their argument in the most soothing possible tones. Cutting marginal tax rates was the correct policy in 1980, they agree. (It is axiomatic among Republicans that everything Ronald Reagan did was correct, even the things that contradicted other things he did.) But the world has changed, tax rates have fallen, and what worked for 1980 does not apply today.
With predictable fury, supply-siders have denounced this heresy. You can get a flavor of the intra-party debate in columns appearing in places like Forbes or The Wall Street Journal, the later of which retorts, “Good economic policy doesn’t have a sell-by date. (Adam Smith? Ugh. He is just so 1776.)”
Ryan has positioned himself as a reformist in some ways. He acknowledged that calling people who get government benefits “takers” is mean. On the other hand, Ryan is a longtime, deeply devoted supply-sider. As a teenager, he immersed himself in The Way the World Works and Wealth and Poverty, the two foundational texts of the supply-side economics worldview (both of which happen to be barking mad), which teach the absolute primacy of marginal tax rates.
So Ryan is cross-pressured here, between a faction that is attempting to excise the party’s weaknesses and his own most fundamental convictions. His answer to McCormack is surprisingly blunt:
“I’m a classic growth conservative. I believe that the best way to help families, the best way to help the economy is to reduce rates across the board,” Ryan said when asked about Utah senator Mike Lee’s plan to increase the child tax credit and create two income tax brackets of 15 percent and 35 percent. “Growth occurs on the margin, which is a wonky way of saying, if you want faster economic growth, more upward mobility, and faster job creation, lower tax rates across the board is the key—it’s the secret sauce.”
That’s Ryan’s conviction. He disagrees with Lee that subsidizing middle-income families with children ought to be the party’s priority. He still believes marginal tax rates are the “secret sauce.” To Ryan’s credit, in this case, he is not hiding it.
By: Jonathan Chait, Daily Intelligencer, New York Magazine, August 20, 2014
“Hawks Crying Wolf”: The Usual Republican Inflation Suspects Are Saying The Usual Things
According to a recent report in The Times, there is dissent at the Fed: “An increasingly vocal minority of Federal Reserve officials want the central bank to retreat more quickly” from its easy-money policies, which they warn run the risk of causing inflation. And this debate, we are told, is likely to dominate the big economic symposium currently underway in Jackson Hole, Wyo.
That may well be the case. But there’s something you should know: That “vocal minority” has been warning about soaring inflation more or less nonstop for six years. And the persistence of that obsession seems, to me, to be a more interesting and important story than the fact that the usual suspects are saying the usual things.
Before I try to explain the inflation obsession, let’s talk about how striking that obsession really is.
The Times article singles out for special mention Charles Plosser of the Philadelphia Fed, who is, indeed, warning about inflation risks. But you should know that he warned about the danger of rising inflation in 2008. He warned about it in 2009. He did the same in 2010, 2011, 2012 and 2013. He was wrong each time, but, undaunted, he’s now doing it again.
And this record isn’t unusual. With very few exceptions, officials and economists who issued dire warnings about inflation years ago are still issuing more or less identical warnings today. Narayana Kocherlakota, president of the Minneapolis Fed, is the only prominent counterexample I can think of.
Now, everyone who has been in the economics business any length of time, myself very much included, has made some incorrect predictions. If you haven’t, you’re playing it too safe. The inflation hawks, however, show no sign of learning from their mistakes. Where is the soul-searching, the attempt to understand how they could have been so wrong?
The point is that when you see people clinging to a view of the world in the teeth of the evidence, failing to reconsider their beliefs despite repeated prediction failures, you have to suspect that there are ulterior motives involved. So the interesting question is: What is it about crying “Inflation!” that makes it so appealing that people keep doing it despite having been wrong again and again?
Well, when economic myths persist, the explanation usually lies in politics — and, in particular, in class interests. There is not a shred of evidence that cutting tax rates on the wealthy boosts the economy, but there’s no mystery about why leading Republicans like Representative Paul Ryan keep claiming that lower taxes on the rich are the secret to growth. Claims that we face an imminent fiscal crisis, that America will turn into Greece any day now, similarly serve a useful purpose for those seeking to dismantle social programs.
At first sight, claims that easy money will cause disaster even in a depressed economy seem different, because the class interests are far less clear. Yes, low interest rates mean low long-term returns for bondholders (who are generally wealthy), but they also mean short-term capital gains for those same bondholders.
But while easy money may in principle have mixed effects on the fortunes (literally) of the wealthy, in practice demands for tighter money despite high unemployment always come from the right. Eight decades ago, Friedrich Hayek warned against any attempt to mitigate the Great Depression via “the creation of artificial demand”; three years ago, Mr. Ryan all but accused Ben Bernanke, the Fed chairman at the time, of seeking to “debase” the dollar. Inflation obsession is as closely associated with conservative politics as demands for lower taxes on capital gains.
It’s less clear why. But faith in the inability of government to do anything positive is a central tenet of the conservative creed. Carving out an exception for monetary policy — “Government is always the problem, not the solution, unless we’re talking about the Fed cutting interest rates to fight unemployment” — may just be too subtle a distinction to draw in an era when Republican politicians draw their economic ideas from Ayn Rand novels.
Which brings me back to the Fed, and the question of when to end easy-money policies.
Even monetary doves like Janet Yellen, the Fed chairwoman, generally acknowledge that there will come a time to take the pedal off the metal. And maybe that time isn’t far off — official unemployment has fallen sharply, although wages are still going nowhere and inflation is still subdued.
But the last people you want to ask about appropriate policy are people who have been warning about inflation year after year. Not only have they been consistently wrong, they’ve staked out a position that, whether they know it or not, is essentially political rather than based on analysis. They should be listened to politely — good manners are always a virtue — then ignored.
By: Paul Krugman, Op-Ed Columnist, The New York Times, August 21, 2014
“The Entitlement Of The Very Rich”: Gutting Social Security And Medicare Far More Unthinkable Than Not Reauthorizing Ex-Im Bank
The very rich don’t think very highly of the rest of us. This fact is driven home to us through fluke events, like the taping of Mitt Romney’s famous 47 percent comment, in which he trashed the people who rely on Social Security, Medicare, and other forms of government benefits.
Last week we got another opportunity to see the thinking of the very rich when Jeffrey Immelt, the CEO of General Electric, complained at a summit with African heads of state and business leaders that there is even an argument over the reauthorization of Export-Import Bank. According to the Washington Post, Immelt said in reference to the Ex-Im Bank reauthorization, “the fact that we have to sit here and argue for it I think is just wrong.”
To get some orientation, the Ex-IM Bank makes around $35 billion a year in loans or loan guarantees each year. The overwhelming majority of these loans go to huge multi-nationals like Boeing or Mr. Immelt’s company, General Electric. The loans and guarantees are a subsidy that facilitates exports by allowing these companies and/or their customers to borrow at below market interest rates.
As a practical matter, whether the bank is reauthorized or not will have no noticeable impact on the economy. If the government took away the subsidy on this $35 billion in exports, it would probably lead to a decline of between 10 and 30 percent in these exports ($3.5 billion to $10.5 billion), while costing Boeing, GE, and the rest some of their profit margin on the portion they continued to export.
The loss of exports would be in the range of 0.2 percent to 0.5 percent of total exports or 0.02 percent to 0.06 percent of GDP. (This assumes that none of the exports include imported parts, which is obviously not the case.) In short the impact on the economy of ending the subsidies from the Ex-Im Bank would be almost invisible.
If the folks pushing for the Ex-Im Bank reauthorization were really concerned about jobs created through trade, we could generate far more jobs with even a modest decline (e.g. 1 percent) of the dollar against other currencies. This would make our exports cheaper to people in other countries and would reduce the price of domestically produced goods relative to imports, thereby leading consumers to purchase more U.S. made goods.
While ending the Ex-Im Bank would have little impact on trade and jobs it would be a big deal to Mr. Immelt’s company and presumably to Mr. Immelt’s compensation. Therefore it is not surprising that he might find it “just wrong” that we should even have to argue about it.
For some additional context, it is worth noting that Mr. Immelt is one of the members of the Peter Peterson initiated group, Fix the Debt. In that capacity he has gone around the country arguing for the need to cut Social Security and Medicare benefits. So we have someone who makes $25 million a year, at least in part from taxpayer handouts, who runs around the country complaining about retired workers getting $1,300 a month from Social Security, whining because he has to argue to continue the handouts he receives.
It would be nice if Immelt were just another crazed one percenter who had no credibility outside of his country club, however this is not the case. It was not an accident that Mr. Immelt was at this summit. He is a highly respected business leader and apparently is close enough to president Obama to have been made head of his Council on Jobs and Competitiveness.
The reality is that the Immelts of the world are able to put muscle behind their sense of entitlement because politicians need their campaign contributions to be credible candidates. For this reason, they are almost certain to secure the reauthorization of the Ex-Im Bank, which has the support of most of the leadership of both parties.
The rest of us just have our votes. But if the public has a clear understanding of the agenda of the Immelts of the world, and their political allies, it will be better positioned to protect the entitlements that workers depend on and have paid for. Gutting Social Security and Medicare should be far more unthinkable than not reauthorizing the Ex-Im Bank.
By: Dean Baker, Co-Director, CEPR; The Hufington Posst Blog, August 12, 2014
“Inequality Is A Drag”: There’s No Evidence That Making The Rich Richer Enriches The Nation
For more than three decades, almost everyone who matters in American politics has agreed that higher taxes on the rich and increased aid to the poor have hurt economic growth.
Liberals have generally viewed this as a trade-off worth making, arguing that it’s worth accepting some price in the form of lower G.D.P. to help fellow citizens in need. Conservatives, on the other hand, have advocated trickle-down economics, insisting that the best policy is to cut taxes on the rich, slash aid to the poor and count on a rising tide to raise all boats.
But there’s now growing evidence for a new view — namely, that the whole premise of this debate is wrong, that there isn’t actually any trade-off between equity and inefficiency. Why? It’s true that market economies need a certain amount of inequality to function. But American inequality has become so extreme that it’s inflicting a lot of economic damage. And this, in turn, implies that redistribution — that is, taxing the rich and helping the poor — may well raise, not lower, the economy’s growth rate.
You might be tempted to dismiss this notion as wishful thinking, a sort of liberal equivalent of the right-wing fantasy that cutting taxes on the rich actually increases revenue. In fact, however, there is solid evidence, coming from places like the International Monetary Fund, that high inequality is a drag on growth, and that redistribution can be good for the economy.
Earlier this week, the new view about inequality and growth got a boost from Standard & Poor’s, the rating agency, which put out a report supporting the view that high inequality is a drag on growth. The agency was summarizing other people’s work, not doing research of its own, and you don’t need to take its judgment as gospel (remember its ludicrous downgrade of United States debt). What S.& P.’s imprimatur shows, however, is just how mainstream the new view of inequality has become. There is, at this point, no reason to believe that comforting the comfortable and afflicting the afflicted is good for growth, and good reason to believe the opposite.
Specifically, if you look systematically at the international evidence on inequality, redistribution, and growth — which is what researchers at the I.M.F. did — you find that lower levels of inequality are associated with faster, not slower, growth. Furthermore, income redistribution at the levels typical of advanced countries (with the United States doing much less than average) is “robustly associated with higher and more durable growth.” That is, there’s no evidence that making the rich richer enriches the nation as a whole, but there’s strong evidence of benefits from making the poor less poor.
But how is that possible? Doesn’t taxing the rich and helping the poor reduce the incentive to make money? Well, yes, but incentives aren’t the only thing that matters for economic growth. Opportunity is also crucial. And extreme inequality deprives many people of the opportunity to fulfill their potential.
Think about it. Do talented children in low-income American families have the same chance to make use of their talent — to get the right education, to pursue the right career path — as those born higher up the ladder? Of course not. Moreover, this isn’t just unfair, it’s expensive. Extreme inequality means a waste of human resources.
And government programs that reduce inequality can make the nation as a whole richer, by reducing that waste.
Consider, for example, what we know about food stamps, perennially targeted by conservatives who claim that they reduce the incentive to work. The historical evidence does indeed suggest that making food stamps available somewhat reduces work effort, especially by single mothers. But it also suggests that Americans who had access to food stamps when they were children grew up to be healthier and more productive than those who didn’t, which means that they made a bigger economic contribution. The purpose of the food stamp program was to reduce misery, but it’s a good guess that the program was also good for American economic growth.
The same thing, I’d argue, will end up being true of Obamacare. Subsidized insurance will induce some people to reduce the number of hours they work, but it will also mean higher productivity from Americans who are finally getting the health care they need, not to mention making better use of their skills because they can change jobs without the fear of losing coverage. Over all, health reform will probably make us richer as well as more secure.
Will the new view of inequality change our political debate? It should. Being nice to the wealthy and cruel to the poor is not, it turns out, the key to economic growth. On the contrary, making our economy fairer would also make it richer. Goodbye, trickle-down; hello, trickle-up.
By: Paul Krugman, Op-Ed Columnist, The New York Times, August 7, 2014
“A Different Set Of Rules”: Tax Dodger Running For Governor In Illinois
If you are not in the Chicago media market, you might not know much about Bruce Rauner, the Mitt Romney-like candidate for governor in Illinois, who is running ahead in the polls against Democratic Governor Pat Quinn.
If Rauner wins, Illinois will have a lot more in common with its neighbor, Wisconsin. Politically, Rauner resembles union-basher and school privatizer Scott Walker. Only Rauner is much, much richer.
In an interview with the Chicago Sun Times, Rauner talked about his career at GTCR, the Chicago-based private equity firm he founded.
“I made a ton of money, made a lot of money,” he told Sun Times reporter Natasha Korecki.
When Korecki asked Rauner, a billionaire who owns nine homes and made $53 million last year, if he is part of the 1 percent, he corrected her: “Oh, I’m probably .01 percent.”
Last Sunday, the Sun-Times broke the news that Rauner has made himself even richer by avoiding taxes and hiding a lot of his wealth in the Cayman Islands.
Rauner has not released his current tax returns, so the full value of his offshore accounts is not verifiable, but the Sun Times was able to document five offshore holdings by Rauner in the Caymans.
A detailed analysis by the Chicago Tribune shows that Rauner used many other complicated tax strategies “out of reach for those of more modest means” to cut his tax bill to less than half the rate paid by other earners in the top bracket:
Thanks to one business-tax strategy, Rauner paid no Social Security or Medicare taxes at all in 2010 or 2011, the Trib reports.
Meanwhile, Rauner is campaigning against “government union bosses,” and teachers unions in particular, and is targeting public employee pensions, with a plan to freeze the Illinois pension plan and convert it into a 401(k)-style retirement account, in order, he claims, to save the state billions.
He says he got into the race because he wants to “reform” public education, and is a big charter school advocate.
“I am adamantly, adamantly against raising the minimum wage,” Rauner said in a campaign event captured on video in January.
He has since backed off that position, and says he supports a minimum-wage increase.
Rauner’s campaign has also had to respond to stories about his phone call to Obama’s education secretary Arne Duncan, pulling strings to get his daughter into prestigious Walter Payton College Prep High School, after the school rejected her.
The Sun-Times reported in January that Rauner made a $250,000 contribution to Payton after his daughter was admitted.
Rauner’s story shows what’s behind all that union-bashing and belt-tightening for the poor and middle class–rightwing billionaires like Rauner push these policies, even as they play by an entirely different set of rules, dodging taxes, pulling strings, and get special treatment most people could never afford.
If he is elected, Rauner, like Walker, might support legislation to loosen the rules to help other wealthy investors and corporations avoid taxes by parking their assets abroad–leaving even less revenue for the public sector he and his rightwing billionaire friends love to bash.
By: Ruth Conniff, Editor-in-Chief of The Progressive Magazine; Published at The Center for Media and Democracy, August 6, 2014
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