Revenues & Expenses

Peter Orzag has a great op-ed in The New York Times this morning advocating for a two year extension of all the Bush tax cuts and then a full repeal in 2013. He does some great "back of the napkin" math and makes plain, what most serious policymakers will already tell you. We can't simply cut spending and expect the budget deficit to go away. We need more revenue.

I don't think Orzag's plan is realistic just because it requires compromise and today's politicians signing on to tomorrow's decision. We could have different politicians by the time 2013 gets here or the sensible voices of yore might be trapped in a tough primary and have to stop being sensible (See McCain, Sen. John).

Regardless, I think it's a good thing more and more high-profile policymakers and pundits are saying that we need more revenue. People don't like government spending, but don't want to be without government services. Since we can't privatize everything, we're going to have to start taking in more money to pay for it. Reality sucks, but senior citizens living in poverty, roads and bridges that are crumbling, a pay-to-learn education system, and an ill-equipped military will suck more.

Healthcare if Different

In the comments section of this blog healthcare has been a much debated topic. Austin Frakt writes why healthcare is different, and why the solution can't simply be increased individual choice.

It's a complex problem and simply "liberating" the market won't work on its own.

Glenn Beck's Rally Write-ups

In case you didn't hear, and if you live in DC you had to have been under a rock not to, Glenn Beck held a rally at the Lincoln Memorial this weekend. I didn't wander down to the Mall myself.

I was concerned I would be found out as a socialist, fingers would be point, mob justice would commence, and some part of the Mall's landscape would be used to facilitate my end. I did, however, watch a little on C-SPAN. I only saw what I hope was the majority of Beck's comments, and on the whole his comments was just stupid blathering. I have no idea what point he was trying to make, but again, (finger point to self) socialist.

In fact, my biggest bone to pick was the whole "We were $600,000 short of our goal, and God provided." Now, a guy who made $32 million in 2009, should have $600,000 lying around and he certainly shouldn't weep because this ego-event wasn't going to make its goal. Maybe it's the socialist in me, but if a $5 million event is short by $600,000 and I make $32 million a year, I would just donate the other $600,000. But that's me and I also tend to believe social justice isn't a dirty word or Mao-ist plot.

Anyway, some interesting write-ups by reporters on the ground on Saturday and reflections on the people they talked with from Economist.com and from The Washington Post. They both reach the conclusion, rightfully in my estimation, that the grievances most members of the Tea Party have aren't new. The new part is the complete distortion of background information they are receiving (from Mr. Beck on pretty regular occasion) and how that creates an impossible environment to actually deal with their grievances.

That's the real pity. Fellow citizens with legitimate grievances that are getting bad information, making them incapable of contributing to the solution.

Letting the Tax Cuts Expire – Doing the Math

There’s a great paper put out by the Tax Policy Center, which puts into greater detail what the effect of the Obama administration’s proposed tax plan would actually mean at different income levels. The paper determines:

The impact of the Obama proposal is virtually identical to that of extending all of the cuts for the vast majority of tax payers. Sizeable differences don’t emerge until you hit the top 1 percent of taxpayers – those households making at least $600,000.

This means that even for the administrations own rhetoric about households making $250,000 or more per year is a conservative estimate on how big a group will be impacted. The paper outlines that in the 90^th to 95^th percentile the real difference between the Obama proposal and the full extension of tax cuts is $2. That’s not a typo. Houses making on average $196,549 will receive a tax cut of $5,508 under the Obama plan, versus $5,510 under a full extension.

Take this in contrast to the 99.9^th percentile of tax payers with an average income of $8,367,274, under Obama’s plan they would lose $310,140 in tax cuts, what amounts to 3.7% of the average income for those in the 99.9^th percentile. It’s also worth noting that NO income level will see their tax liability increase to pre-2001 levels. Even at the highest percentile of earners, they will have tax cuts 1.1% great then they would if all the tax cuts were allowed to expire.

So why the uproar? It’s the same old song and dance I’m afraid. The Obama proposal will hit the folks in the top 1% of income earners, those folks making more then $1,000,000 per year, but for the other 99% the effect is shown to be minimal if nonexistent. We have long-run deficit problems in this country and the Tax Policy paper notes that this proposal is not a silver bullet, but it’s a modest first step, and a step worth making.

Alan Greenspan recently said that tax cuts don’t pay for themselves. But Majority Leader Mitch McConnell wouldn’t respond to a direct question if indeed the full extension of these tax cuts would pay for themselves. He avoided the question four times on how you pay for a full extension of the tax cuts. It’s worth noting that that Congressional Budget Office has determined a full extension of the tax cuts will add $3.7 trillion dollars to the deficit over the next ten years. You can talk about cutting spending all you want (and McConnell did) but the only actual proposal the Republicans have put forth is Rep. Paul Ryan’s “Roadmap” plan. This plan, by the way, was scored by the CBO with unrealistic assumptions and it was only because of those unrealistic assumptions (provided by Rep. Ryan’s staff) that the “Roadmap” did anything to reduce the deficit.

The Obama proposal is a limited first step in a long road to long-run fiscal solvency. To this point, we have had to ignore the short-run deficit and I would dare say that in the next four to six quarters we could continue to ignore the deficit, but letting the majority of tax cuts expire for the top 5% of earners in this country seems like a sensible step to move us down the road.

Outstanding Historical Gloss of the Day

"On the judicial side, the [late 1930's] ushered in a period of unprecedented goodwill towards the regulatory system."
--Robert L. Rabin, Federal Regulation in Historical Perspective, reprinted in Peter L. Strauss, Todd D. Rakoff & Cynthia R. Farina, Administrative Law 13, 17 (2003).