By James Kwak
Jeff Sachs:
“Policy paralysis around the US federal budget may be playing the biggest role of all in America’s incipient governance crisis. The US public is rabidly opposed to paying higher taxes, yet the trend level of taxation (at around 18% of national income) is not sufficient to pay for the core functions of government. As a result, the US government now fails to provide adequately for basic public services such as modern infrastructure (fast rail, improved waste treatment, broadband), renewable energy to fight climate change, decent schools, and health-care financing for those who cannot afford it.
“Powerful resistance to higher taxes, coupled with a growing list of urgent unmet needs, has led to chronic under-performance by the US government and an increasingly dangerous level of budget deficits and government debt.”
That’s part of a longer article, “Obama in Chains,” on the challenges presented by political polarization. Sachs seems generally sympathetic to Obama, although he criticizes him for his pledge of no new taxes on the “middle class” and ruling out a value-added tax.
Unfortunately, Sachs isn’t long on practical solutions: he prescribes an end to the Iraq and Afghanistan wars, increased taxes, and lobbying reforms. But that’s in part because the problem is hard to solve.
The Baseline Scenario 
I think this paragraph from Sach’s essay hits the real issue on the mark:
“An equally deep crisis stems from the role of big money in politics. Backroom lobbying by powerful corporations now dominates policymaking negotiations, from which the public is excluded. The biggest players, including Wall Street, the automobile companies, the health-care industry, the armaments industry, and the real-estate sector, have done great damage to the US and world economy over the past decade. Many observers regard the lobbying process as a kind of legalized corruption, in which huge amounts of money change hands, often in the form of campaign financing, in return for specific policies and votes. ”
You can forget expecting US citizens to fork over more taxes. I assure you that won’t happen. If taxes are raised, there will be more cash transactions, bartering, reduced consumption, reduced income.
Quoting from Bloomberg in 12/2008: “The company’s effective income tax rate dropped to 1 percent from 34.1 percent, New York-based Goldman Sachs said today in a statement.”
Goldman Sachs gets away with paying a 1% tax? Sachs and any other tax promoters are off the mark, unless they recognize, and hammer away, at the U.S.’s tranformation into a plutocracy.
Our government is spending ever more money, but doesn’t actually serve the people, so the people should pay higher taxes to get the stuff they actually need? That makes a lot of sense.
People do not want to pay higher taxes because they believe that most of what the government spends money on is not actually a core function of government.
Paralysis is the wrong word. Our government is still able to do plenty for the people policymakers care to serve.
The rich and (in)famous will never pay their fair share. It’s gotten so sickening… “Higher taxes on the rich, while justified, don’t come close to solving the deficit crisis. America, in fact, needs a value-added tax, which is widely used in Europe, but Obama himself staunchly ruled out that kind of tax increase during his election campaign.” Which is worse (or are they one and the same), VAT and the consumption taxing.
“Our government is still able to do plenty for the people policymakers care to serve.”
Excellent observation!
Goldman recorded a net income tax expense for 2008 of $14 million. They provided for current payment of income taxes totaling $1,777 million. They charged a previously recorded liability or recorded an asset , or both, on a GAAP basis for the difference of $1,763 million.
Goldman recorded refundable US taxes of $278 million due to a domestic net operating loss. They also provided for payment of state income taxes of $91 million and payment of Non US currently payable income taxes of $1,964 million.
GS had considerable recognized losses for tax purposes that were previously provided for on a financial basis. Accordingly, they would charge the difference against a deferred tax liability account or set up a tax asset , as appropriate.
Deferred tax relief was $880 million for US tax purposes, $92 million for state tax purposes and $791 million for non US income taxes. This totaled $1,763 million. The net of the two is $14 million financial statement expense. Had the books been kept on a tax basis, the income tax expense would have been $1,777 mn .
Cash flow wise, they paid estimates for 2008 taxes or had balances due estimated to be $1,777 million even though they recorded a net tax expense of only $14 million.
I think the middle class would be prepared to accept higher taxes if they could be sure the rich were shouldering a fair share of the burden.
But we lost confidence in Obama. If he were making the law there would be thousands of loopholes for the rich.
“Obama in Chains”? So it’s a psychological analysis.
After all, whatever Obama really wanted to accomplish, he certainly had the power to accomplish, or at least to put up a vigorous fight.
It’s like how in analyzing “Hamlet” we can reject out of hand claims that Hamlet faced any external barriers to killing the king. Whatever’s holding Hamlet up is in his own psychology.
There, of course, we can all agree that Hamlet really does want to kill the king.
With Obama, right from the start there have only been two possibilities: either he labors under tremendous character flaws (those have to be the “chains” referred to) which prevent him from doing what he really “wants” to do; or he’s really a right wing corporatist, he never for a moment wanted or intended Change or Reform, and every word he ever said including “and” and “the” was a lie.
I wasn’t 100% sure at the time of the stimulus. The health racket scam made the answer obvious, because he’s not so intellectually stupid that he couldn’t have learned the lessons of the stimulus “fight”. Now it became clear that he got exactly what he wanted with the stimulus, just as he’s sought exactly what he wants everywhere else.
In retropsect, the signal broadcast by the appointments of Summers, Geithner, and Emanuel was 100% accurate. It was stay-the-course on Bush/Cheney all the way.
Maybe we could end the empire? That would save a few bucks. Or is that a “core function of government”?
Russ writes:
I’d argue that if that wasn’t clear with FISA, it was crystal clear with TARP. Nevertheless, welcome to the class of 2010!
Save it for your own “liberals.” I rejected all that crap 20 years ago.
I only try to help explain it to people who are new to all this.
“Sachs isn’t long on practical solutions.” Ending the wars, increasing taxes and reforming lobbyist rules sound like pretty fair minded solutions to me. A start, anyway.
How can anyone take Sachs seriously? Aside from his disastrous career offering “advice” to developing countries, his ideas about the U.S. are divorced from reality. As one example, he suggeststhat America lacks “decent schools” for lack of money.
Really. See “U.S. tops the world in school spending but not test scores”. A few quotes may help.
“The United States spends more public and private money on education than other major countries, but its performance doesn’t measure up in areas ranging from high-school graduation rates to test scores in math, reading and science, a new report shows.
“There are countries which don’t get the bang for the bucks, and the U.S. is one of them,” said Barry McGaw, education director for the Paris-based Organization for Economic Cooperation and Development, which produced the annual review of industrialized nations.
The United States spent $10,240 per student from elementary school through college in 2000, according to the report. The average was $6,361 among more than 25 nations.
The report cited Australia, Finland, Ireland, Korea and the United Kingdom as examples of OECD nations that have moderate spending on primary and lower secondary education but high levels of performance by 15-year-olds in key subject areas.”
Great point.
US leads the world in spending in at least two areas: schools and healthcare, and results are LOUSY for both.
Also, in financial regulation (clearly a “core function” of Government) they epically FAIL.
Better product will support higher prices
Policy paralysis is ver interesting, I might describe it a bit differently. A little like the sub-prime affair…not illegal, just a perfect storm…..you might liken the policy paralysis to the cumulative effects of catering to lobbys and unions and overall lack of transparency. Everything was fine for so long, but now the debt is growing everywhere and must be faced. Nothing illegal, just the perfect storm. I don’t think people realize that on the state level anyway, the govt is concnerned with securing themselves and special interests first…and everything else second. In order to perpetuate that payment program…Nothing Must Change. Under the guise of ‘having a lot to work through’, the govt muddles through and checks keep going out…..Adding to that debt. What will become of us??
Agree with you. We should not need to lobby on our own behalf to make sure at least the Minimum is done in all those areas! Its so twisted, its hard to know where to start! So it perpeutuates.
The reason most people are opposed to higher taxes is they don’t have any money. The majority of Americans are lower middle class or just poor. A genuine solution is to tax the really rich, but they control Congress, so I don’t expect much to happen. Meanwhile the states are going broke and are squeezing us with higher school and property taxes. More Federal taxes means more misery, so if you think things are close to exploding, just wait a bit longer.
why doesnt anyone mention the two 800 lb gorillas in the room?
medicare and social security costs must be controlled before the boomers reach 65, and the only way to do that is to raise the age for eligibility.
Greenspan and his comission in ’82 raised taxes on we the little people to fund the boomers retiring. Remember, it was called the ‘trust fund’. What did Reagan, GBush I, Clinton, and GW do? Steal that money and apply it to the general fund. GW also pushed some lovely tax cuts ($1.2 Tril in 2001 and $300 billion in 2003) in addition to spending the Social Security money. So what do we have now in 2010?.. No money for the boomers, massive deficits, and geniuses like you saying S.S. costs must be contained.
Medicare is a seperate issue altogether, but the many billion giveaway to the Insurance and Pharma companies sure did help in the cost rise of Medicare.
Why don’t we raise the age to 80, and get it over with?..
in a recent Time article on the debt he said something about the largest debt during “peace time”… not sure how fighting wars in afghanistan and iraq and arguably another in pakistan counts as “peace time”…
James,
No solution that you and I would agree on would be “practical.” But given the choice of solutions, besides higher taxes on families making over 200K, I would go for cutting military spending by 30%. Think of the money that would free up for infrastructure improvements, deficit reduction,and some kind of government subsidized health insurance (I would prefer monopolistic public option). With no drag on the economy. Stop building unnecessary submarines, cut back on the number of foreign military bases, and so on. Stop trying to be the world’s policeman: in the long run the ill will this generates will cost us a huge amount of money/access to resources, etc.
I dare say that Jeffrey is right on the money, so to speak. His partial solutions are ok, but we must address the growth of health care costs (with single payer or a system like the Netherlands), and military spending (not necessarily by leaving Afghanistan, which, even if it costs us 50 billion a year is still not excessary excessive in the context of the bloated military budget). The VAT has some appeal, but why not a Flat Tax (such a popular idea at one time, and would be pegged at between 18% and 20% depending on the mortgage deduction, which should be eliminated). I would love to hear you guys write about a flat tax possibility, to at least bring it into the debate again.