Democrats and the Bush Tax Cuts

By James Kwak

Mark Thoma provides an excerpt from Noam Scheiber on Peter Orszag’s attempt to let all of the Bush tax cuts expire. In short, Orszag wanted to extend the “middle-class” tax cuts for two years (letting the tax cuts for the rich expire); then he expected the middle-class tax cuts to expire as well. President Obama was interested in the plan, which Scheiber takes as evidence that “the president is a true fiscal conservative.”

Thoma frames this as a bad thing:

“The explanation, of course, is that despite hopes to the contrary (and denial by some), the president is, ‘a true fiscal conservative’ — it’s not just an act in an attempt to capture the middle — and that could be bad news not just for middle class tax cuts, but also for important social insurance programs such as Social Security.”

I like and respect Mark Thoma a great deal, and I generally think of him as a mainstream Democrat on economic issues, neither a socialist nor a “moderate Democrat” (what we used to call a Republican). To me, his post is evidence that many Democrats think that most of the Bush tax cuts were an are a good thing. This confuses me. When did we become the party of tax cuts?

Let’s leave aside the question of whether Barack Obama is a fiscal conservative (and whether that term has any meaning anymore) and focus on the narrower question of whether it would be good to let the “middle class” tax cuts (usually defined as tax cuts for married couples making less than $250,000) expire.

There are three logically separable issues here. The first is whether, leaving aside considerations of the business cycle, we would be better off with the Clinton tax code (mainly set in 1993, tweaked in 1997) or the Bush tax code (set in 2001 and 2003, extended in piecemeal fashion during the Bush administration, and finally extended in 2010 through 2012). On this question I think the answer has to be that the Clinton tax code is preferable, at least for people with generally Democratic preferences.

One way to think about it is this: In 2001 and 2003, did you think the Bush tax cuts were good policy? If you didn’t think they were good policy then, why would they be good policy now? If you can’t remember what you thought about them then, let me remind you. EGTRRA and JGTRRA were huge tax cuts for the rich and small tax cuts for the middle class and the poor. EGTRRA was passed at a time when large majorities of the country wanted to bolster Social Security and Medicare rather than cut taxes;* JGTRRA was passed after a recession and September 11 had already wiped out the Clinton-era surpluses and less than two months after the invasion of Iraq.

More generally, tax cuts always have to be paid for, one way or another, in lower transfers, fewer services, or higher taxes in the future. Since the poor and middle class are net beneficiaries of transfers and services, the Bush tax cuts were, on balance, bad for the poor and the middle class (unless they would be paid for by tax increases that made the tax code even more progressive than before—an unlikely prospect). For a quantitative analysis, see Elmendorf, Furman, Gale, and Harris (2008). (I’m not going to bother rebutting the supply-side justification for the tax cuts since, for now, I’m talking to Democrats; I know why Republicans liked the tax cuts.)

If the tax cuts were bad a decade ago, what has changed since then (for now, leaving aside cyclical issues)? We have had one more decade of aging and health care inflation (and war), so the long-term budget outlook looks considerably worse. The need to ensure the long-term survival of Social Security and Medicare is greater. Increased income inequality has made provision of basic safety net services even more important. These are all things that demand more tax revenue, not less. The case against the Bush tax cuts has only become stronger.

Assuming you’re with me so far, the second issue is whether it would be good to have just the middle-class tax cuts and not the tax cuts for the rich, which is what President Obama has proposed. (Leave aside for now the question of whether this would be politically feasible with today’s Republican Party.) This is a closer call, but I still think the right answer is no tax cuts.

To begin with, who among you (again, I’m aiming this at Democratic policy wonks) thought that the thing we needed in 2001 was a middle-class tax cut? Not many, if I recall correctly. Democrats wanted more money for education, infrastructure, job training, and child care. We wanted better health care. We wanted to set aside money for Social Security and Medicare. We didn’t want tax cuts. Again, I think the past decade has just strengthened all of these concerns. Yes, the middle class is struggling with stagnant wages and rising economic insecurity. But in aggregate, middle class families need robust social insurance programs to protect them from falling into poverty more than they need a few hundred dollars of after-tax income. And given the current political climate, that is the choice we face.

The third issue is whether, given the actual business cycle, we should raise taxes on the middle class right now. Here I will go along with Thoma and DeLong and Krugman and all the rest and agree that it might not be good to raise taxes on the middle class on January 1, 2013. If I were king, I might extend the middle-class tax cuts for another two years and then let them expire.

But this “if I were king” stuff is meaningless. First of all, if I were actually king, I would still let all the tax cuts expire; then I would use the additional revenues to increase government spending. (Remember, fellow Democratic policy wonks, we usually say that spending has a higher multiplier than tax cuts.) Second, I’m not king, and neither are you. We are dealing with a Republican Party that will block any package that raises taxes on anybody. They will block any tax increase, even if it hurts them in the general elections, because they are completely locked in by the Grover pledge and the Koch brothers. The only choice we have is between extending all of the tax cuts and complete gridlock, which means that they all expire. And if we extend the Bush tax cuts, we are just four Senate seats away from making them all permanent.**

Given that choice, I vote for gridlock. I understand the counterargument: tax increases would weaken the recovery and increase unemployment in the short term. But those tax revenues are crucial to the long-term health of the middle class. Ending the Bush tax cuts will slash projected deficits and push right-wing claims about the bankruptcy of Social Security and Medicare decades into the future. Yes, conservatives will always want to privatize Social Security and dismantle Medicare, but they only have a chance of actually succeeding when government deficits make those programs seem unsustainable, bringing so-called centrists over to their side.

So, for me, letting all the tax cuts expire on December 31 is better than making them permanent. Letting them all expire is also better than making just the “middle-class” tax cuts permanent. (Another note to Democrats: since when do we push for tax cuts for families making $200,000 a year?)

There’s one more option you may say you prefer: letting the tax cuts for the rich expire, extending the middle-class tax cuts for another two years, and then letting them expire (assuming we are back to trend growth). As I said above, I don’t think this is politically feasible, given who’s in charge of the Republican Party. But if that’s what you want, that’s also what Peter Orszag wanted and Barack Obama seriously considered. So why are they the bad guys?*** (Note that I’m not defending Obama’s willingness to negotiate away Social Security and Medicare, which I do not agree with.)

In the end, I think the Bush tax cuts were one of the two most catastrophic policy decisions of this century (the other was the Iraq War). They were a terrible idea then and they are a terrible idea now. I think letting them all expire would be good for the world and for the middle class. And whether or not that makes me a “fiscal conservative,” I think it makes me a Democrat.

* See Hacker and Pierson, Off Center, pp. 49–53.

** Does anyone think Obama would veto a bill passed by both houses that locks in lower taxes?

*** You could say that Orszag wanted to implement this policy two years ago, which meant a tax increase in 2013, while you want to implement it now, which means a tax increase in 2015. I see the point, but that’s a tactical distinction, not a difference of philosophy.

35 responses to “Democrats and the Bush Tax Cuts

  1. I thought the Bush Tax Cuts were bad in 2001, and so I still think they were bad policy. I am sure that if we let the upper tier cuts expire, the upper class will not quit their jobs or liquidate their assets in protest. I would however, leave the middle class cuts intact. We still need to stimulate consumption.

  2. I took the quotation to imply that, under President Obama’s moderate style, cuts to Social Security and maybe Medicare and Medicaid are highly probable and not so much that the Bush tax cuts were a good thing, at least not the high income tax cuts.

  3. Mark Thoma once wrote an article on his site that had what was clearly a flaw in its premise (I don’t remember the subject). I then wrote a polite comment explaining why he was wrong but my comment was rejected. Almost immediately thereafter the article was “updated” in a way that completely changed the thrust of the piece. So, I wrote another comment which questioned the honesty of altering an article and excluding a rebuttle. That comment was also rejected and when I wrote a third comment that defended the first two comments… I was barred from the site, a site where I had been a regular participant for several months. Mark Thoma is a narrow-minded fool who is only adept at hiding his incompetence. His site does however have some interesting and well-informed wonks, (they are mostly jerks though).

    Ray

  4. mark reprints a lot of krugman & delong so he can feel like a liberal…

  5. The Dems biggest problem is that they believe in Republican economics. That’s the result of the big bull market in stocks where Republican ideology became accepted as fact.

  6. I think of Mark as a liberal but there are nearly as many confused liberals as there are confused conservatives. This notion, for example, of extending tax cuts for the middle-class is wrongheaded. The middle-class is an over-nourished, materialistic, fuel wasting, storage unit worshiping, group of whiners. Why would we stimulate consumption for a cohort that already over-consumes. What about the billions of people around the world, and here, who have less than they need?

    But of course that exposes the real problem, which is, that we are forced to limit exports by the Triffin Dilemma. Accordingly, creating consumers abroad is not as doable as domestic boosts no matter how many storage units that might require. So, we recycle the ROW’s surplus investment capital back through the fat fingers of people who actually do need SUVs due to space considerations; not just for their bodily comfort, but also for bringing home their shopping bounty.

  7. “We are dealing with a Republican Party that will block any package that raises taxes on anybody. They will block any tax increase, even if it hurts them in the general elections, because they are completely locked in by the Grover pledge and the Koch brothers.”

    How soon we forget! This same “all tax cuts are good except when they are not” GOP recently went to the wire on approving the continuation of the FICA tax decrease — but it really only helped the middle class (where middle class is defined as being under something over $106000) since the tax was capped for employees. I’m not sure a GOP Congressman knows the name of anyone who isn’t FICA capped income.

  8. Obama isn’t acting like a Republican, he is acting like Bubba Clinton. The election issue will be, four years of crazy, out of control Republicans debt and spending, or fiscal soundness from Barak ‘Bubba Clinton’ Obama. The voters are going to choose Bubba, many of them remember the boom times.

  9. James, thanks so much for your pithy and rather astute opining on the Bush obfuscation, as tax cuts, of fiscally responsible government. Let me say that I am not a Democrat. Not to say that I am opposed to their political ideals, only to the current party’s actual record and its association with the wealthy interests which are, as with all wealthy interests these days which are participating in the political process, undermining the future of this nation.

    Of course, these idiotic, absurd and ridiculous tax cuts should expire. Even now it will take quite a bit of time, years that is, to offset their detrimental negative effect on this country’s viability, fiscally speaking. I am not a “deficit hawk” in the sense that I don’t panic over our current national debt, feeling that responsible governance can render it essentially meaningless taken against the backdrop of current global economic wellbeing. This country has immense potential resources which can be brought to bear. My problem, is, of course, that it appears at present that the ruling oligarchy will prevent that from happening, in any meaningful way until (or unless) there’s major political reform, which would be precedent to any true progress in responsible governance. In other words, given the present econo-political realities (i.e. all candidates of the two major parites being controlled by their wealthy election financiers), it is impossible to view the chance of responsible governance as a looming possibility.

    All things considered, unless these tax cuts are allowed to expire, I believe that the future of America is in real jeopardy. I am sure that those who disagree will advance the same old arguments regarding the ” fragile recovery” (which is not actually a recovery in real terms for at least 90% of the populace), and I am certain that their arguments have a shred of truth. But, on balance, owing to the factors that you so cogently set forth above, we have no choice but to take that risk, which I consider to be marginally negative, at best, in favor of being able to continue government programs which support continuing the current gradual recovery trends.

  10. An excerpt from commentary I wrote for our local newspaper which lays out my view on this topic…
    ——————————
    Greed, incompetence, and fraud wiped out 8 million jobs. Banks and brokerage houses created a fake housing boom, packaging bad mortgages into phony investments. Then, even as they continued to draw commissions and bonuses, that system went haywire. We saved them from their creation to the tune of $2.3 trillion.

    The same people who caused this collapse will gain the most from the tax giveaway. Instead, a lot of them should be in jail according to William Black a prosecutor during the Savings and Loans fraud of 1990. These failed capitalists have been saved by gold-plated socialism.

    Many now insist that the federal budget they and their political cronies helped crater should be balanced on the backs of the poor, the elderly, children, and anyone else who isn’t part of the club.

    The hypocrisy should come as no surprise since wealth has had its way for years. An article in the Jan/Feb issue of Foreign Affairs puts it this way:
    Since the late 1970s, a number of important policy changes have tilted the economic playing field toward the rich. Congress has cut tax rates on high incomes repeatedly and has relaxed the tax treatment of capital gains and other investment income, resulting in windfall profits for the wealthiest Americans.

    How to balance the budget? By all means, reduce the corporate tax to help small business. Contrary to what John Boehner would have us believe, however, Bechtel – a giant engineering firm – is not a small business. Neither is PriceWaterhouse, the international auditing firm, or Kohlberg, Kravitz, and Roberts with $54 billion in assets. This deception only provides these companies with cover.

    The reality: two-thirds of corporations doing business in the US don’t pay any taxes. Lower the rate, but make everyone pay. That would get us a long way down the budget-balancing road.

    Need more? The super-wealthy had their investments saved from the ash-heap by ordinary Americans. In real capitalism, they would have lost their shirts. Tax them for the resulting hole in the budget and to help get the economy back on its feet. There’s no reason our public schools should be destitute and health services unavailable to tens of millions while wealthy individuals get private schools and platinum health care. We’re either all in this together or we’re not.

    Beyond this, create more jobs. The problem is stated clearly by Robert Reich. The ex-labor secretary echoes what conservative analyst Kevin Phillips has pointed out: 70% of our economic activity comes from consumers. Lose jobs and we lose spending. Lose spending and we kill the economy. It’s not about getting money into corporate hands either. Businesses are sitting on more than a trillion dollars in cash but many are still not hiring workers. They’ll spend only if they think they’ll sell more goods. That takes us back to the consumer problem.

    While this administration has created more jobs in the last year than the previous one did in eight, millions more are needed. We can do that by putting people to work re-building infrastructure. These days, that means not just highways, bridges, and water systems, but telecommunications and broadband connectivity.

    The U.S. was one of the first countries to industrialize. The upside was a booming economy through much of the 20th century. The downside is that we now have a lot of old infrastructure. Take a look at European roads and rail lines, rebuilt since World War II. Or make a call on the Chinese GSM cellular system. They didn’t even bother with land lines, instead they just jumped straight into the 21st century. We should join them.

    Trim the fat, including defense spending. But tax those responsible for the collapse of our economy to create jobs and rebuild. They literally owe it to the country.

  11. @Norm – they’re not going to do it. You must look at their character because they are willing to *assad* USA just like Assad is doing in Syria.

    They constantly find reasons to go ballistic against the people they have chosed to HATE – this is the typical mind drone they always have:

    rl love wrote, “This notion, for example, of extending tax cuts for the middle-class is wrongheaded. The middle-class is an over-nourished, materialistic, fuel wasting, storage unit worshiping, group of whiners. Why would we stimulate consumption for a cohort that already over-consumes. What about the billions of people around the world, and here, who have less than they need?”

    Sluts, whores, lazy whiners, etc…..never ending stream of vitriol….

    “storage unit worshipping” is a new one – who the hell knows who s/he was stalking to come up with that one…

    No one is in jail and check out what Gingrich’s casino don got away with – a foreclosed city as collateral for more ME shenanigans. They’re never going to stop until they are stopped by force on USA soil. THIS is when a strike is not even pre-emptive anymore – LOOK at what they did and will continue to do!!!

  12. Annie,
    I see that you still can’t tell the difference between name-calling and self-supporting discriptions.

    But then of course you have trouble just making sense at all, so perhaps the finer details are never likely to sink in, regardless of how much time that you waste here.

  13. Great post.

    Why, indeed, did Barack Obama extend the Bush tax cuts (because they were stimulatory) and then turn around and negotiate cuts to entitlements (because there is a budget deficit!) with the Republicans?

    It simply beggars imagination how a Democratic Administration allowed itself to be b*tch-slapped into toeing the Republican policy line.

  14. @ rl love I have hesitated to criticize my fellow bloggers, but fully understand that you complain about Annies rants and rantings. You are right. I have read many of them and find it very difficult to penetrate what I see as muddled thinking. I think that the very least that bloggers need to do is to clearly express their opinions and provide support for their views as possible. Simple rantings tend to be meaningless in the broader context of arguments (not disagreements in general but discussions and debates). I treasure different views and respect those who have them so long as they are consistent and supported or supportable. It’s time for clarity. The biggest reason that I follow The Baseline Scenario is that for the most part it constitutes a logical discussion of economic and financial issues in the context of human society, both American and global, and is very valuable in that context. Simon and James do a marvelous job of framing issues and opining on situations and resolutions in a meaningful and full-throated way that I find stimulating and enjoyable. Annie is not the only blogger who tends to wander far afield from the topical discussion and seem only to like to be a part of something while not even slghtly enhancing or really meaningfully participating.

    Lastly, Annie, my intent is not to hurt your feelings or cast aspersions on your opinions or right to have them or share them. My onlly desire is that you participate with clarity and transparency. Much of your commentary is haze and oblique at best.

  15. Bayard,

    Thanks for the support. These sites do of course benefit from well crafted criticisms, and yours is just that.

  16. If it wasn’t so out of character, I might think that Obama was playing a very deep game here. I do believe that he wants to raise taxes on the wealthy but not the middle class. But his big leverage with the Republicans is the fact that nothing means the end of all of the Bush tax cuts. But for that leverage to work, they have to believe that he is willing to allow all the tax-cuts to expire.

  17. Tax cuts for the lower and middle class pay for themselves. Therefore, deficit hawks should not be concerned that they will disallow more money for education, infrastructure, job training, child care, etc. The Bush tax cuts should be made permanent only for married couples and individuals making less than $250,000. They should expire for everyone else. This will help to fight inequality.

  18. Lowering the amount of government transfers should be preferred to increasing the tax rate – albeit not the most sound political move. Furthermore, the article’s argument that increasing tax rates will result in greater government receipts is invalid. Its a conclusion that isn’t supported by theory nor past data.

  19. @ Patrick I am a bit skeptical regarding what you opined. I assume that whatever theory you refer to is the Reaganomics “trickle down” policy, first espoused by Friedman and Hayak at the University of Chicago in the early 1950’s, and which has proven to be disasterous in every case in which it has been affected, beginning in South America in the1960’s, and then in Indonesia, as well as many other countries which now include the US under Reagan (and still at present), Russia beginning with Yeltsin, and now even in China. Wherever it has served as the underpinnings of national economic (tax) policy it has resulted in situations similar to those extent in the US presently, which include massively underfunding of government, the massive (and now widening gap) between those at the top of the economic food chain and those at the bottom. These economic theories and the policies based upon them have been completely and utterly been proven to be simply nothing but unvarnished support for massive wealth accumulation by the few who actually benefit and the absolute decline in economic success and opportunity of everyone else.

    As to your claims as to “data” supporting the idea that higher tax rates don’t result in higher revenues for the government, I am very interested in your providing that data or unbiased sources from which such data may be obtained. At present, the tax rates are generating a deficit of about 8% between government expenditures and revenues. This, needless to say, is untenable, and yet that percentage cannot possibly be made up by simple cuts in the discretionary portion of the Federal Budget, the greatest percentage of which is constituted by military and national security expenditures (now about $1.3 trillion) which our present Congress would never be willing to reduce in any truly significant way (although this is completely possible on a rational basis, without sacrificing national security). Simply attempting to halt the growth of these expenditures has become a difficulty.

    Sorry, but without providing support for your view, it simply doesn’t stand up to the facts. What really needs to happen is to abrogate a substantial portion of the 70,000 page US Tax Code and remove the massive subsidies it contains, which once enacted are never in need of renewal, and which are hidden from us, unlike normal subsidies, which must be affirmatively renewed on a regular basis. The Code is simply bad law, and needs to be completely reviewed and subtantially eliminated. If that were done, the rates would be more reflective of revenue generation potential. Many, including myself, are looking at the idea of instituting a VAT (Value Added Tax), as a fairer means of taxation. I am not fully convinced, since I believe that, depending upon how it is structured, it is potentially massively regressive, and may not result in anything resembling a more level economic playing field.

  20. 1.) I said “theory” not policy. I’m referring to models: static and dynamic GE model, Solow, and the neoclassical growth models all support my claim.

    2.) I already posted 2 graphs for you in the “beware of centrists” post: http://baselinescenario.com/2012/03/02/beware-o-centrists-bearing-consensus/

    The graphs were generated using data from the St. Louis Federal Reserve. The links don’t work anymore because they don’t allow perm links from their series to remain, but you can click on the link to go to the series I was using and juxtapose the government receipts resultling from the Bush tax cuts to the Clinton administration’s tax setup. You’ll notice that both the peak receipts and log-transformation support that lower taxes have generated greater government receipts in most recent times.

    Which brings up another point, I said RECEIPTS, not deficit growth. Deficit growth is being heavily driven by expenditures – hence why I said it would be ideal to reduce government transfers as opposed to cutting taxes. During recessionary periods or slow growth periods this is difficult to do because it could harm recovery – increasing taxes will have a similar effect.

    3.) I disagree with your assessment of the gap of wealth, and find that mass-media relies heavily on the ginicoefficient as opposed to really taking a hard look into movements regarding the 1%.

    4.) The countries using a VAT system have similar total factors of productivity of the United States but less time spent in market labor commitment. Higher taxes realize less incentive to work – this is supported by analysis from many neoclassical economists (including Dr. Prescott).

  21. I have a question? Who/When/Why did the dividing line get set at $250,000? $250,000 more than enough for a family to have a modest home and good food on the table and even some non-necessities (entertainments, hobbies, etc.) This is more than most humans in this world have and more than most humans have had throughout history. Why do they need help? The median household income in the US is around $50,000, why does anyone who is above that need help?

    Is it because people who make >$50,000 have the luxury (and education to critically think about such things) of being able to follow politics and are more active at the voting booth and their allies are more active on K Street, unlike those who make less and might not even have the day off on election day.

  22. @ Patrick I find your arguments and charts unconvincing, but believe that you are a valid debater because you are prepared to support you views, and I appreciate that. Please explain to me that the effective highest marginal tax rate during the years following WWII, for more than 20 years, were 90% or above, and this was the time during which we built substantial infrastructure, and prime time for the formation of the now historical anomaly of the “middle class” which is now rapidly vanishing. I know that the global economic factors have substantially changed during the period since of about 40 years, and that the same taxation levels can’t be pursued now, but, regarding incentives, those higher rates did nothing to deter the formation of reasonable wealth, and didn’t seem to discourage people from their motivation to earn. In fact, the higher revenues made things like college education far more affordable, and did many other things to actually foster economic opportunity for everyone.

  23. Data?

  24. @ Patrick Thanks for the reference. I will read your sources and reply. I appreciate any guidance whatsoever. If you have others, please feel free…..

  25. George DeMarse

    No doubt the Obama Administration has based its economic policy on Keynesianism–stimulus/deficit spending now–pay later when a recovery is underway. This assumes, of course 1) a recovery occurs 2) taxes are raised in the future. We can argue about “what” a recovery looks like, a “jobless” recovery, a stockmarket bubble, fewer foreclosures, etc. But we cannot argue away that a huge deficit has resulted from bailouts, wars, stimulus, and that interest rates are probably going up making the payback even more expensive.
    So the tax increases must indeed come if any semblance of large government programs like social security and medicare are to survive. The only option with a political chance is to “let” the Bush tax cuts expire in toto–do not piece meal this needed revenue. That’s the only shot at making Keynesianism work in this case. The Bush tax cuts should have been used to pay for the wars ten years ago–they are needed now to still pay for the wars.

  26. “So the tax increases must indeed come if any semblance of large government programs like social security and medicare are to survive.”

    This is just not true. You can cut expenditures or change the programs as well. I don’t accept your premise.

    Transfers are funded by those committing market labor hours. There exists plenty of literature, some of which I provided above, which lends that this reduces the amount of hours individuals are willing to commit to the market. Reducing the aggregate hours reduces contributions to transfer programs – hence why receipts were higher during non-recessionary periods of the bush tax cuts (the St Louis Fed data confirms). Even if we assume gov programs such as social security cannot be altered, raising taxes isn’t necessary, nor remotely close to sufficient, to sustain the programs.

  27. @ George and Patrick I am not a Keynsian, nor am I a Friedmaniac, but I do believe it when the CBO forecasts far more massive deficits and debt should the Bush cuts be left and not allowed to expire. The key issue is really the tax code, and, perhaps even the income tax itself. Patrick, I can tell you that higher taxes in no way discourage the accumulation of wealth, a fact that has been empirically proven. The interesting thing to me is that the tax schema in the US is never, seemingly, fully scrutinized. But, that’s politics. Politicians always gravitate toward simple solutions, because the average voter is best fed intellectual pablum, at least they believe. I give potential voters a tad more credit. That is why the Obamacare scheme is so unpopular with many, and why 67% of Americans are in favor of siingle payer, or Medicare for all. It’s because Obamacare is unendingly complex, and is a patently obvious giveaway to the health care oligarchs to the detriment of everyone who doesn’t have employer paid insurance.

    At the core, the key question is just how to set things up so that income exceeds revenue, and my view is that in the current political atmosphere and with the present election laws, no elected representative is willing to make any of the difficult choices that must be made to achieve this simple goal.

  28. Sorry, I meant revenue exceeds expenditures, but I am sure you knews that.

  29. @ Patrick Your links got me to an Executive Summary of the study commissioned by OECD, an international organization dedicated to providing economic information and guidance to its member nations, as you know. This organization appears to be politically neutral, and is not American in origin. These factors alone, for me, add validity to its work. Having said that, I read the five page summary of the study which included both conclusions and advice. First, I must say that the summary/study doesn’t make clear distinctions regarding tax forms (as you know, the US tax schema is not just about income tax, but about a massive array of various taxes, many of which are not a part of employment or income taxation, and many of which place huge burdens on the middle and lower earners in this country). Second, I would say that their conclusions seem more than a bit overgeneralized, hazy and hedged. Third, I would say that what they have to say about the disincentivization of increases in marginal tax rates is weak, inconclusive and unclear.

    All things considered, I appreciate your pointing out this study, however, if you believe that it supports what you have opined, I must say that you are reading much into the language of the study which simply isn’t there. I am sure you can find studies that are more conclusive in their support of your views, or can you?

  30. George DeMarse

    Patrick–you’re right. You can “change” entitlement programs. You can reduce entitlements rather than raise taxes. But except for Paul Ryan I don’t see many politicians stepping up to “reduce” social security or medicare payment/coverage. In fact, the U.S. provides fairly meagre safety net benefits compared to other wealthy democracies. Social Security fares ok to other countries, but we lack the quality of other safety nets that other wealthy democracies enjoy.
    We will probably have to do both–raise taxes and reduce benefits. But politically it is easier right now to let the Bush tax cuts expire than it is to reduce benefits.

  31. This entire argument needs to examined, especially with reference to the idea of closing the budget gap. I would believe that without generating additional revenues, there is no chance, especially since about 85% of discretionary spending is devoted to military and national security. Of course, if we examine these areas, it is clear that there is not just massive overspending for the existing programs, not just that many of those programs are outdated and meaningless in the present global context and what this country actually needs in those areas to be effective, but that there is massive corruption, outright theft of public funds to the tune of far more than $100 billion by Pentagon estimates, and maybe twice that in reality. Did no one listen to Eisenhower’s parting words in 1960 regarding the Military Industrial Complex? Those who did are not governing us. Those who are have been purchased using money from our tax dollars.
    As to Social Security and Medicare, the information propounded by those who say that reforms, especially benefit reductions, are necessary to assure that the outlays, pursuant to current estimates, don’t bust the budget, as it were. A close examination reveals that Social Security could just be “tweaked” to resolve its issues. That is, the ceiling for contribution levels could be lifted entirely so that the contributions would be less regressive, and that would totally resolve the problem ad infinitum, but, even further, the benefit payments could be reduced on a sliding scale to account for those with large non-Social Security retirement incomes (i.e. does it make sense to pay benefits at the highest level to those who have $200,000 a year in retirement income?).
    As to Medicare (and Medicaid, of course) the surest way to resolve this issue is to go to a Medicare For All, Single Payer system. Those of us who are rational, that is unencumbered by restrictive and inflexible ideologies, understand that the health care reform as written by lobbyists for the health care industry (hospital conglomerates, HMO’s, pharmaceutical manufacturers, and health insurance behemoths) to higher and higher profitability at the expense of everyone. (Just one small example of the issue is that physician’s staffs spend nearly 75% of their total time on collecting payments from insurers, who are now even more recalcitrant than ever to simply pay legitimate expenses without making arguments based upon the ambiguous ways in which their policies are written together with just pure obfuscation of responsibility.) The Single Payer system has been proven to be highly effective in Canada, with health outcomes on a per capita basis far better than ours, even though one may argue that we are the country with optimal medical care available to those who can afford it. Even Cuba has far higher life expectancies than the US, and actually supplies substantial numbers of high quality health care workers to its South American neighbors. The Single payer system is, by many polls, favored by physicians (not the AMA, which is allied to the health care oligarchs) by about 65% by latest count, and also favored by a clear majority of the American public.
    The argument on allowing the Bush tax cuts to expire is tenuous only in the case of an aggressive tax code reform where we could abrogate about 95% of the current 70,000 page code, since most of that is tax benefits gravitating strictly to the wealthiest individuals and corporations (about 80% of US corporations paid no corporate income tax in 2011). Level the playing field and the rates become far more debatable (although the solutions of the two major commissions and the Gang of Six are very tepid attempts to frame the reform issue). George and Patrick, comments?

  32. A gvt big enough to give you everything you want, is strong enough to take everything you have. T. Jefferson.

  33. Eliminating the cap on taxable social security income would be moronic and detrimental to welfare. The solution isn’t to overtax – the solution should never be to overtax. I think you are a subscriber to laymann political economics and have minimal raw Econ theory in your background; could be wrong.