Tag Archives: Budget

Posturing from Weakness

By James Kwak

President Obama’s 2015 budget proposes a number of tax increases that will mainly affect the rich. They include:

  • Limiting the tax savings on deductions to 28 percent of the deduction amount (and applying this limit to exclusions as well, such as the one for employer-provided health benefits)
  • Requiring a minimum 30% income tax on income less charitable contributions, which is intended to limit the benefit of tax preferences on capital gains and qualified dividends
  • Reducing the estate tax exemption from $5.34 million to $3.5 million and raising the estate tax rate from 40% to 45%
  • Eliminating tax preferences for retirement accounts once someone’s account balance is enough to fund a $200,000 annuity in retirement (simplifying slightly)

These are all good things, given the size of the projected national debt and the urgent needs elsewhere in society. But, of course, they have no chance of actually happening.

If President Obama really wanted these outcomes, there was a way to get them. He could have let the Bush tax cuts expire for good a year ago, making high taxes on the rich a reality. Then, a year later, he could have proposed a middle-class tax cut and dared the Republicans to block it in an election year. (He could also have traded a reduction in the top marginal rate—from the 39.6% that would have resulted, not counting the 3.8% Medicare tax—for the reforms he is now proposing.)

But no. Instead, he locked in low marginal rates, including low rates on dividends, that cannot be budged so long as Republicans have 41 votes in the Senate. And today he’s left waving a “roadmap” that has no chance of becoming reality.

Mitt Romney And Paul Ryan’s Budget

By Simon Johnson

The conventional wisdom in American presidential politics is that once a candidate has secured a party’s nomination, he tends to move away from articulating the views of the party faithful toward the political center. This makes sense as a way to win votes in the general election, and there has been a presumption that Mitt Romney will head in that direction.

However, in a panel discussion on Tuesday, Vin Weber, a senior adviser to Mr. Romney, indicated that the campaign may be moving toward positions on fiscal policy that are close to those proposed by Representative Paul D. Ryan of Wisconsin and his Republican colleagues on the House Budget Committee. Continue reading

How The Banks Stole Medicare

By Simon Johnson

The world’s largest banks have been accused of many things in recent years, including taking excessive risk in the run-up to 2008, doing great damage to the American economy by blowing themselves up and then working hard to resist any sensible notions of financial reform.

All of this is true, but it misses what is likely to be the most profound negative impact of the banks’ behavior on most Americans. The banks’ actions led directly to an increase in government debt, which in turn has made the reduction of that debt by “cutting runaway spending” a centerpiece of the Republican presidential campaign to date.

As a result of this pressure, Medicare now stands on the brink of being eliminated as a viable form of social insurance. Yet the executives who lead these banks – and the politicians with whom they work closely – will not be held accountable this election season. Continue reading

Thanks To “Tax Notes”

By Simon Johnson

In my post this morning on dynamic scoring and how to turn the United States into something closer to Greece, I requested that the publication Tax Notes bring an article by John Buckley out from behind their paywall (“Dynamic Scoring: Will S&P Have Company?,” published February 28, 2012.)

The publishers have now done so, for which I would like to thank them – this is a public service that is greatly appreciated.  I don’t know how long the article will remain in the open access part of their website, so I strongly advise anyone who cares about the fiscal future of this country to read it now (and tell your friends).

“Dynamic scoring” of U.S. budget proposals would be a disaster. Continue reading

Making the United States More Like Greece

By Simon Johnson

One of the big problems in Greece over the past decade or so is that the government was not honest with its data.  Various people assisted in the matter – including Goldman Sachs with respect to some debt issues – but ultimately this was a political decision at the highest level.  The people running the country decided to conceal the true nature of their budget and their debt.  This deception ended up costing the country dearly – completely undermining its credibility under pressure and making it much harder to turn the fiscal and economic situation around.

House Republicans are now proposing something similar for the United States.

Because this concerns deficits and debt, the details may seem arcane – and that is how similar details escaped attention by almost everyone in Greece.  Fortunately, in the United States we have an excellent guide – an article in Tax Notes by John Buckley.  (“Dynamic Scoring: Will S&P Have Company?,” February 28, 2012; at the moment this is available only behind their paywall but in the public interest I would strongly encourage Tax Notes to make this piece freely available – as they have in the past for other important articles.) Continue reading

When Did Republicans Become Fiscally Irresponsible?

By Simon Johnson, co-author of White House Burning: The Founding Fathers, The National Debt, and Why It Matters To You, available April 3rd

The United States has a great deal of public debt outstanding – and a future trajectory that is sobering (see this recent presentation by Doug Elmendorf, director of the Congressional Budget Office). Yet the four remaining contenders for the Republican nomination are competing for primary votes, in part, with proposals that would – under realistic assumptions – worsen the budget deficit and further increase the dangers associated with excessive federal government debt.

Politicians of all stripes and in almost all countries claim to be “fiscally responsible.” You always need to strip away the rhetoric and look at exactly what they are proposing.

The nonpartisan Committee for a Responsible Federal Budget does this for the Republican presidential contenders. I recommend making the comparison using what the committee calls its “high debt” scenario. This is the toughest and most realistic of their projections – again, a good and fair rule of thumb to use for assessing politicians everywhere.

Under this scenario, Newt Gingrich’s proposals would increase net federal government debt held by the private sector to close to 130 percent of gross domestic product by 2021, from around 75 percent of G.D.P. this year. Continue reading

The Size-of-Government Fallacy

By James Kwak

You hear all the time that the government must get smaller. John Boehner said it the day after the elections: “We’re going to continue and renew our efforts for a smaller, less costly and more accountable government.” Barack Obama agreed in part earlier this week: “We have agreed to a series of spending cuts that will make the government leaner, meaner, more effective, more efficient, and give taxpayers a greater bang for their buck.” And a large majority of Americans agree in the abstract (while simultaneously opposing any significant spending cuts).

Conservatives like to point to high levels of federal spending—23.8 percent of GDP last year—as evidence that government is too big. But the idea that there is one thing called “government”—and that you can measure it by looking at total spending—makes no sense. Worse yet, it can lead to fundamentally misguided policy decisions.

That’s the opening of a column I wrote for The Atlantic’s online business section. I’m trying out writing an occasional column for them. Today’s is about the idea that the total volume of government outlays or receipts can tell you anything worth knowing about the size of government — and the damage that is being done by people who fetishize the total spending number.