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.

Moment of Blather

By James Kwak

David Brooks’s commentary on Paul Ryan’s “budget proposal” is entitled “Moment of Truth.” Brooks falls over himself gushing about his new man-crush, calling it “the most comprehensive and most courageous budget reform proposal any of us have seen in our lifetimes.” “Ryan is expected to leap into the vacuum left by the president’s passivity,” he continues.

Gag me.

Continue reading

February 18, 2011

By James Kwak

Thank you for all the suggestions about my post on the3six5. I decided to write about my favorite topic: my daughter. But at the suggestion of several people, here’s another one (also limited to 365 words and in diary style).

***

Today I spent another two hours in the car, mostly on Interstate 91.

The section between Amherst and Hartford is the stretch of highway I know best in all the world. For six years I went to the Hartford airport every week or two for business. For three years I’ve been driving to New Haven for school. And I recently accepted a job in Hartford.

The thing that makes it at all tolerable is the radio — more specifically, the podcasts I play from my phone. My favorite, loyal readers know, is This American Life, followed by RadioLab, Planet Money, Fresh Air, and TED Talks. (When I’m too tired for anything even remotely intellectual, I listen to embarrassing music on Pandora.)

Most of those shows come from NPR or its affiliates. The spending cuts just passed by House Republicans eliminate funding for the Corporation for Public Broadcasting, which according to Wikipedia provides about 17 percent of all funding for public broadcasting stations.

Continue reading

$1.30 > $1.00

By James Kwak

Bruce Bartlett (hat tip Catherine Rampell) reproduces a table from a paper by Suzanne Mettler showing that most people don’t realize that they are beneficiaries of government social programs. For example, 60 percent of people who take the mortgage interest deduction say they “have not used a government social program.” Now, while the mortgage interest deduction is a subsidy designed to enable people buy houses, you could get into an argument about whether it’s really a “social program.” But these are the analogous figures for some more classic welfare programs:

  • Social Security retirement and survivors’ benefits: 44%
  • Unemployment insurance: 43%
  • Medicare: 40%
  • Social Security Disability Insurance: 29%
  • Medicaid: 28%
  • Food stamps: 25%

Continue reading

Fixing The US Budget – Straightforward Or The Hardest Problem On Earth?

By Simon Johnson

The conventional wisdom is that we face a serious budget problem, ballooning debt and political deadlock that prevents any semblance of progress either in the short term or over the next 20 years. “The sky is falling — cut everyone’s wages, slash Social Security, buy gold!” summarizes the mood of this midterm moment.

But step back and look at American public finances from any angle — historical, comparative with other nations, from Mars — and the picture is very different. We have a simple economic problem — we need to fix our tax system, irrespective of how much revenue we want from it. And we continue to face the central American political problem of the last 200 years: how much inequality are we willing to accept as reasonable and fair? Continue reading

More Ignorant Senators

By James Kwak

So apparently a JPMorgan Chase analyst thinks that senators showed “an unnerving ignorance of fundamental principles of market economics.” Senator Charles Grassley went one better and showed an unnerving ignorance of how the government’s own budget works.

In a hearing on the administration’s proposal to recover the net costs of TARP through a tax on large banks, Grassley said,

“If a TARP tax is imposed and the money is simply spent, that doesn’t repay taxpayers one cent for TARP losses. It’s just more tax-and-spend big government, while taxpayers foot the bill for Washington’s out-of-control spending.”

Grassley apparently thinks that when the government “spends” money, it doesn’t benefit taxpayers. What does he think the government does? Burn it? Give it to Martians?

Continue reading

Greg Mankiw on the Deficit

By James Kwak

Broken record alert: Another post on the deficit ahead. Wouldn’t you rather look at funny pictures of cats? Why do I keep writing these? (Hint: The other side keeps writing them.) You have been warned.

Greg Mankiw, noted economics textbook author and former chair of Bush 43’s Council of Economic Advisers, has an op-ed on the deficit that is relatively sensible by the standards of recent debate. He points out that modest deficits can be sustainable, that taxes will probably need to go up, and that a value-added tax is a plausible option. He also points out that Obama’s projections are based on optimistic economic forecasts that very plausibly may not pan out, and that Obama’s main deficit-reduction strategy is to kick the problem over to a deficit-reduction commission, which are valid criticisms.

Unfortunately, his bottom line seems to be throwing more rocks at President Obama, under the general Republican principle that since he’s the president, everything is his fault:

“But unless the president revises his spending plans substantially, he will have no choice but to find some major source of government revenue. Ms. Pelosi’s suggestion of a VAT may be the best of a bunch of bad alternatives. Unfortunately, in this new era of responsibility, the president is not ready to face up to the long-term fiscal challenge.”

Continue reading

Budget Sense and Nonsense

With the submission of the Obama administration’s budget today, fiscal silly season is opening. President Obama already launched an opening salvo last week with his proposed freeze on non-security-related military spending,which amounts to a rounding error on the ten-year budget projections, which are themselves a rounding error on the long-term budget projections– at a time when unemployment is running at 10.0%. Fortunately, there is a partial saving grace, which is that the freeze does not set until until fiscal year 2011 (which begins in October 2010), and in the meantime Obama has proposed $100 billion in tax cuts and government spending to create jobs. (Whether his proposals are the right way to spend $100 billion is a debate for another time.)

The midterm elections are looming already (note: do we have to be satisfied with a political system in which the legislature is preoccupied with upcoming elections half the time?), and the two big themes seem to be jobs and the deficit. With unemployment at levels not seen since the 1980s, it’s obvious why jobs are on the political agenda. With the federal budget deficit at record (nominal) levels, it also seems obvious that the deficit should be on the agenda, but this is really an unfortunate artifact of our political system. A government deficit is the result of insufficient government saving, and a period of high unemployment is absolutely the worst time to increase government saving. The sensible solution would be to use the urgency we currently feel to put in place long-term fiscal solutions, but the political system can’t handle that (see health care reform as Exhibit A). As a result, when deficits go up, we get lots of short-term politicking about the deficit–in Paul Krugman’s words, the “march of the deficit peacocks.”

Continue reading

Written Testimony to Senate Budget Committee Today

My written testimony is now attached: testimony-simon-johnson-for-senate-budget-on-nov-19-2008

Comments welcome!