More on the Tax Deal

By James Kwak

First, the comic relief. From the Times:

“Senator Jim DeMint, Republican of South Carolina, said that he still wanted the Bush-era rates extended permanently and that the cost of the package was worrisome.”

I got some valid criticisms for my last post on the tax cut deal. In particular, that post may make it seem as if my criticism of President Obama has to do with his negotiating ability. But if Obama really wanted the outcome he ended up with, then he is a master negotiator; where I really differ from him, then, would be in what policy should be.

Obama has said for years that he wants to preserve the tax cuts for the “middle class,” but not for the rich. For the purposes of this post, “middle class” means a household with less than $250,000 in annual income. Of course, this is ridiculous, since $250,000 lands you easily in the top five percent of the population by income, according to Census figures. Why Obama chose to draw the line to separate the extremely rich from the very rich is something I’ve never understood. And besides, households above that line still benefit from the tax cuts as well, because they pay less taxes on their incomes up to $250,000, just like everyone else. In dollar terms, someone making $500,000 benefits just as much as someone making $250,000, and much more than someone making $50,000.

More recently, he has also said that he wants to stimulate the economy to help with the recovery. So you could say he got everything he wanted, except that he had to agree to tax cuts for the rich in order to get it.

Well, I want a pony. I want to repeal all the Bush tax cuts, and eliminate the mortgage interest deduction, and eliminate the income cap on payroll taxes, and eliminate preferential rates for dividends and capital gains, and tax carbon emissions, and cut the defense budget (and secure lasting peace in the Middle East). I want to use some of those increased revenues to reduce the long-term deficit, some to provide block aid to state and local governments, some to extend unemployment benefits permanently, and the rest to fund a refundable tax credit for poor people that will basically ensure a minimum standard of living for everyone. But that’s not going to happen. You have to choose among the options you have.

In effect, saying that tax cut extensions for the rich are a reasonable price to pay to save tax cut extensions for the middle class is the same as saying that the Bush tax cuts were, on balance, a good policy. Or that securing one last extension of unemployment benefits (since they expire before the rest of the tax cuts, there’s no chance they’ll be extended again by a Republican-controlled House) was enough to make it good policy.

There is always the “in the middle of a recession” defense. But again, you don’t get exactly what you want in politics. You can’t say the deal was a good deal because you can fix all the bad things about it in two years. I also want stimulus now and higher tax revenues later. But that’s not a credible option. If you think the tax cuts were bad policy, your chances of fixing that bad policy are much worse in two years than they are now. The administration’s best card would have been a threat to veto any bill that contained an extension of the tax cuts for the rich. The House is going to pass an across-the-board permanent extension in 2012. Are the Democrats going to block it in the Senate in an election year? Is Obama going to veto it in 2012? (And even if he leaves it for a lame-duck session, he’s going to have to make a commitment during the campaign.)

This was the best chance to kill the tax cuts once and for all. Yes, it would have been worse in the short run for the economy. But this is a huge price to pay for a modest stimulus made up entirely out of tax cuts (largely tax cuts for the rich). Instead, we are stuck with a huge reduction in the tax burden of the rich and a small reduction in the tax burden of the middle class–which, on balance, helps the rich and hurts the middle class–forever. If we can infer people’s preferences from their behavior, then the logical inference is that Obama thinks the Bush tax cuts, taken as a whole, are good policy.

Finally, are the “middle-class” tax cuts really worth fighting for? Or, to put it another way, why does Obama care about them so much? Contrary to the beliefs of the Tea Party, money doesn’t just get eaten by a big monster when it goes to the IRS. It gets spent on stuff that ordinary people want and need. So a priori, we can’t say that an additional dollar of tax revenue is good or bad for ordinary people.

Sure, the government is inefficient at spending money. But the question is, if we reduce “middle-class” taxes–remember, taxes on all households, affecting their income up to $250,000 per year–does that help or hurt ordinary people? The extra dollars you have in your pocket have to be paid for somehow. They can be paid for by raising other taxes (not happening); by cutting non-entitlement spending, which is mainly the defense budget (not happening); by cutting entitlements, which provide net benefits to ordinary people because they are modestly redistributive (not happening); by printing money (not happening–the Fed is printing money, but not to fund the government deficit); or by doing nothing (happening).

Doing nothing, of course, is the old Republican “starve the beast” strategy: cut government revenues to the point where it is unable to do anything. In practice, Republicans have cut revenues and continued to spend on whatever they felt like spending on. But the core of the strategy is that if you cut taxes at every possible opportunity, eventually you will force the government into a crisis where something has to give (and probably it will be a Democratic administration that takes the political hit for cleaning up the mess). And unless American public opinion does an about-face, the thing that will give will be entitlements. (The only other logical possibility is our addiction to low taxes.)

So perhaps with the best intentions, the Obama administration, by making it more likely that the Bush tax cuts will become permanent (just like the AMT fix is permanent), is probably hastening the day when push will come to shove and Medicare will be gutted. The bigger the projected national debt, the more seemingly reasonable people in the middle of the ideological spectrum shake their heads sadly and say something has to be done about Medicare, as if it’s a fact of nature and not a fact of politics. As I’ve said before, no administration has tried harder to control health care costs and thereby protect the future of Medicare. But at the same time, they are digging deeper the hole on the funding side that, politically, is the big threat to Medicare–and to retirement security for hundreds of millions of ordinary Americans.

Apparently Obama is upset at people on the left for insisting on purity. In his view of the world, he drew a line in the sand: he was going to protect tax cuts for the “middle class,” and he succeeded. Maybe he did. Maybe we should be giving him credit for getting what he wanted. But if that’s the case, he’s drawing moderate-Republican lines in the sand. His priorities, as reflected in his policy decisions, are lower taxes (for everyone, not just the rich) and the smaller government that necessarily implies. And that’s why the left is angry.

112 thoughts on “More on the Tax Deal

  1. The best deal might have been to extend the top-end cuts for one more year and other cuts for two or three years. The point is to decouple the two.

  2. Amen, James! What really infuriates me is the excoriating he’s heaped on the left since this happened. Where was this fighting Obama when the fight needed to happen–before we got this “good deal”?

  3. We are a nation that’s been fed “We are #1” for too long to have retained an ability to learn.

    What we have now is a mounting stimulus to exercise democracy–not as in less than 50% of the people show up for vote, or holding ideologies as some natural laws. BTW, coming out of the perpetual entertainment mode could only help…

    The stakes are high, the more people discussing these things the better, yet I still don’t get the feeling that the conversation has been embraced by most. My hope will come back when I turn on the TV and can hear debates about the things we care, when saying the truth matters more than not offending…

  4. Absolutely insane post. Millions of Americans would have lost their unemployment benefits. Ordinary voters would have seen their taxes go up just as the economy is beginning to show vague signs of life. And Obama would have been going in the face of overwhelming public opposition: Gallup poll today found that 66% of voters preferred extending all the tax cuts to letting all of them expire. And why would he do this? Because supposedly it’ll be harder to kill the tax cuts two years from now — when the economy will be growing briskly and people will be feeling a little more confident in their economic status — than it was today, a proposition for which James offers exactly zero evidence.

  5. This deal sickens me not only for the White House policy choices it implies, which your post brings out clearly.

    The “compromise” also has the feel of a gigantic, multi-directional bribe. The basic assumption, which may well be true, is that pretty much everybody can be bought off at the expense of the national interest. The President, Senate Republicans, Senate Democrats, middle class, unemployed — even the rich can be bought off, with the obvious hope that they will turn around and return the favor come election time.

    The result, yet again (is there no end to it?): unequal private gains, massive public losses.

  6. How do the Republicans reconcile their tax-cut actions with their anti-deficit rhetoric?

    Regarding your pony: reducing or eliminating the deduction for mortgage interest would amount to a large tax on all homeowners. Also, all house prices reflect the existence of the tax break, so they to would drop, which would be another penalty, though one without any associated tax revenue. Granted, the break shouldn’t be there in the first place, but …

  7. CS Thompson, right on. In fact, I got lost in the details and missed the main point, which you made. But why a bribe? What has happened to our democracy that leads us to believe that a tiny minority controls everything and must be palliated?

  8. I believe the $250K figure arises from the loud protestations of wholly-owned small businesses. Unincorporated, the total profit of these businesses is enough to keep a roof over the heads of their owners, but the entire business makes in the $100-250K/year range. Theoretically, the owners are not rich, but the tax laws make them so. It may also be that certain suburban New Yorkers, San Franciscans, and Los Angelenos consider $250K barely middle class, and in those cities they may be right.

  9. True, but of course there are other ways to deal with that in theory (like adding exemptions etc.)…

    Same thing with “death taxes”.

  10. I think it would be easier to take if we ever saw Obama really draw a line in the sand. That is say, execute a veto. Put out something he believes in and actually let it *lose* (rather than pre-negotiating all positives out to ensure passage).

  11. James,

    As the State (Fed Govt., Treasury, + Fed) is the issuer of currency, one can view the Federal Deficit essentially as the amount of issued currency spent by the Government, with the only budgetary constraints being inflation and moral hazard (picking winners and losers). Since the State has sole rights of seigniorage, if it does not spend and reduce taxes, how does more money supply get into the domestic economy where banks are holding excess reserves and the fallacy of composition associated with mass deleveraging ignites the threat of Irving Fisher’s debt deflation?

  12. A note on : Sure, the government is inefficient at spending money.
    And not until it is as good at preserving, lets say capital, will the scales begin to balance.

  13. Can someone explain to me what a “permanent tax cut” means? Am I being naive when I think that nothing is “permanent”? Does that just mean that no explicit expiration date (sunset date) is set on the cuts like the 2001 cuts because of the Byrd rule? Even when the cuts a “permanent,” there’s nothing to stop a future Congress from changing them to whatever they want, right?

  14. Millions of Americans would not have lost their unemployment benefits. The Republicans would have caved before that.

    In many years of confronting bullies, I have yet to find one that did not back down when confronted. In fact I have gained the respect of many bullies that I have dealt with because I was the only person who was willing to stand up to them.

  15. 1) why is NO ONE mentioning reconciliation as a way to get this stuff past the GOP

    2) Mr Kwak – what exactly are you personally gonna tell the 7 million or so families that loose unemployement under your strategy – suck it up and learn how to be homeless ?

  16. “Since the State has sole rights of seigniorage” fancy words for misunderstanding how “money” is “created”.

    Any time an entity takes in money for safe keeping for another person and then lends that money out money is created. The person who deposited the money counts the money as his or hers. The person borrowing the money also feels that he has some money to use that doesn’t have to be paid back until later.

    Both people act as if they were the sole possessors of the exact same money.

  17. Appreciate the well informed and mostly respectful exchange going on here. Giving me lots to consider. I still think the deal stinks and the President is listening to the wrong people and not making wise decisions. Oh, by the way, put me in for one of those ponies.

  18. You missed my comments about bullies. When Obama decides to stand up to the bullies, they will back down.

    As James pointed out, as long as the Republicans know he won’t leave the negotiating table until he has the unemployment insurance extended, then they know they have him over a barrel.

    What Obama needs to find is something the Republicans won’t leave the negotiating table without, and then he has them over a barrel.

  19. The debate on extending the tax cuts is a distraction. The real problem is the ballooning debt where the interest payments will soon overwhelm all tax receipts. Both Democrats and Republicans are avoiding the problem and seemingly so are the critics.

  20. Unfortunately, BHT will again stumble over his rhetoric. He likened the Republicans to hostage-takers who actually threaten to do harm to their hostages, and the threat of this harm caused him to cave in on his “principles” vis a vis the tax “cuts”. These quotes will come back to haunt him in the campaigns to come. I don’t understand who is feeding him these lines, asw they are bound to do him harm during the next two years.

  21. “…no administration has tried harder to control health care costs…”

    True. But only because no administration, including this one, has ever done anything _serious_ about controlling health care costs.

    The health care cost reductions in the ACA are a combination of tried-and-failed measures, wishful thinking, and new mechanisms that, much like most of the “financial reform” have been designed to be ineffective.

    And if you are really trying to protect the long-term economic future of the country, health care costs are *the most important* problem to solve.

    And it isn’t just the excess costs of health care that are a problem. Everyone admits that 1/3 of the health care in this country is a waste. (I suspect the real figure is much higher.) Not only does unnecessary care waste money, worse, it leaves some of its “patients” maimed, disabled, or dead.

    The health care industry as a whole, including Medicare, is long overdue for a “gutting.”

    But speaking now to your main point, I can only wonder, James, where was your outrage when Obama caved on everything important in the health care bill and let the health and insurance industries write it? Why are you drawing a line in the sand over this “compromise”, but you were a big booster for the health care sellout? I seem to remember you saying back then that it was OK because all the flaws could be fixed later. I’m glad you realize now that that logic doesn’t work. Too bad you didn’t see it back then.

  22. The Republican Party could cut off the unemployment benefits because that is what makes their party Republican.

    What a kick in the two front teeth of the Liberal Dems. Maybe the President is saying something like, hmmmm…. how many times do I have tell people like Nancy Pelosi, Harry Reid, Bernie Saunders, Barney Frank and others of that ilk that, if there are any more outbursts from the Liberal base going forward, I really will marginalize you folks to Siberia. I tried it the nice way of first, capitulating to the Republicans while the rest of you were enjoying your by-invitation-only White House holiday festivities next door Monday evening; but no, what part of my lying don’t you get? What do you want me to really say? That I’m the phony, empty suit Liberal; I misled my political base during my presidential campaign; and again, I really do consider myself a lot smarter than you whiners; and by the way, my middle name is Hussein.

    Mr. President, may be the Liberal Dems are upset with you not only on the fuzzy math but more so, on the growing disrespect for the very base of your party. Yes, the Dumbocrats definitely dropped the ball on the Bush-era tax cuts. It should also be somewhat apparent by now that, President Obama does not like conflict, arguing and “fighting.” His thing about compromising is what is sanctimonious and purest; if anything, using bipartisanship as a crutch since he can’t stand up on principle.

    If the Liberal Democrats have any spine, themselves, they should have the courage to either sit it out in 2012 or vote for Sara Palin…..that would be “Change You Can Believe In.”

  23. No James I am mad because he forms a deficit reduction committee that says cutting social security is the only way to save social security. So when Obama has a simple straight forward way to begin fixing these problems without stealing my retirement, he steals from the excess trust fund to fund a tax cut (try getting this payroll tax holiday reinstated). So he has just dug a deeper hole for social security and opened it’s funding to being cut “for the sake of the economy”.
    Also, I am mad because it sure seems like us average Americans are the ones picking up the tabs for these failures and we are the ones who have to sacrifice to make things better.
    I AM MAD

  24. How interesting that someone signing as “Anonymous” would have the nerve to suggest that others need to develop a “spine.” HAH!

  25. “What has happened to our democracy that leads us to believe that a tiny minority controls everything and must be palliated?”

    Oh, my dear James M, is it not clear to you? “Our democracy” has been bought.

  26. Barack Obama just sealed his fate as one term President. The left will find their own candidate or perhaps Hillary sees an opening like RFK did after McCarthy showed LBJ was beatable.

    If Obama does manage to win the nomination, he’ll be softened up just like Gerald Ford and Jimmy Carter were in ’76 and ’80.

    Sure hope sacrificing your presidency for a failed attempt at changing the political culture in Washington was worth it to you Barrack.

  27. Mr. James Kwak, “You are the Greatest” Bravo for your candor! This is without a doubt the best site on the “Net”!

    PS. I for the life of myself can’t understand why “MSNBC’s” best journalist being…Mr. Keith Olberman or Ms. Rachel Maddow don’t have you on the show? You guys are purist avantgardes’ Thanks Mr Earle :-)

  28. The abject concessions being served to Republican rhetoric and the capitulation to an unconditional no vote of opposition party resistance is not diplomacy or negotiated consensus; it is wholesale surrender one compromise at a time. The question now is not whether the devil is in the details, but would we recognize the devil if we even see him. . This false economy is only trumped by this false democracy. Don’t tell us about concession politics and the art of the compromise if you allow the Republican tricksters to run the counter cash register and ultimately the whole show. Negligence by omission is still negligence.

    “The RIGHT thing to do:” do the RIGHT thing? Is this a ploy? It is RIGHT ALL RIGHT. Everything is compromised including the Presidency. The “great negotiator” is selling this idea to the public not to the Republicans. That deal was already made.
    This is hucksterism in action. President Obama has to be the biggest blue dog / straw democrat of them all, if he is really a democrat in practicing policy at all. The democratic party is being handled like a psych-ops campaign against counter-insurgency. The Republicans idea of “compromise” is to take half of what they ask, and their strategy is to ask for twice as much as they think they can get (if not more in pure hubris). Frankly we would be better off if we just stopped the Republicans in a dead heat. A Mexican stand off! The network of backstabbing in Congress is matched only by the network of double deals, and the core power Republican strategists use meatgrinder political exclusion against their real isolated challenges and are laughing all the way to the bank! The CIA couldn’t have planned a better context of cover, misinformation and deceit; masterminded as coalitions and consensus under discretionary decision making (“decision making” in real time is the new BUSH “message” out to his crony gangland Chieftains and Corporatist fiefdom) and all dignified as political science while high stakes capital power proliferation is consolidating among a nexus of control mongers. Internecine finance defines the policies and then tailors the issues to fit those needs.
    Democracy needs to define its real survival issues and core values and not dilute them with oppositional distractions, explanations, excuses, complaints or diatribes of rhetoric from a nexus of cold war crony racketeers. If Obama is going to compromise us to death, then he is not what he proposes to be…plain and simple. Congress must forge a democratic consensus of its own, write up an American Contract to the people concerning the economy; consolidate a concentric fortress of power relations with a common cause; establish its own coalition strategies and begin to play the command center establishment with unrelenting zeal. Finally, it must set up a core value statement concerning HUMAN RIGHTS right here in America. That is the only “Right thing to DO” so let’s get with it President Obama!

  29. James,

    Are you sure that $250,000 figure is *real* $250,000 or *tax* $250,000? It makes a big difference, as dollar amounts in the tax code are 1986 dollars, not current dollars. If so, that $250,000 is actually $500,000 real, 2010 dollars.

  30. James, fantastic article regarding progressive dreamland. It seems that you are being realistic, and, in many ways you are. Your assessment of what our President claims as victory or success is right on the money, so to speak. Remember, though, that the single greatest problem we have about every, single government decision is that the powerful elite standing immediately behind and controlling 98% of Congress and the White House, simply continues to enable bogus, outrageous lies to take hold and clog the national debate with a continuous stream of red herrings, denial, obfuscation, and just plain stupidity. The economy is toxic. Our leadership is toxic to 99% of our population, and America is drifting into collapse because of it.

    The dopamine factor is winning. Power and wealth are addictive, and, so slavery to it becomes and unwanted addiction.

    I had a friend over this evening. After a while, he said to me, “How do you ever find out all of this stuff?” I said, gosh, I read books, I ignore all major media news, and I search the internet for facts from people I trust. I am very much alone in this country in doing that, although I feel a great kinship with most of my fellow bloggers here, and a few other places. If our electorate doesn’t wake up and demand responsible governance, we will continue to pay the high cost of ignorance. The cost of it isn’t bliss, for sure, it’s poverty and death.

    I will continue to watch the absurd games on Capitol Hill, but only to be better able to complete my novel.

  31. James, very good post! It’s not too late. The Democrats in the House and Senate can reject is deal and they should reject this deal.

  32. The GOP will not let the unemployment need go unfunded. They will pass a law funding the 13 months of unemployment.

  33. Since Obama says this is the “public option debate” all over again, I hope Bernie Sanders will channel his inner Joe Lieberman and threaten to fillibuster.

    Also, the House Dems need to just say no.

    A palatable deal is a one year extension on the upper margin and a two year on under 250K – decoupling the votes going forward and no more breaks on the estate tax.

  34. That poll was a scam, since it didn’t give people the option of letting some cuts (for the rich) expire but keeping others.

    That’s a typical trick of system polls, corralling people into an artificially limited selection: “Which do you prefer, the TARP or letting the entire economy collapse?”

    Never mind that (1) there were other options, and (2) the economy certainly would not have collapsed in the abscence of the TARP or the rest of the Bailout.

    I agree that the post is insane, because it still postulates Obama and many others as being anything other than kleptocrats, sheer criminals. It’s still mired in the MSM-endorsed lunacy that anyone in this government actually cares about “good policy” outcomes, or about anything other than looting every last cent, clamping down a repressive police state, and restoring feudalism.

    But the evidence is absolutely clear, and no other theory come even remotely close to explaining it as well.

    The same goes for Obama himself, who is clearly a hard core Reaganite whose ultimate policy goal is to gut the entire New Deal state including SS and Medicare. The “deal” he made here, extracting a few slight concessions from himself, was done only under extreme political duress. For the first time he now fears for his re-election. (Though as the “sanctimonious purist” quote demonstrates, his heart isn’t in it. He truly despises progressives, and even political expediency can’t overcome his public expression of that loathing.)

    But on the policy agenda he and the Republicans are 100% simpatico. He is a Republican.

    Again, the only way to argue a different theory is to start with the a priori religious dogma that Obama means well and cares about the people, and then seek to explain why his actions always contradict this.

    But as we’ve seen, no such “theory” is even remotely able to explain the evidence so well as the simple induction that he’s really a corporatist criminal. Same for the Democratic Party as a whole. Let the evidence lead you there, and then deduce from that, and you’ll find that everything becomes crystal clear.

    By now the only obstacle to this realization is sheer flat-earth pro-Democrat tribalism.

  35. At his press conference, I saw a petulent whiney who must know that he is unable to follow through on his campagn promiseses. In short he is unable to do his job and had capitualted to the opposition. I contend this is due to his unablility to do the right thing. He has the veto and the majoriites in the House and Senate to frame the issue. He chooses not to do that

    So one must ask the question, is he in over his head, is he inept or is he corrupt. In the end, the result is still the same. He has kicked the can down the road

  36. I missed that part. How obscene.

    The health racket bailout crafted by the Republicans (the Heritage Foundation via Romneycare) and enacted by the Democrats will never control costs and was never intended to do so.

    It was:

    1. A bailout for the insurance rackets, who in spite of the antitrust exemption which protects them from market competition, were increasingly unable to compete with rational non-participation.

    So the bill is a radical command economy measure to create a forced market with only one willing participant.

    It does nothing to control costs and isn’t meant to. On the contrary, it’s meant to use the government goon power to extort those costs from the people so the insurance rents can continue to exist at all.

    2. It’s an austerity bill whose goal is to absolve private employers of responsibility for health “insurance” and drive people as atomized individuals into the individual “market”. Government gets to continue abdicating its core-function responsibility to provide Single Payer.

    As even the MSM (like the NYT) has been documenting, this process of corporate exemptions, insurer concession takebacks, and setting up individuals to be driven into individual market, has been gathering momentum all year.

    So here again, the bill will not control costs and was not intended to. Like every austerity bill, it’s meant to shift them from corporations to the individual.

    This is exactly the outcome Obama wanted, as all the evidence of his state legislative career (where he was already a champion of the insurance rackets) to the present day proves.

  37. James,

    Like you I’m disgusted by the way Obama has handled the Republicans from day 1. Like a few commenters here I get asked by people how I know so much about this stuff I try and point them to Blogs and books like your’s and Simon’s but alas I fear with little successes. Most Americans demand simple answers to complex questions and for that reason alone I have little hope for the future of this country.

  38. Contrary to the beliefs of the Tea Party, money doesn’t just get eaten by a big monster when it goes to the IRS. It gets spent on stuff that ordinary people want and need.

    I’d like a citation to the research that supports this hypothesis.

    Sure, the government is inefficient at spending money.

    Oh, wait, never mind. You don’t believe your hypothesis either. Maybe you should have edited out the first statment if you’re going to immediately follow it with a statement that completely negates it. Or perhaps they don’t teach that at Yale.

  39. The extra dollars you have in your pocket have to be paid for somehow.

    The extra dollars. That I have in my pocket. That I earned. That you are allowing me to keep. Because you’re so beneficent. And magnanamous. Because you get to dictate precisely what everyone should keep in their pockets. Because you know best.
    And yet you have no idea why this attitude upsets people.

  40. If you think there is no inertia in Congressional politics, then you are right. But it’s much harder to increase taxes than to cut taxes. Here we had a chance to go back to the pre-Bush taxes without having to get sixty votes in the Senate. Every time you extend a tax break, it becomes harder to eliminate. Consider the AMT.

  41. Reconciliation won’t work under Congressional rules. Ezra Klein wrote a post about this.

    Where do you get seven million from? According to Wikipedia (I know, not 100% accurate), when extended benefits ran out in June, that affected 2.3 million people. Of course, 2.3 million is still a lot.

    What would I say? If I were a politician, I would put extended unemployment benefits to a vote on its own and then blame the Republicans for blocking it.

    What do I really think? The fact that unemployment benefits end at 26 weeks has always been the problem. We should have a real social safety net that covers people regardless of the duration of unemployment. Some people, for example, just don’t have the skills to get jobs. What are they supposed to do, starve?

    But we have the system we have. And the difference between the tax deal and no tax deal is extended benefits, for about 2 million households, for thirteen months. After that, we go back to the cruel 26-week system, although the economy will be little better then than now. (Remember, most of the “stimulus” in this package simply replaces tax cuts that were due to expire–so this falls into the “not making things worse” category, not the “making things better” category.) So yes, that is additional pain for the next thirteen months. But when you weigh that against 2 percent of GDP, forever, that can be used to fund entitlement programs, I think the answer is pretty clear.

  42. There’s a difference between health care reform and tax extensions. Taxes are hard to increase; the more times you extend a given tax cut, the harder it gets to repeal. Look at the AMT.

    Entitlements also have a one-way ratchet. Ordinarily, it is very hard to reduce entitlements. Republicans have been trying for decades and failing. This is the difference between health care and taxes.

    Besides, this isn’t about the issue of compromise or no compromise. It’s about the relative value of the outcomes. With health care, I think the deal he got was better than no deal. In this case, I think no deal is better than the deal he got. The “difference” in my positions is based on the substance, not on the question of whether to compromise or not.

  43. You’re right, for 2010 the top tax bracket begins at $373,000 and change, not $250,000. To be honest, when Barack Obama says “$250,000,” I don’t know whether he means 2010 dollars or he means the line in the Code that says “$250,000.” If he means the line in the Code, then of course the situation is much worse.

  44. Do you want national security? Or the interstate highway system? Or someone to test your water to make sure it doesn’t have e. coli bacteria? Or information about the spread of the swine flue virus? Or a reasonably stable currency?

    Do you really need a citation to point out the existence of the U.S. Armed Forces?

  45. Conversely, you have no idea why your attitude upsets people. Your ability to earn money is predicated on the existence of government. Imagine a modern society with no government. No national security, no local security, no court system to enforce contracts, no stable currency to serve as a medium of exchange, . . . It’s literally impossible to have a modern capitalist economy without the existence of government. You cannot earn money without the existence of government.

    Now, there are valid debates to have about how big government should be, what it should do, where it is more or less efficient than the private sector, etc. But the idea that you have an absolute right to the money you earn, independent of the existence of government, is utter nonsense.

  46. Kinda weak sauce going anonymous, I agree, but I’m getting very close to feeling that Obama doesn’t deserve this liberal’s support. What did he deliver?

    Health Care reform that’s only going to make the fundamentals worse because he brought more people into the system (good) without dealing with cost (really, really bad).

    Banking reform? Oh wait. He didn’t do that.

    Giveaways to the rich? Well… he kept getting support to the banks while they were stumbling, didn’t make any of them take the serious haircut they needed. Giveaway to the rich #1.

    Tax cut extension? Giveaway to the rich #2.

    Climate Change? he sat that one out. Arguably because he was working on healthcare reform. Tho… he didn’t actually WORK on healthcare reform. He sat on the sidelines to see what the Congress brought him. And because he was on the sidelines what they bought him was crap. So he could have done real work on Climate Change while he waited for the inevitable health reform dreck to come.

    President Obama has been extremely disappointing. In part because the American people are so disappointing — don’t get me wrong, but he has been really, really disappointing.

  47. You beat me to it, Carla! I still like the way does it: if you don’t give a name, your moniker is “Anonymous Coward”.

  48. Dear Blunt: You do not have any dollars at all. You have federal reserve notes in your pocket and electronic entries in your name at the bank.

    Everything the ideologues and our politicians refer to as “money” and “the financial system” is just fake.

    In her piece entitled “Real Economies and the Illusions of Abstraction,” Hazel Henderson addresses “The yawning gap between the real world and the discipline and profession of economics…”

    You can find it at

  49. The point is not that I (or anyone else) have an absolute right to anything. The point is about who should dictate where the money goes and how it gets spent. Many libertarian-leaning conservatives chafe at the idea that a single entity is better allocating scarce resources than the collective actions of the many.
    Government is necessary. Conservatives, more than anyone else, should understand the need for insurance. Government is insurance for the ability to earn money and accumulate wealth. I understand this completely.
    Where we will differ, is the extent of government. It gets all of its power from the consent of the governed. It has no rights beyond this. We earn the money. Then we send it to the government. Therefore, the goverment decides how much it needs to take from us. Your sentence belies the opposite attitude. That the money was never ours. and the government decides how much of it we get to spend. I object to that attitude, because it vests too much power in an already corrupt and corruptable edifice.

  50. Yes it’s true that 66% of American voters preferred extending the cuts. 66% of American voters also preferred extending unemployment insurance. A majority also want to keep Social Security the same, expand Medicare, keeps spending the same of Defense, Keep the boarders secure, maintain the FBI and ATF, the National Parks Service, the EPA, and every single other thing governement does except perhaps for the less than 1% that goes to foriegn aid.

    This is why we don’t have direct democracy. I want to pay no taxes, yet get Social Security and Medicare when I retire and unemployment insurance if I’m laid off, and James wants a pony. We can’t have all those things anymore, but we’ll keep trying until the whole thing collapses.

  51. I like scathew’s response to your question:

    I’m with that ol’ “communist” Ben Franklin:

    ” The Remissness of our People in Paying Taxes is highly blameable; the Unwillingness to pay them is still more so. I see, in some Resolutions of Town Meetings, a Remonstrance against giving Congress a Power to take, as they call it, the People’s Money out of their Pockets, tho’ only to pay the Interest and Principal of Debts duly contracted. They seem to mistake the Point. Money, justly due from the People, is their Creditors’ Money, and no longer the Money of the People, who, if they withold it, should be compell’d to pay by some Law.

    All Property, indeed, except the Savage’s temporary Cabin, his Bow, his Matchcoat, and other little Acquisitions, absolutely necessary for his Subsistence, seems to me to be the Creature of public Convention. Hence the Public has the Right of Regulating Descents, and all other Conveyances of Property, and even of limiting the Quantity and the Uses of it. All the Property that is necessary to a Man, for the Conservation of the Individual and the Propagation of the Species, is his natural Right, which none can justly deprive him of: But all Property superfluous to such purposes is the Property of the Publick, who, by their Laws, have created it, and who may therefore by other Laws dispose of it, whenever the Welfare of the Publick shall demand such Disposition. He that does not like civil Society on these Terms, let him retire and live among Savages. He can have no right to the benefits of Society, who will not pay his Club towards the Support of it.”

  52. Your hypothisis is that the money doesn’t get eaten by a big monster. Getting eaten by a big monster would be wasteful. Therefore, we must infer that all of it gets spent on stuff that people need. Your hypothisis is that the goverment doesn’t waste money.

    Then you follow that assertion with a statement saying that the government does waste money. Which is it, James? Is the goverment efficient, or not?

  53. Mr. Kwak, we don’t have to imagine a modern society with no government. Somalia seems to be a living breathing example of this. Mr. Instrument, if you moved there, you would certainly pay less taxes there, but do you think you would earn as many dollars? It’s all about how hard you work, right?

    Our government does a lot of things I don’t like. I’ll put it at about 50% like, 50% dislike (I have some radical views about what the government should and shouldn’t do). Does that seem inefficient? I would describe it in another way.

    I am damn proud of the 50% of my government that I agree with. I am also positive that many people are just as proud about some of the things I disagree with. But the other thing I am proud of is a functioning democracy in the most ethnically diverse nation in the world. So, I don’t mind paying for things that other people want, even if I don’t want them. So we can each run a “government” of one person that we only pay for and get exactly what we want or we can accept that we all have a vote and the government we have is exactly the government the majority of people want. (Right now that seems to mean we want our representatives to offset every tax cut with equal dollars in increased spending).

    Then we can argue about how big the government should be and what it should do. But we can’t have this discussion until you agree that you are going to turn over some money, proudly, with a sense of shared sacrifice, knowing that it will not be spent 100% on your pet projects.

  54. Right now that seems to mean we want our representatives to offset every tax cut with equal dollars in increased spending

    Unfortunately, we will continue to get the government we want and deserve until we have the guts to hold our politicians accountable. Our short-sightedness will be our undoing.

  55. But the core of the strategy is that if you cut taxes at every possible opportunity, eventually you will force the government into a crisis where something has to give

    James, you are assuming that there is a strategy at play beyond “get and stay elected.”

    Sadly, I no longer believe that to be true.

    Both sides understand that they can get what they want without taking any immediate hits that would damage them come election time. Republicans get lower taxes. Democrats get increased spending. We get the shaft. Neither side is wedded to their principles enough to risk getting voted out of office. And so, we will continue to run massive deficits until we enter a crisis and are forced to end this game. Both sides are bargaining that they can kick the can down the road to the next guy.

    This isn’t Liberals vs. Conservatives; Republicans vs. Democrats. This is elected leaders vs. ordinary people. We expect them to act in our interest. All of their actions suggest that they act in their individual self-interest. Markets can function efficiently when each party acts in their own self-interest. I’m not sure the same can be said of government. We are about to find out. for better or worse.

  56. “Some people, for example, just don’t have the skills to get jobs. What are they supposed to do, starve?”

    We could always bring back slavery…

    Oops, did I let the cat out of the bag?

  57. “We earn the money.”

    Actually, to some quite large extent, no.

    10–20% of the GDP is land rent. Economists since Ricardo have understood that rent is never earned; as Mill put it, landowners profit while in their sleep.

    Re your argument about government and earnings, it’s worse: government grants title to private parties which allows them to collect this rent by reducing the liberty of others. (Since they’re no longer able to use the land, which the landowner neither created nor, as a landowner per se, added any value to.)

    Of course, collectivism won’t work, so the solution—which is both just and actually economically efficient—is to tax land values heavily.

    Not to mention all the other parasitic rent-collection going on in the economic. Exhibit (a): enormous Wall St bonuses, in the aftermath of the same actors’ having nearly destroyed the world economy.

  58. “Markets can function efficiently when each party acts in their own self-interest. I’m not sure the same can be said of government.”

    LOL! You’re saying this in the aftermath of one of the biggest market meltdowns in history!

    Furthermore, unlike many cases (in which market do actually work), in this case individuals’ self-interest was directly opposed to society’s interest.

    Finally, if you don’t understand that no government = no market, you’re beyond help.

  59. Good, but I think Paine is better: “Men did not make the earth…. It is the value of the improvement only, and not the earth itself, that is individual property…. Every proprietor owes to the community a ground rent for the land which he holds.”

    Or Mill: “The ordinary progress of a society which increases in wealth is at all times tending to augment the incomes of landlords; to give them both a greater amount and a greater proportion of the wealth of the community, independently of any trouble or outlay incurred by themselves. They grow richer, as it were in their sleep, without working, risking or economizing. What claim have they, on the general principle of social justice, to this accession of riches? In what would they have been wronged if society had, from the beginning, reserve the right of taxing the spontaneous increase of rent, to the highest amount required by financial exigencies?”

  60. James K you seem to be taking a hiatus from your studies. Can you remember the name or author of the book your recommended that makes statistics easier for the rest of us to understand? Thanks yarrow.

  61. “How do the Republicans reconcile their tax-cut actions with their anti-deficit rhetoric?”

    There is no need to reconcile the two; it is obvious that, in the US today, talking out both sides of your mouth gets you twice as many votes.

  62. I think ole’ Ben also said something about taxes being not more than than one part in ten. I wonder what he would think of our current rates of taxation? Oh wait, I think I can guess:

    “…Hence, as all history informs us, there has been in every state and kingdom a constant kind of warfare between the governing and the governed; the one striving to obtain more for its support, and the other to pay less. And this has alone occasioned great convulsions, actual civil wars, ending either in dethroning of the princes or enslaving of the people.
    Generally, indeed, the ruling power carries its point, and we see the revenues of princes constantly increasing, and we see that they are never satisfied, but always in want of more. The more the people are discontented with the oppression of taxes, the greater need the prince has of money to distribute among his partizans, and pay the troops that are to suppress all resistance, and enable him to plunder at pleasure. There is scarce a king in a hundred who would not, if he could, follow the example of Pharaoh—get first all the people’s money, then all their lands, and then make them and their children servants for ever…”

  63. Liberal,
    Do you have a response to my point concerning politicians being the problem, or would you prefer to continue beating on that straw man you’ve constructed?

    P.S. See my comment at 11:32am (above) regarding the necessity of government.

  64. Let’s have some number fun. This took way too long to gather the info and I am sure there are errors here, but it is meant to give people an idea of the middle class. I had to do a similar paper years ago and we then had to defend were we thought the most value in tax revenue should begin based on amount spent vs. taxes paid (it was an anti – trickle down lesson. If I was to guess looking at this data for 2008 an income of 100,000+ would be the optimal place to start increasing taxes. It is based on the amount of money put back into the economy by the wage earners expenses, a butterfly effect if you will where college tuition for children, daycare, etc, and what was a average mean house price of 220,000, etc. becomes a multiplier in job creation over taxes paid. It was to look at why deductions are good if we want to promote certain values like home ownership. If these deductions were not here then we would need to drop income taxes for this group to about 4% or lower — not including SSI and Medicare – to have the same spending effect. This is a snap shot for 2008 – the recession adds too many problems I do not have time to address.

    This example comes from a typical family of four with two children in school. This family makes what was before this recession an average mean income of about 73,000. They are still paying on one student loan as one parent went back for a career change and is able to deduct 1,000 in interest bringing them down to 72,000 before tax credits. They paid 7,500 in state and local taxes plus property tax on their home. Dropping take home pay to 64,500. They had 4,000 in medical expenses before insurance paid and since they had insurance and they had one son injured playing football the school insurance did not pick-up any of the medical bills. Due to the amount of income they have, they do not get to take the medical deduction, but it dropped income to 60,500. Having teenage sons they felt it was time to buy a house with interest at 7% and as this is their first year paying they took a 11,200 deduction. They make a charitable contribution to the alumni association at 100 each for 200 total. Using schedule A they had 18,900 in deductions with an additional 14,000 in exemptions claimed. They paid 8,000 in federal income taxes and 6,000 in SSI and Medicare dropping income to 50,500. This person puts extra money away for retirement in a matching 401K, which is not taxed, but pulls more money out of Medicare and SSI payments. They receive extra credits for child tax and get back in taxes mostly because of their interest payments this year about 5,000. This money will be saved for their sons’ college education fund, but brings state taxed income up to 55,500 with no over payments in state taxes.

    If we put back in the interest payments, this family has about in take home wages 66,709. If they bought a house at 30% of income with the student loan factored in, the house and student loan payments should not exceed 20,013 annually of this amount 4272 is student loan dropping income to 46,696 assuming no other debt in that 30%, Medical dropped them to 42,696 if you add food USDA’s estimate for a moderate diet of a family of 4 with two teen boys for 11,406, insurance (house and car with teen drivers about 3,600), utilities (family cell plan, home phone, cable, electric, heating, internet, garbage, water for about 5,600/year and that is figuring a lower electric bill of 100/month averaged), gas for cars (one tank every two weeks at about 32/fill-up 1664), 7% of total income going to retirement 5110, an additional 3% for emergency savings 2190, Medical, dental and vision insurance 1820, 1760 average spent on clothing for a family in 2007, etc. that leaves 9546 for vacations, books and newspapers, holidays, teen sports, and I have left out a family car payment of 4600 for 23,000 car at 0% interest for 5 years, which drops this family to about 5,000 for the family vacation and other things mentioned. Is it a comfortable life? I cannot say. But it does not include a family pet, and the house, which would be about 160,000 with property taxes figured in for a Midwest town and the property taxes might even be low. I do not know about where you live, but in 2008 a 160,000 home was not new and in most cases would have eaten up the extra money on repairs. I have left out personal hygiene supplies, haircuts, dry-cleaning, laundry costs, carpet cleaning, gas for mowing, oil changes, and I am sure other things. But if you take away the family interest payment deduction, which gave them 5,000 more to spend on the economy who gains more — The government or the economy?

    I want to make this clear for those who like to make these things personal and then argue about the colour of the sky, this is not me above, but an example of a paper I had to write in college to find the optimal point at which taxes reduced expenditures in an average family and how deductions helped to create a desired life style based on government programs and public perception. There may be some errors as I did this rather quickly

  65. From the book “AN AUTISTIC WORLD (2)”

    A tax cut is not more than a loan to society. Sooner or later someone has to pay the interest, ether with time, value, or people.

  66. Well, you can lower rates to offset the tax hit of no longer having the mortgage interest deduction any longer, true. But how do you compensate homeowners for the inevitable reduction in the value of their houses?

    In any event, because I do in fact despise the skewing of capital to nonproductive housing, I would like to see this worked out over time.

  67. Sorry, Mr. Kwak, it’s worse than that.

    Doesn’t anyone else see the 2% Social Security “tax holiday”(wheee!) as another nail in the coffin of Social Security?
    What are the odds of a Republican House restoring that 2% payroll tax FOR Soc-Sec back in 2012? Are you kidding?
    In this case, Obama has bought into a “Starve-the-Social-Security-beast” GOP strategy!! OUCH!

  68. Along the same lines, the great epitaph on the 2008 crash (and “free” market dogma) comes from none other than Alan Greenspan, testifying before Congress:

    “I never dreamed that bankers would do such a poor job of safeguarding their depositors’ assets.”

    If only “Free-Market” dogma would R.I.P. — it’s been slain so many times (Reagan, Bush, etc etc) — but it refuses to DIE!

  69. Exactly!
    Repubs try to hold the unemployed hostage?
    The story line was in place – has been for 150 years:
    “GOP plays Scrooge at Christmas!”

    That’s what Obama gave away!

  70. @ Steve13565___Sleepy-Time came early last night. I was to busy reading-up, and writing that I forgot to watch the “Tele” – isn’t Rachel the Best!
    PS. Thanks for the link :-))

  71. Brenda, I read your analysis with a great deal of interest.

    I am a corporate retiree and much of what you list does not apply to me. Yet, it certainly points out how things have changed over the past 25 years or so.

    Sometimes I do feel that I am of a dying breed with an old style pension, retiree health care plus drawing top of the scale on social security. And that doesn’t include my (then 401k, now) IRA (currently in long-term CDs – put there before the crash a couple of years ago). Today, even at my old company, the pension plan is frozen (and has been for 5 years) and retiree health care dropped for anyone retiring in the past 3 years. Plus no current company match on 401Ks.

    It seems to me that employees today are truly getting the short end of the stick. Both in pay and benefits as well as in housing. And your analysis does nothing but to reinforce that idea. At least it does in my mind.

  72. Thanks, James, and several readers also, for very interesting posts!

    I would like to float a few related points.

    First, the White House is making much of the notion that “this was the best deal we could get.” Isn’t it true though that the Democrats could have passed (and could still pass) their own tax bill through reconciliation, ie, requiring only 51 votes in the Senate? My understanding is that the Bush tax cuts were passed this way in the first place, so what could be more natural than to renew them, with slight modifications, using the same procedure? (The slight modification being to revoke them in the top bracket.)

    Second, does anyone doubt that the Democrats would have gained politically by fighting against the millionaire’s tax cut prior to the mid-terms? Even Obama, in his press conference about the tax deal, admitted that it would “make good politics” to fight the Republicans on this issue, but sadly the country has no time for a protracted political battle. Having the country’s interests at heart, he has to forego the fight. This strikes me as remarkably disingenuous, since nothing stopped his party from having the battle earlier.

    Both of these are key arguments, and both appear specious.

    Progressive criticism of the President’s deal tends to focus on one or more of three assumptions: (1) that Obama has no courage, (2) that he has bad advisers, (3) that he is just not very good at negotiating. My proposition is that all three of these are quite wrong. There are some very skilled and smart operators at the top of the Democratic party and in the White House. They have access to the very best advisers and negotiators in the country and are no less insightful on policy issues than any random bunch of bloggers such as ourselves. Instead of assuming that they didn’t see or couldn’t face the obvious, we need to discuss whether the tax deal that occurred might have been precisely the Democratic Party’s and the White House’s desired outcome.

    If you humor me for just a moment, it is not hard to imagine a reason why the Democrats might wish to extend tax breaks to the rich, as well as to pass a new, lower estate tax. Namely, to shore up their atrocious relations recently with Wall Street.

    Obama was by far the preferred candidate of the financial industry in 2008, in part because of the Republican rank and file’s opposition to TARP. This was not an inconsiderable factor in his election. Recently it has changed very drastically, and in the mid-terms the Republicans raised a multiple of the amount the Democrats could get from this donor group. I can add that the tone of the hedge fund and other high net worth newsletters has shifted as well, growing rabidly anti-Obama over the past year or so. You don’t need to be a conspiracy theorist to wonder whether the Democratic leadership might be looking for measures to get these people, at least the persuadable among them, back on board.

    Any thoughts?

  73. Sigh… The “free-market” straw man rears his ugly head again. I always forget about the virulent anti-market sentiment on this thread.

    It is not necessary to be so black and white about this issue. The question is not whether we should have totally free markets without government interference or whether we should have state control of the means of production. We can have something in between that works.

    We did not have completely “free-markets” in 2008 when the crash occurred. Therefore, the crash could not be an indictment of free-markets.
    The truth is that congress and the bankers conspired to give the bankers a “heads they win, tails we lose” outcome. Congress gave them the incentive and ability to become too big to fail. Congress all but promised them bailouts. Congress gave them taxpayer money without real negative consequences when they did fail. No indictment of the actions of wall street should be independent of the actions of their compatriots in Washington.

  74. I knew the Dems would block it, and Obama knew it too. It was all strategy! Obama knows what he’s doing and he’s doing it better than anybody, he’s smarter better and more awesome than any other president ever!

  75. Re: @ Blunt Instrument___”heads they win, tails we lose” which says explicitly to me that America needs to independently finance the political candidates. Impossible? I don’t think so…free Markets are wonderful (we’re wonderful?) except they’re now (maybe always?) run by this opaque and finely tuned clandestine cult called, “The Private Banks” which make up the “Central Banks of the World”, or as I say almost putridly, “The Bank of International Settlements (BIS)” which by the way is the “Central Bank of Central Banks”, this pack of ghoulish necrophilliacs! Their meaning of “Free” has multiple meanings depending on which side of the ledger you’re pressed upon? It’s their money that puts in place every political hack in our (not just limited to U.S?) country? Now you said, “congress gave them taxpayer money”? Wrong! It was the “Private Banks” via “BIS” that gave them our money. You see my dear friend, if a candidate wants to get elected/re-elected in America, “The Free Capitalist Market” of the “free (?) world” the game is/has to be rigged/fixed. These politician are bought and paid for by big money, period! Sold like ground beef when they don’t tow-the-line. So when you or anyone wants to run for political office in this “God” foresakened country today, you are already bought and paid for by a litany of masters. So don’t blame the politicians, for if they really speak bluntly and honestly they’re fate is sealed? Change will only come when we take all special interest, and corporate influence out of the political election process, and the odds of that happening are minimal to say the least. Please don’t blame the public for not trying, but blame the oligarchy’s running this, “World and Country” called the “Federal Reserve Banking System [s]”? Now you can stop…signing :-)

  76. Re: @ earle,florida:
    You are correct that there is far too much influence of politics by moneyed institutions and other wealthy interest. But you lost me at “don’t blame the politicians”.

    No one has forced them to want to run for office. The do it willingly and of their own volition. Therefore, they are responsible for their actions. They are unlike their masters in that they have chosen to undertake PUBLIC office. Therefore, they take an oathe to put OUR interests ahead of theirs. Period. I understand that, practically speaking, this makes it difficult, if not impossible, to actually get elected and do anything of consequence in today’s washington (or state office, or large city). However, don’t for a moment tell me that this absolves them of their responsibility to ACT IN OUR INTERESTS. If they don’t want to live up to this oath, don’t undertake the office. PERIOD.

    Of course, in practice, politics is primarily composed of narcissists who care only for themselves and will do anything necessary to secure and retain power. But we can dream…

  77. I like where you are going with this Blunt Instrument, but I don’t like the implications of dreaming that politicians (or any human being) will act in any other than their own self interest. In fact, I don’t think our system expects them to….this is the reason we have elections. It is up to us the voting/ruling class to continuously analyze the decisions made by our representatives.

    I think there is a possibility for politicians to act in their own self interest and the interest of the polity at the same time. They are not always in conflict. I’m talking about “honest politicians”, which I admit, my be my own unrealistic dream. :-)

    Some politicians get satisfaction merely out of winning the popularity contest or merely out of getting paid over $100,000/year to enact the will of the people, and be effective legislators and/or bureaucrat types. If that is their self-interest, then we have a win/win situation, and they will seek to enact the will of the majority. It is only when the self-interest of the politician is at odds with the will of the majority, that we should throw them out of office. Merely acting in their own self-interest is not in and of itself a bad thing, it depends what their interest is.

  78. @ Calvin wrote:
    I don’t like the implications of dreaming that politicians (or any human being) will act in any other than their own self interest.

    People can and do act in ways other than their own self interest. They put themselves in harms way to save others from peril. They make small sacrifices so that the needs of the many will prevail. It is what we call courage. It is what we call leadership. It is what we used to call adulthood.
    Sadly we want to rationalize the behavior of spoiled 5 year olds so that we too can behave like 5 year olds. We all want ponys. But part of being an adult is to understand that our interests cannot always be preeminant.

    Politicians serve a “term of office.” This term can be as little as 2 years. Is it too much to ask for someone to put the interests of the citizens that they swore an oath to serve ahead of their own interests for that brief period of time? When they leave, they can go back to being the narcissistic, spoiled, self-interested 5 year old that they are. But for 2 years, be an adult.

    Unfortunately, congress has conspired, and we have willfully accepted, a system that keeps these people in office for far longer then 2 years regardless of their actions. We all need to accept responsibility for allowing government to run amock. Then we need to vote them all out of office and try again.

  79. Your exaggerations are not convincing, not on this planet.
    If you have not seen free-market dogma trumpeted loudly by the right for the last 10 years (not absolute of course, but all running in that direction), you need to get out more. “The market decides what’s best; govt only gets in the way” is the way it’s usually said. — Market = as free a market as we can get.
    So Bush appointed do-nothings to the SEC & FEMA, and since the Clinton years Congress has gutted financial regulation. The Obama financial-reform regulation needed to simply make “too big to fail” obsolete. It didn’t. In lieu of restraints on creative greed (CDOS etc) more bailouts will be “necessary” – hopefully this time with requirements that in return they loan to local banks and businesses that create jobs. “Business creates all the wealth in this country” gets ever more laughable.

  80. @ JohnB wrote
    Your exaggerations are not convincing, not on this planet.

    Please be more specific. I couldn’t tell from your context exactly to what you are objecting.

    If you just want an excuse to launch a diatribe against Republicans, fine. But if you want to debate my point that congress (BOTH sides: I’m completely non-partisan when it comes to that particular body) was compliant in this mess, you’ll need to do more than this.

    Market = as free as we can get No. Not by a long shot. Free also means “Free to fail.” As in no implied or actual promises of bailouts. No protection of assets. No protection from bankruptcy. No protection from lawsuits by clients to recover ill-begotten gains. Rights balanced with Responsibility. My definition of “free” markets is different than yours.

    @ Calvin:
    I also “think there is a possibility for politicians to act in their own self interest and the interest of the polity at the same time.” However that self interest must be limited to principles and values. NOT financial self interest.

  81. @ Blunt Instruments___”The road to hell was/is paved with good intentions”! Should we stop living? Should we stop acting upon our conscious for change? Should we capituate at the first signs of adversity? Believe it or not, mankind and the evolution of adaptability were predicated on risk (to put too much thought into thought will walk you in circles, a fool’s quest?) taken for better or worse. Why? Simply to survive. The evolutions of collective societies have shown us time-in and time-out that the process of collective thought works best when a system is free from prejudice at inception. Today’s example – no jobs in america, but every other college graduate seems to gravitate into the legal system. Why? We’ve turned into a “no-common-sense-country”, for that I mean, we are told/given, subliminally messages and scripted news – desensitized bombardments of nothingness (CNN/FOX)- gibberishly fornicating subculture-sustenance, surviving on a steady diet of oligarch propaganda. Why are “Term Limits” a 4-letter word or gerry-mandering/redistricting frowned upon in the land of the free. Being a politician in the past you needed a really thick skin. Today, all that is needed, is money and the willingness to play the game and sell your soul? What we have here is a system that obliges too cooperate on a whim, pathetic! The ole rotten apple in the barrel that has soiled/spoiled all that are of salvation, has now become the inverse ironically? Today the barrel is fisrt filled with rotten apples to the core and then the good apples are added unsuspecting into the treacherous motif? For shame that a good
    man/woman be labelled a sinner because of thy neighbor?

    “slanted glitters of frought misgivings now invaluable
    give me only half hearted whispers of past imbroglio despairs
    should I cover thy self pity with a parlance of remorse
    with waterdowned tears feigning a watery depth drowing in nascent bliss
    the skin of mother earth whilst finding shelter under her skirted ambient waterfall
    that somberly cries misty wet dewdrops of ubiguitiously acceptance
    resonance of pastoral baptism
    so it begs the question of ages
    is life nothing more than endearment of vanity or does being ones deliberator mark the existence of a more profound external force
    being that of all evolutions creation within”

    Just take it for what it’s not into it? :-))

  82. @ Blunt Instrument —
    Your exaggerations as in:
    “Sigh… The “free-market” straw man rears his ugly head again. I always forget about the virulent anti-market sentiment on this thread.

    “It is not necessary to be so black and white about this issue. . . .
    “We did not have completely “free-markets” in 2008 when the crash occurred. Therefore, the crash could not be an indictment of free-markets.”

    I didn’t invent your “straw-man” — The so-called “free market”[always good, the freer the better] is the Conservative myth and shibboleth. Not necessarily Republican — Robert Rubin, Tim Geithner and Larry Summers also have a lot to answer for in supporting de-regulation including the repeal of Glass Steagall (1999) that helped bring on this mess — Greenspan’s lament was inconceivable during the victory days of Reaganism (aka voodoo economics.) when free markets were pure good in their eyes.

    Of course we should not be black-and white about govt and private enterprise — the US has been a constructive mixture of the two since the Massachusetts Bay Company (1630) and the Erie Canal (ca 1825) and the 19c Trans-Cont RRs.

    Your simple proposition that govt & banks were both involved in the crash — therefore “the crash could not be an indictment of free-markets.” is illogical — there is plenty of blame to go around. The mistake is to try to reduce it to one culprit — “this guy was not wholly responsible, therefore he’s innocent” — that’s not the real world, where big events are normally the result of a number of causes converging.
    But our demagogery keeps coming back to “capitalism made the US great” and govt is always a mistake — is just wrong, ahistorical and delusionist. —

    Free-to fail? No Bail-outs? — OK, did you want another Great Depression (Freeze-up of financial system) and the evacuation of Detroit? No, the bailouts were necessary – but they should have included 1. bringing back Glass-Steaqgall (separation between deposits & stock-trading), AND 2. preventing banks from being too big to fail in thefuture. Not doing that was a big mistake.

  83. Liberal and you created the free-market straw man. by definition. My original point in my post (12/9@12:44pm) was that congress should not be acting in their own self interest but in our interest. My line about markets was to juxtapose against congress. Liberal and you seized on that line to begin a diatribe against free markets. Thus creating a straw man argument. Perhaps you should understand what a “straw man” argument is before you try and argue about it.

    “big events are normally the result of a number of causes converging.”
    Exactly. Which is why it’s illogical to blame free markets as the cause of the crash. There were other actors at play – including congress. Thank you for making my point.

    “Free-to fail? No Bail-outs?”
    No Bail-outs. FDIC takes over the banks, liquidates the shareholders and sells off the assets. Management gets canned and loses all of their equity. ala Sweden.

    I’m leaning toward you on #1 but not quite there yet. I need to do more reading before I’m convinced.
    I’m agreed on #2, but not sure what is the best way to implement. I’m sure that I’m not alone.

  84. “Tho…he didn’t actually WORK on healthcare reform.”

    I have to quibble a little with that. Actually, our President worked very hard to make sure that insurance companies and big pharma crafted the healthcare so-called reform. And he worked equally hard to make sure that single-payer national healthcare was not permitted to even sit at the table. So let’s give credit where credit is due.

    That said, BradyDale, I certainly share your disappointment.

  85. @Blunt Instrument wrote”

    “People can and do act in ways other than their own self interest….”

    Very good point. And, now that we have a conversation going, I think I see better what you meant by dreaming that they would do this (act like adults/leaders/etc.). You are totally right, it is not too much to ask them to do this for their term in office, nor to dream that more of them will, as long as we know what to do when they don’t, which is, as you say, “…accept responsibility for allowing government to run amock. Then we need to vote them all out of office and try again.”

    I hear so many people passively bleating like sheep about how bad the government is, I read into your statement an abdication of your responsibility in the matter. My apologies.

    May I add to this following comment?
    “However that self interest must be limited to principles and values. NOT financial self interest.”

    I agree. Too bad our system is so far from that….financial gain is so baked into the system, that even just their salary, the part that is legal, in the open, paid by tax dollars, and apparently accepted by the public puts them at the 93rd* percentile of incomes ($162,100* + health care). So, from day one, if there was someone elected to our “citizen government”, who was in the middle of the income distribution, $44,000*, they would be looking at more than a tripling of their pay to do this job. Plus healthcare, plus pension. I’d say that’s a financial incentive without any impropriety…from the get-go, that would create a culture of elitism, and as time goes on, they start to get used to not having to worry about paying the bills and their idea of life’s problems starts to differ from that of the “lesser” 93%. Then you’ve got what is the more common case, it seems like most of the people in congress these days have been making that or more for years and have never had a glimpse of what life is like for the “lesser” 93%.

    And that’s just the starting point. Then you have Big Oil/Pharma/Labor/etc showering you with riches and promises of more riches for your next “campaign”.

    *2005 numbers used from:

  86. Edit: Not pension. Congresspeople have Social Security now, not pensions.

    Also, I left out “Big Finance” as one of the corrupting influences on politicians. And on an econ blog during/after a recession in which they were highly intertwined. Shame on me.

  87. Are you sure about that? I thought the Congresspeople participated in the fed retirement system plus social security. Even today.

  88. I agree. The Republicans would have waited until the last minute and caved. This needed to be done for no other reason than to prove that they will (confront the bully). It’s negotiation 101. The President doesn’t like conflict. He needs to grow a pair or let Madam Speaker do the work.

  89. @Calvin: “it seems like most of the people in congress these days have been making [Congressional salaries]or more for years and have never had a glimpse of what life is like for the “lesser” 93%.”

    Today, the Independent Senator from Vermont filibustered for 8-1/2 hours, trying to describe to the Senatorial elite what life is like for the “lesser” 93%. He was tremendous.

    Among a thousand other things, he mentioned one of the latest credit card “innovations”: a 79% interest rate on a card with a $300 credit limit. I don’t think that product is aimed at our legislators and their staffs.

    He read heart-rending letters sent to his office by Vermonters struggling to pay their heating bills in those long, bitter winters, and asking him if there wasn’t something their Senator could do to help.

    He pointed out that his constituents weren’t asking for the elimination of the estate tax, or for other tax breaks for the richest Americans. They’re just trying to stay warm and keep gas in the car so they can get to work.

    Senator Bernie Sanders is a hero. Those other Senators? For the most part, they should crawl back under the rock they came from.

  90. The salary is just the tip of the iceberg. Lobbyists spent $3.49 billion in 2009 on Congress and federal agencies. This amount has more than doubled in the last ten years. BOTH parties have been corrupted by this largesse. Their incentive is to further increase the size and power of government to further increase the amount that must be spent to buy their influence.
    Congress is like Vegas. They don’t care who wins or loses. They only care about getting the most action. In fact, it is to the benefit of congress if neither side wins nor loses. That way, both sides must continue to spend even more to purchase access and influence.

  91. Excellent article, thanks for sharing, Carla.

    Ms. Henderson wrote, “The new coalition is now visible: responsible and green investors and companies, environmentalists, Millennials, progressive labor unions and their pension funds, students, independent media and voters, systems thinkers, futurists and academics pioneering new courses in sustainability, as well as dispossessed homeowners, jobless workers, professionals and veterans eager to put their skills to work – all are ready to help grow the green economies of the future.”

    The coalition does not have an army. It doesn’t recognize and confront the depth of the ethical depravity that is the zombie “child” born out of this marriage – those who LOVE money wedding those who will do anything for the money.

    Too far gone, Carla. Read up on your USA Civil War history. And in less PC, melting-pot “civilizations” we “own” in our economic zone is this NEWS,

    “Across the country, and especially in northern Mexico, the breakdown of the legal system is giving way to a wave of vigilante violence. As Mexicans grow frustrated with the depredations of drug mafias and the corruption and incompetence of authorities, some are meting out punishment the old-fashioned way, taking an eye for eye, or in some cases, an eye for a tooth. Some of these retributive acts have happened spontaneously, such as the Ascencion “uprising,” as many here have celebrated it.”

  92. How much WORSE is it in the USA when the “legal system” is in OPEN warfare against “We the People”….

    “contracts” – indeed…Education gap, obviously, – quick fix – watch “The Merchant of Venice” – interesting take on the “abstraction” of “contracts”

  93. Carla,

    I’m not “against” the coalition, I’m just trying to correctly assess the “risks” :-)

    The FACTS are these:

    1. The coalition has no representation in a kleptocratic, schmononatic, or whatever it is that “government” is in D.C. – basically, you’ve got NO GOVERNMENT – the wet dream is “real” now.

    2. The coalition has no “army”. You’ve got an “army” of websites for which you PAY rent and that’s why “your comment is awaiting moderation” took out the free press.

    3. The coalition has no “free press”.

    4. The coalition has absolutely no legislature – go back to #1 for the genesis of that dis-ease…so you have no rule of law.

    5. And the coalition has no FIAT money.

    But, hey, who doesn’t like a good challenge?

    And creativity? Well, how about this as an idea for housing percolating among “displaced homeowners” – the Auschwitz Museum in Poland should consider getting into the global real estate game and SELL their assests – those very well maintained and well-built industrial brick barracks as condos – beats living in a toxic mobile home in Alabama…or paying rent for a place for cockroaches and bed bugs and rats to economically price the human out of the dilapidated industrial era brick “housing” that is 21st century USA “cities”…

    But you cannot avoid the ULTIMATE question – what did so many BELIEVE as a “principle” that brought “us” to “life as an abstraction” on Spaceship Earth?

  94. I don’t know for sure, maybe should have left it out, as it was not central to my point. Anyone know? Did the 1984 act that put congresspeople into social security remove all pensions for them?

  95. I don’t get why the discussion isn’t why the government has needed to more than double annual revenue collection since 1990 ($1.13T) to 2009 ($2.33T) and that isn’t enough. The popluation has not doubled in that time.The revenue run up began long before 9/11. Revenue increased almost a trillion a year by the time Clinton left office. Until recently, corporate tax collections were up over 100% vs. 2001. Individual income taxes are up ~$400-500B/year vs 1990. Even in 2009, a recession year.
    Class envy not withstanding, this country pays a LOT of tax of every kind -To even think that if we only had “someone else” pay more and our troubles will be over is just sophistic nonsense. We spend too much on “stuff” that we could do better on our own (Social Sec., Medicare) Entitlements are goodies we simply can’t afford.Their value is diminished through the prism of government. Put those on the table, and all the rest is discussable too.

  96. You can’t just pass the middle class tax cuts straightforwardly through reconciliation. For one thing, they aren’t deficit reducing, which under current rules bills passed under reconciliation must be.

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