Tag Archives: taxes

Who Cares About the National Debt?

By James Kwak

Not Greg Mankiw. Or, to be precise, not “Republicans.”

This past weekend Mankiw wrote a column for the Times laying out the arguments for a carbon tax. They are so well known and so obviously correct that I won’t bother repeating them. (A tradable permit system could work equally well, depending on how it is designed.)

In addition, many people think that the national debt is a serious long-term problem. A carbon tax (or a tradable permit system where permits are auctioned off) would obviously bring in revenue. In White House Burning, we estimated this at about 0.7–0.9 percent of GDP by the early 2020s (citing Metcalf, Stavins, and the CBO).

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Wealth Taxes? Don’t Hold Your Breath

By James Kwak

Tyler Cowen thinks that we are entering an age of debates over wealth taxes. If only.

It’s true, as Cowen notes, that national debt everywhere is a relatively small fraction of national wealth and that, therefore, “fiscal problems are best regarded as problems of dysfunctional governance.” One of our central arguments in White House Burning was that the United States obviously, easily has the ability to pay down the national debt, and how it will do so is basically a distributional issue.

Even if wealth taxes make sense, that doesn’t mean they will happen. Cowen claims that “Like the bank robber Willie Sutton, revenue-hungry governments go ‘where the money is.'” But all that is cleverly phrased is not true. Consider this chart from White House Burning:

Screen shot 2013-07-24 at 1.30.09 PM

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If Only

By James Kwak

Paul Krugman describes the battle lines this way:

“Democrats want to preserve the legacy of the New Deal and the Great Society — Social Security, Medicare and Medicaid — and add to them what every other advanced country has: a more or less universal guarantee of essential health care. Republicans want to roll all of that back, making room for drastically lower taxes on the wealthy.”

I think he’s right about the Republicans. But I don’t think he’s right about the Democrats.

If you want to preserve Social Security, Medicare, and Medicaid, in a world where the population is aging and health care costs are going up, then it’s obvious that your top priority should be higher tax revenues. Without a reasonable level of federal tax revenues, there’s no way we’ll be able to pay for those programs in the future.

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It’s Not That Complicated

By James Kwak

Of course the tax bill couldn’t have passed today, even if the two sides reached a compromise. Today it would have been a tax “increase.” Tomorrow it will be a tax “cut.” As my daughter would say, “Duh.”

Grover Norquist’s Taxpayer Protection Pledge will remain technically inviolate, which was not terribly hard to predict. And it will have done its most important work: making a small and obvious policy change—allowing moderately higher taxes for the rich—seem like an enormous, gut-wrenching concession by Republicans.

See you next year!

Rewriting History

By James Kwak

This morning Matt Yglesias wrote a post arguing that the December 2010 tax cut was an Obama victory. By the time this evening that I finally found time to figure out what annoyed me about it, I had to go to the second page of his blog to find it, since he had posted so much in the interim. That man sure can write.

I’m not so sure about his memory, though. Yglesias says Obama won because he got the (Bush) middle-class tax cuts extended along with some other goodies like a payroll tax cut and extended unemployment benefits, and all he had to give up was an extension of the (Bush) upper-income tax cuts. The reason people think it was not a good deal, he says, was that “to get a favorable deal Obama had to downplay the extent to which he hadn’t given anything up.”

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Grover Still Matters

By James Kwak

Last week I wrote a post arguing that Grover Norquist’s Taxpayer Protection Pledge is alive and well and still a binding constraint on Republican lawmakers. The media continue to push the story of Republicans renouncing the pledge, however, and who knows, I could turn out to be wrong. Maybe some Republicans will vote to reduce deductions without a compensating reduction in marginal rates.

Even in that world, however, the pledge will still have a major impact. All this focus on the pledge makes it seem as if the few apostates—Peter King, Lindsey Graham, etc.—are making some enormous, admirable stand on principle. In fact, all they are saying is that they might be willing to close a few loopholes and keep tax rates where George W. Bush left them; they are still adamantly opposed to increases in tax rates (even though those increases, set to take effect on January 1, are the result of Bush’s choosing to use reconciliation to pass his tax cuts).

The specter of the pledge has allowed them to dress up a tiny concession—conservatives should want to get rid of distortions anyway, since they distort economic choices—as a major move to the center. In return for breaking the pledge, they can demand that Democrats agree to major changes to entitlement programs.

The tactical beauty of the pledge is that it credibly committed the Republican Party to never increase taxes, thereby forcing Democrats to meet them not in the middle, but all the way over on their side. (See the tax compromise of December 2010 and the debt ceiling compromise of August 2011, for example.) Even if a few signatories break free, it will still have much the same effect.

I’m Betting on Grover

In the wake of their overwhelming defeat last week (at least relative to expectations a few months ago), Republicans are wondering how to improve their position in the next election. John Boehner has apparently told his caucus to “get in line” and support negotiations with the president over the “fiscal cliff” and the national debt. More shockingly, The Hill reported rumblings that Grover Norquist’s stranglehold over tax policy may be weakening, with one Democratic aide even saying, “As far as [Norquist’s] ability to sway votes, it’s gone.” Norquist’s Taxpayer Protection Pledge forbids lawmakers from voting for legislation that would either raise tax rates or increase tax revenues; if Republicans are questioning the pledge, that might pave the way for a bipartisan compromise to increase taxes.

Norquist’s response: “Nobody’s actually broken the pledge. That doesn’t keep me up at night.” He’s right not to worry. He has history on his side.

Let’s take a brief look at American political history since the 1970s, courtesy of the incomparable xkcd:

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