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Deficit in Seriousness

Voters want the deficit reduced but don’t want to raise taxes or cut enough spending… is there any doubt that voters are irrational? From Democracy Corps:

Despite these concerns, voters are reluctant to attack the deficit through tax increases or spending cuts on entitlements. In this economy, voters are wary of raising taxes, even if the revenue raised goes to something they deem important, like paying down the deficit. A majority (51 percent) say that even though the deficit is a big problem, we should not raise taxes to bring it down, while only 43 percent say that we might have to raise taxes to reduce the deficit. This rejection is even more acute among the least educated and lowest income voters, who are being disproportionately hurt by the recession and as such are even more strident in their rejection of a new tax to pay down the deficit. 

And by an even wider 2:1 margin, voters reject cuts in Social Security, Medicare or defense spending to bring the deficit down (61 to 30 percent). With nearly three-quarters of the federal budget devoted to these items, exempting them from cuts leaves little room to make realistic progress on deficit reduction. This rejection of spending cuts runs across the political spectrum, with even the most conservative wing of the Republican Party — voters who generally fancy themselves as “deficit hawks” — roundly rejecting the idea of cutting spending to pay down the deficit.

(via Matthew Yglesias

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Paul Ryan on Hardball

Wow! A serious conversation between a sitting congressman and a TV pundit on cable news.

I’d love to carpetbag Ryan’s district.

Barlett on Ryan’s Budget

February 15, 2010 Leave a comment

At Forbes, Bruce Bartlett shares his thoughts on Paul Ryan’s budget. It seems that the major problem with Ryan’s budget according to Bartlett is its political infeasibility. I actually agree with that critique, but having a sitting politician offer a plan like this might push our other politicians to recognize the absolute necessity of reforming our entitlements. Bartlett is almost certainly correct that taxes have to rise at some point to deal with the coming fiscal reckoning – the Ryan plan is too idealistic on this issue.


Yet, I’d be curious if politicians and the media just pretended that it wasn’t impossible if something dramatic could happen. Why couldn’t a reform like this be structured so it didn’t affect voters close enough to retirement to care? Is the bill written like that now? Are that many people going to be against a similar plan to overhaul our entitlements (it doesn’t have to be the Ryan plan) if it doesn’t affect them? I’m naive. I know.

Sadly, it doesn’t seem that many are brave enough to get behind a plan like Ryan offers (despite what Krugman argues). Certainly the Tea Partyers are once again exposed as unserious about real governing and addicted the shallowest of platitudes.

In my opinion, support for the Ryan plan must be the minimum requirement for anyone who considers themselves members of the tea party brigade and any politician seeking its endorsement. If those like former Alaska governor Sarah Palin, the current darling of the tea party crowd, are unwilling to immediately and unequivocally endorse the Ryan plan or put forward something equally serious and comprehensive, then in my opinion they have no credibility on the budget and no right to oppose the sorts of tax increases that I believe are unavoidable.

Again, I’m pleased that a Republican has offered an earnest bill that can be criticized on its merits (not just the politics of it).

Workers would also likely see a sharp reduction in their health benefits as well because Ryan would abolish the tax exclusion for health insurance. In other words, workers would have to treat whatever their employer pays for health insurance as if it were cash income. Workers would instead receive a new tax credit not to exceed $5,700 per family. It is not clear whether the credit amount would be indexed to inflation. This provision would constitute a significant tax increase for many workers.

Keep the plans coming and maybe everyone will forget just long enough about the politics and actually govern as adults.

At Least It’s A Plan To Be Criticized

February 12, 2010 Leave a comment

In today’s New York Times, Krugman criticizes the Ryan plan for not changing “one iota in response to the economic failures of the Bush years.” His wider point is to lambast Republicans for feigning horror at the Democrat’s proposed cuts in Medicare while wanting to cut the program even more… or even dismantle it altogether.

The bottom line, then, is that the crusade against health reform has relied, crucially, on utter hypocrisy: Republicans who hate Medicare, tried to slash Medicare in the past, and still aim to dismantle the program over time, have been scoring political points by denouncing proposals for modest cost savings — savings that are substantially smaller than the spending cuts buried in their own proposals.

I don’t think Ryan’s plan is as insane in the face of our current economic reality as Krugman does, but their are probably aspects which aren’t ideal or maybe even politically motivated (shock!). I’m also not sure this plan is as mainstream within the Republican party as he suggests. The Hill reports:

At his weekly news conference, Boehner stressed that Ryan’s budget is not the party’s proposal. His spokesman repeated that point on Friday, while expressing disappointment with Democratic attempts to make political hay out of criticizing the proposal.

“This is sad and pathetic,” said Boehner spokesman Michael Steel. “At a time when Washington Democrats control the House, Senate and the White House, rather than working on the problems of the American people, they’re holding blogger calls and conference calls to attack a bill introduced by one member of the minority party.” (my emphasis)

Furthermore, Rep. Ryan himself wasn’t screaming about “death panels” and Democratic cuts in the entitlement. Are many of the Republicans in the legislature hypocrites as Krugman claims? Of course. So are many Democrats. But the important thing is that some Republicans like Ryan are starting to offer actual proposals which people like Krugman can (and should) criticize. Differences in ideology are not bad for democracy; they strengthen it. Cynical obstructionism without offering real alternatives are the danger. Too many Republicans are still hypocrites and phonies; I’m glad we have Ryan’s plan to criticize – it’s a step forward.

"The New American Economy"

January 28, 2010 Leave a comment

I recently finished reading The New American Economy by Bruce Bartlett, a former advisor to Ronald Reagan. Read it if you get the chance – it offers serious thinking from a real conservative on our current economic situation and some of his ideas to move forward. I won’t do a full book review but in it he explains the shift in economic thinking from pre-Keynes to today. As an intellectual father to supply-side economics he concludes that the original intent of the movement has been accepted into mainstream economics while the wild all-tax-cuts-are-good-and-lead-to-increased-revenues bastard child should be marginalized and left behind. It is also interesting to read a conservative defend the idea of fiscal stimulus in the face of a severe recession and liquidity trap.

A solid portion of his book deals with the entitlement crisis we face and what to do about it. He makes the case that to rein in our debt, entitlements have to be reformed and taxes have to be raised. Despite wishful thinking, even if ALL discretionary spending was cut it wouldn’t be enough to fix our fiscal deficit. Bartlett writes (p.175), “As Fed chairman Bernanke notes, we would still need to raise nonpayroll taxes by 35 percent to eliminate the deficit projected by CBO. Furthermore, the biggest component of discretionary spending is national defense. And completely abolishing every domestic discretionary program would not have been enough to eliminate the deficit in 2008.”
So even if it were politically feasible (it’s not) to cut discretionary spending by huge amounts we would still need to raise taxes. Therefore, entitlement reform is required to save us from fiscal catastrophe once the baby boomers retire. Given the political realities to reign in entitlement spending in a way that doesn’t unfairly penalize retirees taxes need to be raised somehow with spending cuts and entitlement reforms. Bartlett makes a persuasive case for a VAT.
A value-added consumption tax offers a way for the government to raise revenues in an economically efficient manner. The government must pay for spending somehow, so it might as well do it in a way that harms the economy the least. Income taxes and corporate taxes like capital gains hurt our businesses which employ workers and grow our economy, replacing them with “some sort of flat-rate consumption tax is the best way to raise revenue in a way that is least damaging to incentives. According to recent OECD studies*, taxes on consumption and real property are the least damaging to growth and income taxes are the most damaging (p. 186).”
*Barlett’s footnote: Jens Arnold, “Do Tax Structures Affect Aggregate Economic Growth? Empirical Evidence from a Panel of OECD Countries,” OECD Economics Department Working Paper no. 643, Oct. 2008; Asa Johansson et al., “Tax and Economic Growth,” OECD Economics Department Working Paper no. 620, July 2008.

Do the elderly really care about their grandkids?

January 12, 2010 Leave a comment

Anyone who has even casually looked at the convergence of baby boomers and their expected retirement benefits (i.e. social security and medicare) knows that fiscal catastrophe is certain if something isn’t fixed. I would love to ask a national politician especially the president (or a candidate) why he or she thinks it isn’t reasonable for the eligible generations to only get back what they put into the programs and be expected to plan themselves for any additional costs they want as individuals.

If that happened there is no way the programs would become insolvent. Social security and medicare still would serve as safety nets like they were intended for. Is it just selfishness and politics that keeps a seemingly sensible solution like that from implementation or is there an economic or moral argument for the way we do things now?

It’s an old problem

September 18, 2009 Leave a comment

Bruce Bartlett explains why it’s so difficult to balance the budget and why spending cuts alone can’t accomplish the goal. The problem is entitlement spending – and both parties are to blame for not fixing the problem. It seems it won’t get easier either as the population continues to age.

Domestic discretionary spending amounted to $485 billion last year. With a deficit last year of $459 billion, we would have had to abolish virtually every single domestic program to have achieved budget balance. That means every penny spent on housing, education, agriculture, highway construction and maintenance, border patrols, air traffic control, the FBI, and every other thing one can think of outside of national defense, Social Security and Medicare.

This means that it is impossible to get control of spending without cutting entitlement programs. Many Republicans agree, but they never make any serious effort to do so. On the contrary, they defend entitlements when Democrats suggest cutting them.

For the record I would want to cut most of those things from the federal budget but he begins his piece reminding us that we live in a democracy. Clearly it would be politically impossible to cut ALL or even most of those programs. This just continues to remind me of how many problems like this are caused by having expanded the power of Congress beyond (what I think was) the Constitution’s original intent.

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