How to Tell Who Is Not Serious About the Deficit

John Holbo explains how to sniff out a deficit fraud:

Via the Corner, a spot of TV talking head with Eric Cantor.
“Everything is on the table,” he said. “As Republicans, we’re not going to go for tax increases. I think the administration gets that. But we’ve also put everything on the table as far as cuts.”

Imagine what the response would be if this were flipped around. Imagine a Democrat emitting the following, as a bold deficit reduction plan: “Everything is on the table … we’re not going to go for spending cuts. I think the Republicans get that. But we’ve also put everything on the table as far as tax hikes.” No one would say such a Bizarro Norquist thing, of course, because no one on the Democratic side is as bizarre as Norquist. But if someone did, it would be perfectly obvious the person saying this thing wasn’t concerned with deficit reduction. The idea that someone unwilling to contemplate spending cuts – anywhere – was a deficit hawk would not pass the laugh test. As Cantor’s statement does not.

Reagan Staffer: Toomey Amendment "Looks Like It Was Drafted By a Couple of Interns on the Back of a Napkin"

Former Reagan policy analyst Bruce Bartlett weighs in on Pat Toomey’s “balanced budget amendment”:

In short, this is quite possibly the stupidest constitutional amendment I think I have ever seen. It looks like it was drafted by a couple of interns on the back of a napkin. Every senator cosponsoring this POS should be ashamed of themselves.

Invective aside, Bartlett presents a very persuasive case for why Toomey’s amendment is total amateur hour. Here is an older post in which Mr. Bartlett compiles a mountain of academic evidence showing why it would be a disaster.

Here are four good posts from Ezra Klein on the Worst Policy Idea in Washington, and Brad Delong’s analysis of a similar idea from back in 1994.

To get a sense of how truly nutty this is, behold:

Not a single year of the Bush administration would qualify as constitutional under this amendment. Nor would a single year of the Reagan administration. The Clinton administration would’ve had exactly two years in which it wasn’t in violation.

Not even Paul Ryan’s ultra-conservative Roadmap plan would be constitutional under Toomey’s plan.

Deficit Fraud Toomey Repeats Myth That Tax Cuts Increase Revenue

This must be some of that brave hucksterism hawkery on the deficit that so impressed the Express Times editorial board:

Some Republican Senate candidates have suggested that extending the Bush tax cuts — which are scheduled to expire at the end of the year — will actually be good for the country’s bottom line, as the economic growth that results will more than offset the trillions of dollars in lost revenue. “By extending tax cuts you pay down the deficit, you grow the economy by giving people more money,” said Colorado Republican Ken Buck.

Today, on Fox News Sunday, Pennsylvania’s Republican Senate nominee Pat Toomey joined this club, telling Fox’s Chris Wallace that “it’s not clear” that extending the Bush tax cuts — while also lowering the corporate tax rate — would increase the deficit:

WALLACE: If you extend all the Bush tax cuts, if you were to cut, not eliminate, but cut the corporate tax rate — although that would produce some economic growth and therefore some increased revenues — there no question that would add trillions of dollars to the deficit. The question becomes, what are you going to cut? What are you going to cut in spending, what are you going to cut in entitlements, and I’d ask you to be specific sir.

TOOMEY: Sure. But first of all, it’s not clear that that would add trillions to the deficit, because I really believe that if we expand the base of the economy, which we could do by selectively lowering some taxes, you have a broader base on which to apply the tax.

Watch it:

As American Action Forum president Douglas Holtz-Eakin, who was formerly the Congressional Budget Office director and an adviser to the McCain 2008 presidential campaign, said, “there is no serious research evidence to suggest” that tax cuts pay for themselves. Extending the Bush tax cuts costs more than $3 trillion over ten years, while extending the cuts just for the wealthiest two percent of Americans costs $830 billion over that period.

According to the Center on Budget and Policy Priorities, the Bush-era tax cuts are one of the largest drivers of the country’s long-term structural deficit. And, contrary to Toomey’s assertion, simply lowering taxes doesn’t broaden the tax base (which is accomplished by removing subsidies, loopholes, and giveaways in the tax code).

Toomey was also wrong to suggest that the Bush tax cuts increased revenue: in 2000, the government collected 10 percent of GDP in personal income taxes, a percentage that has never been collected since the Bush tax cuts. Plus, the historical record of the Bush tax cuts suggests that they won’t create the sort of economic growth that Toomey is counting on. In fact, following the Bush tax cuts, the country “registered the weakest jobs and income growth in the post-war period”:

Overall monthly job growth was the worst of any cycle since at least February 1945, and household income growth was negative for the first cycle since tracking began in 1967. Women reversed employment gains of previous cycles. And for African Americans, the worst job growth on record was matched by an unprecedented increase in poverty.

On a final note, Toomey never did identify anything he would cut from the budget to offset the cost of his budget-busting tax cuts.

How Republicans Would Govern

It has been clear since the Reagan administration that conservatives don’t actually care about the deficit. They only care about protecting rich people from paying their fair share of taxes, which are now at record lows. That is why they passed the $640 billion Bush tax cuts for the rich without offsetting them. Predictably, they are one of the largest drivers of the deficit behind health care spending. Look at the huge orange swath in the above graph, compared to the tiny blue line for the Recovery Act.

So it was no surprise to hear Senator Jon Kyl, the Republican Minority Whip, say on Sunday that not only should the $640 billion Bush tax cuts for the rich be renewed, but that tax cuts should never be paid for:

WALLACE: We’re running out of time, so how are you going to pay $678 billion just on the tax cuts for people making more than $250,000 a year?

KYL: You should never raise taxes in order to cut taxes. Surely congress has the authority and it would be right, if we decide we want to cut taxes to spur the economy, not to have to raise taxes in order to offset those costs. You do need to offset the cost of increased spending. And that’s what republicans object to. But you should never have to offset cost of a deliberate decision to reduce tax rates on Americans.

Just this year, the Bush tax cuts will give millionaires more in tax cuts than 90% of Americans earn in a whole year. Income gaps between the megarich and everyone else have tripled in the last three decades. Republicans think that subsidizing rich people in this way is so important that they want to slash social safety net spending on the most vulnerable Americans, and even raise poor people’s taxes to pay for more tax cuts for the wealthy.

Despite two consecutive routs, voters are giving Republicans a second look because the jobs picture is still bad, and the Republican message of fiscal restraint sounds plausible to low-information voters. But what voters need to understand is that the Republican Party is unreformed, unrepentant, and has no intention of doing anything differently than they did during the Bush years. They think that the Bush jobs record between 2001 and 2007 was right on target, even though Bush presided over the weakest job growth recorded since the government began keeping records.

Dumb Arguments Against a Value-Added Tax

I’ve already established in this space that Charlie Dent is not serious at all about the deficit. He offers only gimmicks that sound plausible to the uninformed, but in no way approach the scale of the problem. It is common knowledge that if we do not slow the growth of Medicare, it will consume the entire budget in the next 20-30 years. The Affordable Care Act starts that process by experimenting with changes to Medicare’s reimbursement formulas. (Old link, but all of these policies are in the ACA.) But more changes are needed to bring down the deficit.

The responsible plan is to find a new and significant revenue source in addition to further spending cuts so that we can maintain a robust social safety net for the poor and middle class. It would be wrong to balance the budget on the backs of the poor. But Republicans are against raising any new revenue, and insist that we should balance the budget entirely with drastic spending cuts. Of course, while they complain that a consumption tax would hurt poor and middle class Americans, their preferred strategy of slashing entitlements and means-tested anti-poverty programs would hit those same people much much harder. As an added slap in the face, they advocate eliminating existing taxes like the capital gains tax and the estate tax, which would further add to the deficit. The message is perfectly clear: taxes, not the deficit, is their primary concern.

When people say that politicians don’t have the courage to deal with the deficit, this is precisely what they’re talking about. Politicians aren’t willing to admit the hard choices that lie ahead, since all the policies that will actually fix the deficit are fantastically unpopular. When sound fiscal policies enter the public debate, there is overwhelming temptation to use them as a cudgel for short term political advantage instead of admitting their necessity.

And that is exactly what is driving Charlie Dent’s irresponsible demagoguery on the value-added tax.

I would make two points. One is that there’s two parts to a tax. One is how it is collected, and the other is how the revenue is distributed. A regressive tax can still have a progressive impact on net if the revenue is used to fund programs that assist lower and middle income individuals. So whether or not this is a benefit or a burden for the lower classes is very much open to debate, and highly dependent on the discretion of politicians. It matters what they decide to do with the money.

The other point is that the American economy is never going to be able to match the unsustainable levels of consumer spending that existed in 2007 before the crash. Going forward, some of that consumer spending is necessarily going to be replaced by investment, savings, and government spending. The idea that a shift of a few percentage points of GDP away from consumer spending toward government spending is the difference between Capitalism and Socialism is absurd. Consumption can no longer be as large a driver of the American economy as it once was. Americans will need to save more going forward. And a consumption tax of some kind creates exactly the right incentive.

A VAT makes me nervous, since we don’t know how the revenue would be used. We don’t know how many exemptions politicians will carve out of it, making it less efficient. But it’s still a decent policy idea on its own terms and should be considered. Every other Western nation has one, after all, and the US is not anywhere near the point on the Laffer curve where substantial additional taxes would crowd out private investment. I’ll direct you to three excellent blog posts from Bruce Bartlett, a conservative economist and Ronald Reagan’s senior policy analyst, in which he handily smacks down all of arguments Charlie Dent cites in his misleading press release. Here he is on the George Will column, the “money machine” argument, and the irresponsible rhetoric of Republicans who cluck about the deficit but deny the need to raise new revenue.

My preferred solution is a progressive consumption tax, as envisioned by Cornell economist Robert H. Frank. Under this plan, people would be taxed on the difference between their earnings and their consumption. The virtue is that it’s entirely voluntary, since you choose how much you spend. You could also make it steeply progressive without harming savings and investment. Here’s the key bit from his original essay, and also a recent column:

Under such a tax, people would report not only their income but also their annual savings, as many already do under 401(k) plans and other retirement accounts. A family’s annual consumption is simply the difference between its income and its annual savings. That amount, minus a standard deduction — say, $30,000 for a family of four — would be the family’s taxable consumption. Rates would start low, like 10 percent. A family that earned $50,000 and saved $5,000 would thus have taxable consumption of $15,000. It would pay only $1,500 in tax. Under the current system of federal income taxes, this family would pay about $3,000 a year.

As taxable consumption rises, the tax rate on additional consumption would also rise. With a progressive income tax, marginal tax rates cannot rise beyond a certain threshold without threatening incentives to save and invest. Under a progressive consumption tax, however, higher marginal tax rates actually strengthen those incentives.

Consider a family that spends $10 million a year and is deciding whether to add a $2 million wing to its mansion. If the top marginal tax rate on consumption were 100 percent, the project would cost $4 million. The additional tax payment would reduce the federal deficit by $2 million. Alternatively, the family could scale back, building only a $1 million addition. Then it would pay $1 million in additional tax and could deposit $2 million in savings. The federal deficit would fall by $1 million, and the additional savings would stimulate investment, promoting growth. Either way, the nation would come out ahead with no real sacrifice required of the wealthy family, because when all build larger houses, the result is merely to redefine what constitutes acceptable housing. With a consumption tax in place, most neighbors would also scale back the new wings on their mansions.

Bits and Bobs: Wednesday News Round-Up

  • Atul Gawande on the next front in the health care fight. Dr. Gawande wrote what is widely regarded as the most consequential article for this year’s health care debate. Required reading for understanding America’s health care cost problem. If you haven’t read it, consider this your homework for the weekend.
  • In the next Census, prisoners should be counted as living in their home communities, not where they reside in prison. Rural areas are unduly overrepresented as a result of the current system.
  • Chris Casey has been all over 2009 Democratic turnout stats in the 2009 municipal elections. An all-around embarrassment of an organizing failure for the local Democratic Party.
  • Chen Arts Blog promotes the Allentown Freakout, a “fringe festival” that will take place June 18-19. Lots of cool film, music, and performance art, including fire spinning.
  • Southside Community Gardens project is holding its next meeting April 6th at the Banana Factory in Bethlehem. Gardening is fun, and according to David Brooks, “joining a group that meets even just once a month produces the same happiness gain as doubling your income.”
  • Not content with the rate hike that followed the rate cap removal, PPL wants another rate hike.
  • Tom Corbett is catching a ton of flack from voters for politicizing the Attorney General’s office by fundraising on his stunt to out-wingnut Sam Rohrer.
  • The Christian terrorist group that was apprehended in Michigan used music from militia-obsessed Allentown band Poker Face in their training videos. Poker Face’s website, which I’m not going to link to, has links to all kinds of militia sites, including Hutaree. Disgusting.
  • Quinnipiac polls the deficit, and finds that Americans oppose cutting Social Security and Medicare, and do want to tax people making over 250K. Obviously solving the deficit problem will require both entitlement cuts and raising taxes, but politicians touting a cuts-only approach are on the wrong side of public opinion.
  • A month out, Republicans are already breaking their one-year earmark ban pledge.
  • Allentown Art Museum brought on a new President, Brooks Joyner, who will aim to reinvigorate the Museum’s role in the community.

Morning Call: How About Some Follow-Up Questions?

Charlie Dent lies about the Affordable Care Act again, telling Morning Call reporter Colby Itkowitz it will “blow the deficit much greater.” (English?) In reality, the Congressional Budget Office says the law will cut the deficit by $130 billion over the next decade.

That’s the second time this week we’ve been treated to the Morning Call’s signature “let politicians just say whatever they want” brand of political journalism.

Since Dent’s statement contradicts Washington’s official scorekeeper, shouldn’t Colby Itkowitz have asked him to show his work?

She also fails to correct the record. The salient fact that the bill reduces the deficit appears nowhere in the piece.

Ms. Itkowitz also allows Dent to posture on the deficit, missing yet another opportunity to confirm his position on the Republican plan to eliminate the deficit.