Thursday, December 09, 2010

Obama concessions on tax extensions explained.

Why didn't the Democrats in the Senate and House pass their version of an ideal extension of the Bush-era tax cuts back in September or October? It seems Reid and Pelosi missed a chance to take care of this issue before the election. Because they didn't get the job done, Obama seems to be in a position where he must give concessions to the Republicans, because the Democrats couldn't get their version without concessions through the Senate. Liberals should be putting more blame on the Democrats in congress and less on the White House.

The White House has a fine little presentation by Austan Goolsbee at the White House White Board. It's quite good, and mostly expresses feelings with which I'm in entire agreement. There are two things I would have said differently. First, when he points out that the changes in taxes and programs are only temporary (two year) he suggests this implies they don't have a long-term impact on our federal deficit. I would have said, "they only add to the deficit at this level until we revisit this question in 2012, so if we decide to reduce spending to balance our budget we can decide whether we want to cut these in two years. There's no long-term commitment to these things so we can be flexible about them." I personally would cut defense spending or even Social Security benefits long before I'd cut tax deductions for parents with children going to college or the EITC. But any way, framing the issue as I'm suggesting would have been more honest and more representative of how Obama thinks (he's really into the idea of consultation and negotiation to reach the optimal compromises). The other thing I would have said would be, "Republican intransigence and the inability of Democratic leadership in the House and Senate to push better tax changes through congress months ago have brought us to this situation where we have no time to get a better deal and end the tax breaks for the very wealthy" Of course the White House isn't going to take a swipe at Democratic congressional leadership, but as a non-partisan observer who wants to see the budget balanced as soon a feasible (which seems a long way off, given the current unemployment), I'm angered that Democratic legislative leadership has been so incompetent to get us to this point where fiscally irresponsible policies of the Republicans get shoved down our throats.

If I thought lower taxes for the wealthiest Americans was an efficient way to stimulate the economy I'd be with the Republicans on this, but all the economic research evidence I've seen from non-partisan sources seems to confirm that these particular tax reductions to the wealthy are about the least efficient way to stimulate the economy we have. I personally wouldn't mind if we taxed household income over $150,000 at a flat rate of 55% or 60%. (I think the midpoint of the Laffer curve is somewhere between 50% and 70%, and I think our wealthiest citizens ought to be taxed at such a rate, but I'd have deductions for state taxes, sales taxes, and property taxes, so that after all taxes even the wealthy would keep at least 35% to 45% of their total income).

If you've seen the White House White Board presentation, here is some more I have to say about the presentation:
Some people say the expenditures (whether they are tax cuts or tax expenditures or just spending isn't clear) on the right (Democrat's) side would also be on the left (Republican's) side, but this isn't exactly right (or wrong). Many Republicans have traditionally supported things like the EITC and the Child Tax Credit, but the rhetoric from the Republicans in the election and most recently has been very much about framing the issues with Republicans in favor of shrinking government, cutting spending, balancing the budget, reducing deficits, and opposing "spending we can't afford" like extending unemployment benefits (unless there are cuts elsewhere in the budget to pay for them). But realistically, what tax expenditures or spending would Republicans cut in order to support continuation of generous EITC benefits or the child tax credit? Are they opposing the $80 billion plus tax expenditure of the mortgage interest deduction? Are they proposing reductions in Social Security benefits? Do they want to significantly cut Medicare? Are they talking about reducing the Defense budget? No, they mostly aren't. I think it's fair to say that things like a reduction in the Social Security payroll contribution, the child tax credit, or the EITC are significantly higher priorities for the Democrats, and in general are not protected by the Republicans. So the White House was being fair in showing these in the right (Democrat) column.

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