The Art of the Possible

And once more into the breach:

Can you tell me the difference between these alternative proposals to increase federal revenue?

1) Allow all Bush tax cuts to expire bringing back Clinton era rates for everyone.

2) Extend all the Bush tax cuts for people making under $400k, and make up the difference by closing the carried interest loophole, eliminating the cap on social security contributions, create new tax brackets with higher rates for the wealthy, completely rewrite the corporate tax code to better tax profits, and pass a carbon tax.

Well, I can see a few differences. In terms of policy, options 2 would be much, much better. It would better address income inequality, it would place the burden of new taxes largely on the wealthy. Rewriting the corporate tax code to generate more revenue while lowering rates is actually quite plausible and would eliminate a lot of problematic incentives for perverse behavior (hoarding cash off shore, for instance).

But until Dec. 31, option 1 had one amazing advantage. It was actually, you know, doable. It was, furthermore, doable by doing nothing. And had we done nothing and allowed everything to lapse, then it might have been possible to pass a lot of the items under option 2 because you could pass them with tradeoffs against Clinton era rates.

In other words, if you are living under Clinton era rates, with a decent federal government revenue stream, you can pass a lot of option 2 items in ways that are revenue neutral. Once the Bush tax cuts are permanent, everything under option 2 has to be a be revenue generator, an explicit tax increase.

So, even if the idea is a whole slew of tax reforms to increase progressivity, it would still have been easier to get there from a Clinton-era baseline rather than a Bush-era one.

I have a lot of sympathy for all of the vigorous criticisms leveled at my last couple of posts, but I can’t help but feel that a lot of the comments reflect what we wish would happen rather than what is actually politically feasible. Again, the huge, incredible advantage of letting the Bush cuts lapse was that it was actually something that could have been done to raise revenue even in the face of absolute GOP obstruction.

Finally, I want to address another theme that came up repeatedly, that is the notion that all argument based on percentage of GDP are flawed because GDP is, essentially, malleable if we pursue wise policies. In other words, some folks seem to feel my focus on increasing revenue is misguided, and that it would be wiser to focus on such things as education and infrastructure and income inequality because if we fix those, the economy will grow faster, making all our current programs affordable even if revenue as a percentage of GDP stays low.

Um…maybe, but I have to admit it feels like magical thinking to me. It’s a liberal version of “dynamic scoring.” As a practical matter, economic growth over the medium term is largely constrained by population profiles and productivity increases. I don’t doubt that you might be able able to squeeze some fraction of a percent of additional growth from the economy through infrastructure and other spending, but I have to admit, I’m highly skeptical that you could generate enough growth to not only cover the costs of these new initiatives, but also close a 3-7% of GDP sized structural deficit.

So I’ll come back to my main argument. I think we need more tax revenue. I think we missed an opportunity to lock in higher tax revenue. And I just don’t see a plausible political path to pass new measures that even come close to making up for the cost of a permanent extension of the vast majority of the Bush cuts.

Now again, you might feel we it was the right thing to do, that the economy is too fragile, and too many people living close to the edge to risk it, and I won’t argue with you strongly.

Regardless, what’s done is done. But the new reality is that the next decade is likely to be dominated by repeated cuts to programs as a result because revenue is just too low right now. That’s the structure of the game, so to speak.






70 replies
  1. 1
    Corner Stone says:

    Jeebus Bernd. Whoever it was you wronged just go to the priest and confess. At least that way you’ll get absolution along with your punishment.

  2. 2
    JasonF says:

    If you think (as most on the right do) that excessive debt is the driving problem in the economy, then your option 1 is a good alternative to what we got.

    If you think (as I do) that income inequality and soft demand is the driving problem in the economy, then 1 is decidedly inferior.

  3. 3
    joes527 says:

    But what about the short term effects of higher tax rates on the folks making < $400k?

    I could buy your argument, except for the fact that the anti-stimulus that you are suggesting could push the whole economy in a very bad direction.

    If the economy isn't at least keeping up its "little engine that could" act in 2 years, then look to lose the Senate.

  4. 4
    TheRepublic of Stupidity says:

    Heaven forbid we ever get serious about cutting our enormously bloated military budget…

    We represent, what, mebbe 5% of the world’s population and spend nearly half (46% last time i checked…) the yearly total dollars on bombs ‘n stuff… we have like 10 super carriers in service and 3 under construction and the whole friction’ rest of the world has 11, combined?

    And 18 guys w/ box cutters somehow managed to sideswipe all of that and almost crash the world economy… go figure…

  5. 5
    Scott de B. says:

    And had we done nothing and allowed everything to lapse, then it might have been possible to pass a lot of the items under option 2 because you could pass them with tradeoffs against Clinton era rates.

    This is the fundamental problem with the “fall of the cliff” proponents. The assumption is that the House Republicans would be so eager to support middle-class tax cuts that you could add all sorts of Democratic-favored legislation to the bill and they would still feel obligated to vote for it.

    Obama had some leverage, but not so much as that. Because it works both ways. If the tax cuts expire, then the House Republicans could pass a bill cutting middle class taxes combined with the Ryan plan, and dare Senate Democrats to vote against it.

    Obama’s advantage was that Clinton-era rates across the board were a tad more swallowable by Democrats than Republicans, and that the sequester hurt Republican interests a tad more than Democratic interests. But only by a relatively small amount. Plus there’s the Presidential veto. But Obama would rather not veto a bill cutting taxes on the middle class either.

    Obama’s position was like a card player with paired Jacks before the flop. Strong, but not unbeatable, and one that you probably don’t want to go all-in on.

  6. 6

    Regardless, what’s done is done. But the new reality is that the next decade is likely to be dominated by repeated cuts to programs as a result because revenue is just too low right now. That’s the structure of the game, so to speak.

    The oracle of Balloon Juice has seen the future, he know what’s going to happen in the next ten years.

  7. 7
    Feebog says:

    Bernard:

    You still have not established why we will need 24 or 25 percent of GDP to fund future government programs. As I pointed out in the last thread, we were running surpluses at 20percent GDP in the late 90’s.

  8. 8
    japa21 says:

    Yes, we could have let all the rates expire. But to think that there was a chance in hell that the GOP House was going to do all of the things in option 2 is, in my opinion, foolish. The more likely scenario is that the House would have come back with a tax cut with the baseline at $1 million and none of the other stuff. Obama could have tried to veto it, but there were probably enough Dems in both the House and Senate who would not want to be seen as being against tax cuts that they woudl have been able to overfride the veto. Then we would be at a worse situation than we are currently in.
    Of course this is all conjecture. I agree option 2 is the preferable one, but getting to that point with the current GOP is next to impossible.

  9. 9
    General Stuck says:

    Obama really is a true progressive on tax matters. And he plays the longer game, in this case being a political hit on the last remaining wingnut claim to electoral fame. Tax cutting. For the 98 percent that has 98 percent of future voting power.

    Voting power that theoretically, at some point, can provide dems the numbers to do all the stuff you mention on tax reform. In the meantime, most folks realize the unspoken truth of our structural debt, as being driven by outrageous and wasteful health care spending. The ACA as politically doable at the time, with help with that, but until we wise up and make the switch to single payer, most of this shit on whackataxmole, is a proxy war for the wingnuts last stand on dog eat dog policy that has made the plutocrats fat and happy for a long time.

    In the meantime, the ACA covers most folks with health insurance, and the regulatory framework has a chance to take a big bite out of health care inflation. Though, like Jeff Goldblum once said about life, profit will find a way to get back on top. Especially, with a product that can’t not be provided, lest people die.

    But the biggest most pragmatic and very immediate need to keep the middle class tax cuts is for current stagnation of job growth and GDP. I wish Obama hadn’t made the middle class cuts permanent, but that is what he promised to do in the 2008 campaign, and is unlike other presidents by taking those promises seriously. And it does have a finality to it, that we are playing by different rules now than the recent past. That progressism in taxation is not only a good idea, it is permanent, until the next act of congress changes that.

  10. 10
    The Moar You Know says:

    If you think (as I do) that income inequality and soft demand is the driving problem in the economy, then 1 is decidedly inferior.

    @JasonF: Thank you, a voice of sanity in the howling wilderness. The debt doesn’t fucking matter at all at this point, not even a little.

    Fix income inequality.

    Shovel money into circulation to firm up demand.

    Voters will be willing to raise more revenue and pay down America’s Sacred Debt when they don’t feel like any expenditure on their part might be the one that lands them on the streets, shoving a shopping cart and eating out of dumpsters.

  11. 11
    Tom Levenson says:

    Arrgh. Apologies. Did not intend to step on this (or any) thread. Left my last check of the state of the blog too long.

  12. 12

    Bernard you have internalized the deficit scolds mantra that the debt and deficit are the biggest problems were are facing right now. In my opinion the biggest problem we face is high unemployment.

    Debt may become a problem in the future but right now it is not, inflation is very low and people are willing to lends us money for practically zero percent interest.

  13. 13
    FlipYrWhig says:

    I don’t understand what the hangup is here. Sure, in the long run, it’s probably a good idea to have less debt and to fund public functions fully. But to feel like the moment is now to deal with those issues is to fall for deficit fear-mongering, only not of the Pete Peterson sort where the solution is lower taxes and fewer services but of some other sort where the solution is higher taxes and more services. But isn’t the whole point of Keynesian ideas that deficits and debts are credible ways to manage economies, especially if what you’re borrowing to do is something that helps the long-term health of the country?

    Is it important to ever achieve a balanced budget? And how soon would you like to have one?

  14. 14
    jamick6000 says:

    OK, here’s your problem — the premise of “we need more tax revenue” is false. The problem is we pay well over twice as much per capita as other industrialized countries. If we paid the same per person as Canada, for example, we’d have a long-term budget surplus.

    See this http://www.cepr.net/calculator.....lator.html

  15. 15
    Xantar says:

    Your entire argument hinges on what you think is politically feasible, and you come to that opinion by way of guesses and a little bit of political mind-reading. In other words, you don’t know the political future any better than the rest of us. You do in fact have some pretty spectacular misses in your blogging history. Remember when you were convinced that Obama was going to lose the third debate? Not that I could do any better. But at least I’m aware of that.

  16. 16
    Omnes Omnibus says:

    Why do you think the deficit must be handled now, right now? I think this is where much of the disagreement with your ideas originates. The deficit is a long term problem amenable to long term solutions. Demand, employment, and infrastructure are fucking us today. Let’s fix those right now. What you are proposing would, in my view, only exacerbate our current difficulties and, as a result, increase our deficit.

  17. 17
    Bob says:

    Option 1) was sure tempting: the great reset, instant revenue. Taxes are too low for what we want the government to do. But the great reset would be instant dangerous too, the window to fix things to prevent damage to the economy was fairly narrow (months?) and who could depend on Congress to fix anything. Politically, as noted above, a rebounding economy will be the best possible outcome for the dems and a chance to make things better in the future. The situation we have now, together with screaming stalemates and can kicking, gives as good a chance as anything else (feasible) at an economic rebound. But there is still a lot of hell to pay.

  18. 18
    Mnemosyne says:

    I do love that Bernard seems to be completely ignorant of what was actually in the recent tax deal and seems to have no interest in relieving his ignorance.

    Tell us, Bernard, will people who make between $250K and $400K in 2013 be paying a higher dollar amount in taxes than they did in 2012? Why or why not?

  19. 19
    NCSteve says:

    I just realized what annoys me about your posts. It’s the underlying sense of sonorous defeatism that what you believe to be the existing policy paradigm can possibly be changed even as the existing policy paradigm is coming apart like an Indy car spinning out against the wall.

    It’s the fact that anyone with a political science background and eyes that see can see that we’re in a realignment, and you apparently have not the eyes to see it.

  20. 20
    Mnemosyne says:

    @Bob:

    It’s tempting, I know, but here’s the lesson we’ve learned in California, where the state is almost entirely dependent on income and sales taxes because of Prop 13 — income tax is a very volatile way to raise revenue, because people don’t always make the same amount of money every year.

    So if the Bush tax cuts all expired and we went back into a recession, all of the “gains” that Bernard is predicting would be wiped out, because people wouldn’t be making enough money to pay those higher rates. This is why raising tax rates on lower-income people in a fragile economy is a very bad idea.

  21. 21

    @jamick6000:
    Few are brave enough to say out loud what the real problem is: Overhead (ie mostly salaries) in the health care industry are too high. Our neo-feudalist system introduces financial inefficiencies, which are then gloriously passed on to the consumer.

    Example: Why did the last CEO of Harvard Pilgrim earn $24 million a year? He has no counterpart in other developed countries, so that’s a cost we bear that they don’t. Did the CEO really generate that much value? I doubt it. But if he did, and if that job is so important, why is it left up to just one person? Why not 10 people, making $240K?

    These questions are all rhetorical, of course: The real answer is that, in our culture, any for-profit industry generates a class of “Made Men” who require exorbitant (ie inefficient) salaries to indicate their superior status– yet they are insulated from any accountability. So the product gets worse, even as the salaries get higher.

    Our problems are cultural, not political. Until your average American looks at that overpaid health care CEO and thinks why the fuck is that joker making 50-100 times what I do when I can barely afford health care, the problem will persist.

    On the upside, I do believe that day will come. Though probably not as quickly as I’d like.

  22. 22
    artem1s says:

    @The Moar You Know:

    ditto to both of you.

  23. 23
    Hoodie says:

    I can’t help but feel that a lot of the comments reflect what we wish would happen rather than what is actually politically feasible. Again, the huge, incredible advantage of letting the Bush cuts lapse was that it was actually something that could have been done to raise revenue even in the face of absolute GOP obstruction.

    That advantage is an illusion. The nature of the opposition by Republicans is exactly why you don’t let the Bush tax cuts simply expire. You let the Bush tax cut expire, you’ve just raised rates on everyone and you likely trigger a recession. You hand Republicans two issues on a silver platter for 2014, and the Republicans can go back to saying the tonic for curing the country’s ills is across the board tax cuts which, of course, is a windfall for rich folks all over again. All in an off year election in which Democrats already have a disadvantage due to the nature of their coalition. You lose the House and the Senate and have a lame duck president with everything teed up for President Christie. Your precious tax revenue lasts 2 years, max, or maybe it goes to finance the new war against Iran once Obama is no longer in office.

    You can wring your hands all you want about the deficit but keep in mind, as Kunstler used to say, “we’ll keep doing what we’re doing ’til we can’t, and then we won’t.” This is a thirty year project that has multiple variables and that will never really be solved, and you’re obsessing about solving it tomorrow by controlling only one of those inputs.

  24. 24
    FormerSwingVoter says:

    You address a bunch of the arguments made in response to your prior posts, except what is (IMHO) the most important:

    Are you suggesting that a double-dip recession would be worth it, to ensure there are enough revenues in the long term (as would happen if the cuts were allowed to lapse during a weak economy)? That seems to be what you’re advocating, and I would have to strongly disagree.

    However, if your point was that the tax cuts should have been extended for another year or two and then allowed to lapse, I think I’d agree.

  25. 25
    Corner Stone says:

    @Judas Escargot, Bringer of Loaves and Fish Sandwiches:

    Our problems are cultural, not political. Until your average American looks at that overpaid health care CEO and thinks why the fuck is that joker making 50-100 times what I do when I can barely afford health care, the problem will persist.

    Maybe we should start a campaign linking the size of their pen!s to their exorbitant salaries?
    “That guy only demands $24M a year because he has a tiny pen!s!”

  26. 26
    Pococurante says:

    2) Extend all the Bush tax cuts for people making under $400k, and make up the difference by closing the carried interest loophole, eliminating the cap on social security contributions, create new tax brackets with higher rates for the wealthy, completely rewrite the corporate tax code to better tax profits, and pass a carbon tax.

    False positioning of our choices.

    As has been repeatedly pointed out to you, we are under no real pressure to choose a contractionary response – all the stars are correctly aligned for us to use leverage to stimulate the economy with the cheapest credit in generations.

    Time is on America’s side to solve the unrelated “Oh Dear It’s Too Hard To Do Right Now” issues you tossed into the same salad bowl.

  27. 27
    Aaron Morrow says:

    If the economy grows faster, it will make all our current programs affordable because revenue as a percentage of GDP will increase.

    Tax revenue = tax rates * tax base (i.e. taxable income)

    Therefore, you can increase tax revenue by increasing the tax base.

    “Um…maybe, but I have to admit it feels like magical thinking to me”

    This kind of reasoning is why I continue to assert that Bernard Finel is anti-stimulus. My reply is still that it is economically better stimulate the tax base now, and increase tax rates later.

    Backing away from policy and into the realm of the politically possible, I am quite certain that we could not have enacted his plan and avoided a double-dip recession. (Ironically, we would have decreased tax revenue because of the resulting decrease in the tax base.) I am uncertain that the Senate would support such a plan, and can easily conceive of a bipartisan override of Barack Obama’s veto.

    Also, I believe that the 2010 elections was peak conservative in Congress. We’ll probably see conservative gains in 2014, but nothing like 2010. The Democrats we elected to Congress this year are more liberal than those of the 1990s.

    The new reality is that the next decade is likely to be dominated by repeated deficit spending as a result because revenue is just too low right now. Liberals have the votes to protect repeated cuts to programs, but not enough control to raise tax rates much further. That’s the structure of Congress, literally.

  28. 28
    burnspbesq says:

    FWIW, “hoarding cash offshore” isn’t driven by cash-tax considerations. Pay me my standard hourly rate and I’ll show you a half-dozen ways to tax-efficiently repatriate that cash.

    “Hoarding cash offshore” is driven by financial accounting rules. Under a hoary old piece of accounting guidance known as “APB 23,” if you don’t represent to your auditors that income earned offshore is permanently reinvested offshore, you have to provide for US tax on the dividend back currently, even if you’re not planning to bring the cash back currently. That additional tax expense drives down reported earnings, which is a no-no for public companies. So they make the representation, and eventually a piece of accounting kabuki comes to drive behavior.

  29. 29
    Mnemosyne says:

    @FormerSwingVoter:

    However, if your point was that the tax cuts should have been extended for another year or two and then allowed to lapse, I think I’d agree.

    I am already imagining the shrieks from the left that would have erupted if the Bush tax cuts had been temporarily extended once again. But that’s because I doubt there would have been a workable deal that would have temporarily extended only the ones on people until $250K and permanently extended them on everyone else.

  30. 30

    @burnspbesq: I can’t pay you your hourly rate, but I have a quick question, what tax forms does one have to file if one inherits property overseas?
    My husband who is a permanent resident had inherited a house from a relative in India, the house was recently sold. So he has a fair amount of cash in the bank sitting in India.

  31. 31
    Xenos says:

    @Judas Escargot, Bringer of Loaves and Fish Sandwiches: Harvard Pilgrim is a non-profit. That bastard is paying himself 24 million for administering a charity. How did we ever let this sort of thing happen, much less become typical?

  32. 32
    White Trash Liberal says:

    I have nothing much to say in comment to this post without resorting to ad hominem.

    Just, Berny, take a long look at your preoccupations and the facility with which you analyze them. You consistently create a false dilemma using a dialectic and then fail to follow it through to conclusions that stand up to scrutiny.

    The mark of bad punditry is whether it takes more words deconstructing your faulty assumptions than went into the article.

  33. 33
    Jeremy says:

    @Mnemosyne: Like I said a number of people really don’t understand that the Dems got more in that tax deal than many people realize. People who understand tax policy on the right are pissed about the deal because they know the dems clearly won that fight.

    People in the 250,000 + range will pay more in taxes due to the phaseouts of numerous exemptions and deductions. If you add up all the new taxes from the cliff deal and ACA the wealthy will face a higher burden than the 90’s and the late 80’s. While those on the lower end will face a lower tax burden.

    Now I believe we will eventually need more revenue but the middle class can’t afford more taxes when this economy is still recovering and income inequality has become a big issue.

  34. 34

    @Corner Stone:
    We’d still get stuck with the occasional Carly Fiorina (Who IMO is pretty much the ultimate example of the “incompetent Made (Wo)man” archetype).

  35. 35

    @Xenos:
    He deserves it, obviously. Went to Harvard and has an MBA don’t you know.

    (I can only refer folks to Chris Hayes’ Twilight of the Elites at this point).

  36. 36
    Zifnab25 says:

    But until Dec. 31, option 1 had one amazing advantage. It was actually, you know, doable. It was, furthermore, doable by doing nothing. And had we done nothing and allowed everything to lapse, then it might have been possible to pass a lot of the items under option 2 because you could pass them with tradeoffs against Clinton era rates.

    I just don’t know if this is true. I agree, we absolutely could have gone over the cliff in January, and stayed over it. Politically, I suspect we could have even pinned the whole mess on Republicans, at least until the Wingnut Wirlitzer really started spinning out crap. But do you honestly believe you could have gotten anyone in the GOP-controlled House (or, for that matter, the mushy-Dem corporate-friendly Senate) to bite on even half of the proposals in (2)?

    I just don’t see it. Pressure builds on Dems as well as Repubs, and the blame game only gets you so far. If the economy backslides, that hurts the President far more than the GOP.

    I think Obama is going to take a more aggressive role as executive in his second term. If his pronouncements on the gun control debate are any reflection of his intentions generally, it sounds like he’s becoming less and less afraid to simply issue an executive order based on existing laws and tell the GOP obstructionists to piss up a rope.

    Obama already released the IRS hounds on tax evaders when he took office in ’09. He’s got an army of bureaucrats that can interpret the rules on all sorts of regulatory provisions. He’s got the Bush playbook to leaf through in taking an end-run around both Congress and the Judiciary. If the legislative path is a dead end, as the GOP plans to make it, Obama has other options.

  37. 37
    Pococurante says:

    @Judas Escargot, Bringer of Loaves and Fish Sandwiches: Executive compensation consultants, opaque crony boards of director, and incompetent/inattentive pension executives.

    Who entrenched the behavior starting in the late 1980s and particularly during 1990s economic expansion complimented by eTulip/dotBomb group think.

  38. 38

    Um…maybe, but I have to admit it feels like magical thinking to me. It’s a liberal version of “dynamic scoring.”

    Bernard, could you talk to Brad DeLong or someone else who knows WTF he is talking about here?

  39. 39
    burnspbesq says:

    @schrodinger’s cat:

    As a general rule, inherited property is not included in income. But if you sell inherited property, the gain or loss is relevant for income tax purposes. If its a capital gain or loss, it would be reported on Schedule D.

  40. 40
    gvg says:

    I think you have been suckered Bernard, into believing that deficits are a crisis. I’ve been hearing this claim and that SS needed cuts for my entire life. The disaster never arrives. They have cried wolf too many times. I just don’t believe them anymore. I know the 2 issues aren’t the same but they get used by the same mouths. You have bought a line and are repeating it but it just isn’t valid.
    Demographic projections and long term economic projections etc just really don’t turn out to be valid because new things happen and become factors. There is no point in making major changes decades in advance. I know it is “easier” to save money for retirement or other things if you start young, but the national/world economy just doesn’t work that way. Projections too far out are junk IMO. Any individual or organization who comes up with scarey projections over and over based on something they think will happen over a decade from now, is not to be relied on. Most of the time a check of their agenda will make that clear anyway.
    Even non partisan experts like the Congressional budget office have to be viewed with caution because they do the projections they are asked to, including long term and based on the requested assumptions.
    We are supposed to run deficits in economic downturns not booms. I was annoyed with Bush for granting tax cuts in the boom because he should have been finishing of the prior debt and then hording a little for the next. I know that historically it is always hard to get tax increases through, but realistically we have to learn to do it anyway WHEN TIMES ARE REALLY GOOD. Right now, on middle and lower, forget it. Any attempt to raise taxes (repeal of Bush without modification amounts to that) on middle is just a GOP trap set for democrats that they declined to step in. Screwing the people who elect you would be bad political practice. It would really have hurt the economy.

  41. 41

    @Pococurante:
    I don’t disagree with any of this. (And that same CEO ends up on the Boards of other companies, where he votes on the salaries of others within his class, and will of course return the favor).

    “Corporate Mafia” does sound a bit shrill when you say it out loud. But if there’s a better term describing our peculiar hereditary class of overpaid and unaccountable middlemen/grifters, I haven’t heard one.

    BTW I should stress that I have nothing against well-paid people (I do ok, myself) or Ivy grads, per se. My problem is with the total detachment of compensation from actual value generated and/or performance, and the total lack of accountability that has allowed this class to trash our culture and economy with no ill effects to themselves, whatsoever.

    Let’s pick on Ms Fiorina, again: Utterly obliterates two well-known brands that took decades to build (Compaq and DEC), and damn near kills HP. Walks away with tens of millions, will be wealthy for life, and is still taken seriously enough by the rubes to make a run for elected office.

    As the Sages say: That is Wicked Fucked Up.

  42. 42
    catclub says:

    @gvg: “Any individual or organization who comes up with scarey projections over and over based on something they think will happen over a decade from now, is not to be relied on.”

    One of the lesson of ‘Projects and Morons’ I have bookmarked. Liars will lie about everything. Once you cannot trust them on one thing, you cannot trust them on ANYTHING.

  43. 43
    Betsy says:

    @Hoodie: You get my “Savvy Political Strategy” award.

  44. 44
    burnspbesq says:

    @schrodinger’s cat:

    One more thing: if hubby has more than $10K in a foreign bank account, he needs to file an FBAR (a completely separate form that is due June 30 and goes to a different place than your income tax return) and attach Form 8938 to your 1040.

  45. 45

    @burnspbesq: Thanks so much, I usually do our taxes, I am wondering whether we need to find someone else to do them, this year.

  46. 46
    Seanly says:

    How about we wait a couple of years until the economy turns around to worry about raising taxes? Right now, borrowing money is essentially free or even discounted (real interest rate is interest rate minus inflation).

    If we spend a trillion dollars on infrastructure, we put people to work, drive demand on a whole series of industries at blue collar & professional levels plus gain the benefits of improved infrastructure. We need to spend a lot of money on infrastructure whether we want to or not. Might as well do some of it.

    Then when the economy picks up, we increase taxes as a mean to limit inflation.

    Yes, I work on the professional end of the infrastructure market. I spent 7 months unemployed in 2011, had to move 2500 miles for a new job, still own a house 2500 miles away and will be supremely pissed if I lose my job again.

    I remember in the early 90’s when the deficit was some insurmountable problem that would never be solved. Three years later, Clinton put us on a path to balanced budget.

    Shorter – read more Krugman.

  47. 47
    Bernard Finel says:

    @Mnemosyne: yes, higher. Not higher than we would have with full expiration, tho. Quite a bit lower indeed. Most of the increase, tho is ACA related stuff kicking in this year.

  48. 48
    Bernard Finel says:

    @NCSteve: wow, I hope that’s true. Seems to me though that even in a situation where GOP has gone off the deep end, they still control House. Politics swing like a pendulum. If you want to believe GOP is at high point and likely to decline, okay. But it seems to me that we’ve won 2006, 2008,and 2012, so if there is a pendulum it is likely to move against us. Demographics are on our side which is a huge structural advantage, but there is nothing genetic that makes GOP economic ideas only appealing to white men. The problem for the GOP is its commitment to the social status of white males makes it unappealing to everyone else. But I don’t consider it a given that a post-confederate GOP might emerge that still sees the “free market” as the answer to everything, and it isn’t clear to me that such a party is an inevitable loser. But this deserves a fuller discussion,

  49. 49
    Bernard Finel says:

    @FormerSwingVoter: that is a my argument, actually on policy grounds. But considering politics, I think I’d rather have the pain come sooner rather than later. That said, even though the pain would be quite significant for me personally in terms of dollars, I realize that I am blessed enough that it would not devastate me the way it might others. So yeah, I get it. This ain’t an easy issue.

  50. 50
    Bernard Finel says:

    @low-tech cyclist: Challenge accepted. Show me where Brad DeLong argues infrastructure investment can boost long-term economic growth rates sufficiently to close structural deficit without new taxes or benefits cuts.

    I dare you. I double dog dare you.

  51. 51
    Omnes Omnibus says:

    @Bernard Finel: The point some of us have been making is not that long term infrastructure projects will close the gap by themselves, but rather that those projects are a better use political capital now and that such investments today will create an environment in which it is easier and less painful to deal with deficits in the future.

    Grow the pie.

  52. 52
    Sister Machine Gun of Quiet Harmony says:

    I completely agree with Bernard. I also think we need to cut military spending. Plus, we need to work on further reducing the cost of healthcare.

  53. 53
    mclaren says:

    Usually I’m right with you, Bernard, but in this case…not so much. In fact, the criticisms being leveled against you in this thread and in the previous ones seem pretty much valid.

    Commenter The Republic of Stupidity @3 has an excellent point:

    Heaven forbid we ever get serious about cutting our enormously bloated military budget…

    You never address this issue. I know it’s probably because you make your living off the military-police-prison-surveillance-torture complex, but, c’mon, Bernard, seriously! Spending on DHS/TSA/CIA/Pentagon/black ops assassination is wildly out of control and continues to rise at an unsustainable rate. Polls show the public is sick of it and wants drastic cuts in America’s national security spending. Only insiders like you, who make their salaries by feeding over the giant rotting carcass of the U.S. national security complex, don’t realize it’s dead and decaying. America has no enemies. There are no credible plots against us — the FBI had to instigate all the “terror” schemes they’ve arrested people for. Terrorism has plummeted worldwide since 9/11. Al qaeda was never a serious threat, with less than 100 members in all of Afghanistan, and now it’s been destroyed and its finances wiped out. There is no meaningful military or terror threat to America anywhere in the world, and there isn’t likely to be in the foreseeable future, since all the sources of funding (Iran, wealthy Saudis, Syria, North Korea) are either under crippling sanctions or embroiled in civil wars or economically collapsing.

    Times in 2013 are radically different than in the late 70s when the USSR was funding guys like Carlos the Jackal. Such people just don’t exist today. There is no threat. The only major military-economic power in the world that might conceivably threaten us, China, is so closely tied to us economically that Chinese military action against us is an absurd impossibility.

    Feebog @7 makes an excellent point:

    You still have not established why we will need 24 or 25 percent of GDP to fund future government programs. As I pointed out in the last thread, we were running surpluses at 20 percent GDP in the late 90′s.

    Today’s out-of-control deficits are due to 3 simple trends: [1] runaway out-of-control national security spending since 9/11, most of it wasted and pointless and self-destructive; [2] crazy waste on Medicare Part D that could be eliminated by forcing big pharms companies to bid against one another, or, even better, by nationalizing U.S. health care to force U.S. drug makes to sell their drugs at a sane reasonable price the way the rest of the world does (or, better yet, just nationalize all the big pharma companies and make them non-profit government operated R&D facilities); [3] crazy tax cuts for billionaires that have trashed the U.S. economy.

    I’m pretty sure everyone on this site recalls, Bernard, your ill-fated suggestion from several years ago that maybe we should just cave in and give the billionaires everything they’re asking for, and then maybe they’ll let us alone. That kind of thinking was so spectacularly wrongheaded that it betrays an utter lack of realism about America in the 2010s. The billionaires want it all. No matter how much we give them, they’ll always want more. This is culture war, and it’s them or us. The Occupy movement was only the warmup. If the Bush tax cuts aren’t ended, someday in the foreseeable future you’re going to see human waves of starving people burning down their mansions and hanging the billionaires from lampposts. They can call out the national guard, but eventually, soldiers run out of bullets, as the U.S. army learned at Chosin Reservoir in the Korean War.

    Schrodinger’s Cat @12 makes what seems to me the central point:

    Bernard you have internalized the deficit scolds mantra that the debt and deficit are the biggest problems were are facing right now. In my opinion the biggest problem we face is high unemployment.

    The proper response to the so-called debt “crisis” is not to split the difference between further impoverishing the middle class and slightly raising taxes on the wealthy to a rate far below the Eisenhower era.

    The proper response is that there is no goddamn debt crisis. Fuck the deficit. The problem is JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS. JOBS.

  54. 54
    mclaren says:

    Bernard writes:

    I can’t help but feel that a lot of the comments reflect what we wish would happen rather than what is actually politically feasible.

    Commenter Xantar @15 offers a devastating rebuttal which, I think, strikes home:

    Your entire argument hinges on what you think is politically feasible, and you come to that opinion by way of guesses and a little bit of political mind-reading. In other words, you don’t know the political future any better than the rest of us. You do in fact have some pretty spectacular misses in your blogging history. Remember when you were convinced that Obama was going to lose the third debate? Not that I could do any better. But at least I’m aware of that.

    Talking about what’s “politically feasible” is wildly different from talking about, say, what’s economically feasible, or what’s scientifically feasible. Economics or science depend on hard numbers and the limits of technology. There’s no wiggle room there.

    But politics depends on peoples’ state of mind, and that can completely transform in a heartbeat. Remember back in 2006 when all the pundits scoffed at Obama’s candidacy? Remember how all the talking heads sagely opined that a freshman senator black guy with a weird foreign-sounding name just had no chance at all against Hillary Clinton?

    Politics is a labile arena. Things that seem impossible on Monday have a way of becoming inevitable by Wednesday. Remember the consensus inside the beltway in 1999 that Clinton’s presidency was over and that he would have no choice but to resign once his affair with Monica Lewinsky came out?

    Or how about the consensus prior to the Iraq invasion that America was a “hyperpower” and could bend any nation in the world to its will with a sufficient application of military might?

    In my experience, talking about what’s “politically feasible” is usually a cover for the mindless common wisdom — which, as savvy investors know, is usually wrong. The phrase “politically feasible,” in other words, is typically a placeholder inserted instead of the words “I lack the imagination and breadth of historical knowledge to recognize that the most unlikely-seeming scenario is often the outcome in American history.”

  55. 55
    General Stuck says:

    @mclaren:

    In my experience, talking about what’s “politically feasible” is usually a cover for the mindless common wisdom — which, as savvy investors know, is usually wrong. The phrase “politically feasible,” in other words, is typically a placeholder inserted instead of the words “I lack the imagination and breadth of historical knowledge to recognize that the most unlikely-seeming scenario is often the outcome in American history.”

    Ring that bell, Quasimoto !!

  56. 56
    mclaren says:

    @Mnemosyne:

    I do love that Bernard seems to be completely ignorant of what was actually in the recent tax deal and seems to have no interest in relieving his ignorance.

    Tell us, Bernard, will people who make between $250K and $400K in 2013 be paying a higher dollar amount in taxes than they did in 2012? Why or why not?

    Ignore this addlepate, Bernard. She has only one bow in her rhetorical quiver: accusing anyone with whom she disagrees of being ignorant and mentally unbalanced. Since there’s not the slightest evidence that Bernard lacks knowledge in the subjects he discusses, this kind of kindergarten debating tactic proves particularly useless here.

    The problem with Bernard’s claims on the deficit isn’t that he’s ignorant, or that he’s stupid, or that he’s mentally ill, or anything of that sort. It’s the Inside-the-Beltway problem: Bernard makes a good living inside the Washington establishment and for him and his buddies, the economy is humming along just fine. Bernard doesn’t anyone who’s out of work and living in his card. Bernard’s biggest problem is getting a table in a trendy restaurant in D.C. — he’s not worried about losing his house or getting sick and being savagely beaten by hospital security guards before getting thrown out on the street because he has no health insurance and can’t come up with a $5,000 cash deposit.

    People as deep inside the Beltway was Bernard Finel aren’t living in the same world as the rest of us. Worrying about deficit reductions seems reasonable to them because for them, life is great and the economy is recovering nicely, and everyone is doing well, so that’s the next item on the agenda of Very Serious People. For Finel and guys like him, the crisis where people he knew might actually lose their jobs (early 2009) is long over. The economy has recovered. Everything’s great now. For Bernard, and for the people he knows.

    Outside Versailles on the Potomac, out here in the real world, the economy continues to worsen, a bunch of respected economists have just announced that we’ve entered another recession, and the middle class is disintegrating at a terrifying pace. Out here in the real world, small towns are drying up and blowing away, and people are getting turned out of their homes and wandering away to live in their cars. Out here in the real world, new college graduates can’t find jobs, and cops are arresting homeless people and putting ’em in jail for charging their cellphones in the public park on the basis of “theft of public services.”

    Out here in the real world, cities are shutting down their streetlights because they can’t afford to pay for ’em. In the real world, deficits are not the problem. But Bernard doesn’t realize that because he’s cocooned inside the D.C. bubble and the reality distortion field has completely obscured his view of planet earth.

  57. 57
    mclaren says:

    @General Stuck:

    Ring that bell, Quasimodo!

    In 1999, how many pundits predicted America would be mired in an unwinnable war in Iraq within 4 years?

    In 2004, how many “political experts” predicted America would have a black president within 4 years?

    In 2007, how many Beltway insiders predicted that the next president of the United States would be routinely ordering the murder of U.S. citizens without even accusing them of having committed a crime?

    In the real world, the unthinkable outside possibility is all too often the way things work out.

    Right now, it’s an unthinkable outside possibility that Americans might turn against the U.S. military-police-surveillance-prison-torture complex to the point where they force politicians to largely dismantle it.

    Times change.

    Right now, it’s an unthinkable outside possibility that we could get 1960s-style mass riots with cities burning and the national guard called out — but this time to save the mansions of wealthy people.

    Times change.

    Right now, it’s an unthinkable outside possibility that capitalism has run into such fundamental problems because of robotics + databases + algorithms + the internet that it no longer works, and we’re going to have to abandon capitalism for Plan B.

    Times change.

  58. 58
    Aaron Morrow says:

    @Bernard Finel:
    Brad DeLong argues that infrastructure investment can boost long-term economic growth rates sufficiently to close structural deficit without new taxes or benefits cuts when the real interest rate is no more than 2.5 percentage points above the economic growth rate.

    Basically, he’s been saying that since the real interest rate crashed to zero, stimulus is more than free.

    http://www.brookings.edu/~/med.....ummers.pdf

    Stimulus now, anti-stimulus when unemployment is down and inflation is higher.

  59. 59
    mclaren says:

    @Aaron Morrow:

    Yes, but Finel’s point is that long-term U.S. GDP growth has damped for reasons related to the configuration of the current world economy, and throwing all the money in the world at stimulus won’t let America regain the kind of GDP growth rates we got coming out of recessions in the 1950s and 1960s and 1970s and 1980s.

    Right now, there’s substantial evidence that America’s GDP growth is oil-limited. See, for example the Lloyd’s 360: Sustainable Energy Security report.

    Also see “Oil’s tipping point has passed: The economic pain of a flattening supply will trump the environment as a reason to curb the use of fossil fuels,” James Murray and David King, pdf from the Washington State University website.

    The problem we face is that if the U.S. economy recovers it will push the rest of the world economy into a higher-growth mode along with it, which in turn increases demand for oil and creates price spikes. This produces a global recession of the kind we experienced during the oil price spikes in 2007-2008, and then when the U.S. economy recovers, rise, wash and repeat.

    The other problem is that, as Tyler Cowen and others have pointed out, the low-hanging fruits in technological innovation have all been picked. Global economic growth depends on technological innovation, and because of practical physical limits, tech innovation has reached a plateau in a wide range of areas. This means that U.S. (and worldwide) economic growth is settling in to a permanent lower-growth mode. Examples abound: Hitachi recently unveiled a digital hi-def TV with 4K resolution, but this resolution is at the limit of the human eye. Higher resolutions won’t make a perceptible difference. Likewise, going beyond 16 bit 44.1 khz audio (the CD format) makes no audible difference. At the same time, CPUs in personal computers have long hit a plateau of about 3 Ghz, and there are no tech innovations on the horizon that promise faster CPU speeds. Airplanes have hit a speed limit of about 600 mph, and while supersonic passenger jets are technologically possible, the cost and associated problems (like sonic booms and maintenance problems) make supersonic passenger jets impractical.

    The additional problem that Bernard doesn’t mention is the real issue with long-term deficits and debt is not GDP, but the relative growth rates of spending. The growth rate of medicare is way out of control and unustainable. The growth rates of the various components of the U.S. national security spending are also way out of control and unsustainable: the budget of the Department of Homeland Security, for example, is doubling about every 7 years, likewise the budget of the TSA, and so on. It’s impossible to grow the U.S. economy at a high enough rate to fund those kind of out-of-control budget increases, so the only solution is to cut costs.

    Finel doesn’t seem enamoured of cutting the costs of America’s military-police-prison-surveillance-torture complex, so the only other place to cut in the U.S. budget that has any money is medicare/social security.

  60. 60
    Aaron Morrow says:

    @mclaren: So he’s just a Peter “Pete” Peterson Foundation type?

    The whole point of stimulus now is to defer the austerity until later, when inflation is higher. It’s basic macroeconomics.

    That article on the peak oil myth was rebutted already: http://blogs.cfr.org/levi/2012.....ut-of-oil/

    Even the neoliberal Matt Yglesias knows there’s easy money to be made in rebutting Tyler Cowen. New technological advances are touted every week, and there’s no sign of Moore’s Law letting up, despite those anecdotes. (Here’s my anecdote!: http://www.eetimes.com/electro.....geNumber=4 )

    Medicare spending is not out of control:
    http://theincidentaleconomist......-spending/

    “The real issue with long-term deficits and debt” is that it’s a long term problem that we’re attacking too much in the short term. We’ve already cut the budget by $1.5 trillion in appropriations cuts and raised taxes by $0.5 trillion. Instead of going full on Peter “Pete” Peterson Foundation and castrate the economy now, I think we should should avoid anti-stimulus with unemployment at 7.9%.

  61. 61
    Bernard Finel says:

    @Aaron Morrow: There is nothing in that paper, literally nothing, that suggests a boost to long-term growth rates. DeLong’s analysis — with which I wholly agree, btw — is a response to the “freshwater” claim that government spending is incapable of reducing output gaps. The issue for DeLong and others is closing this gap, but this is a short-term issue, not about shifting the long-term economic growth trendline.

  62. 62
    Bernard Finel says:

    @mclaren: I have no clue where you have gotten the idea that I don’t support defense cuts. Actually, I support pretty massive cuts. What I have said about this, however is the following:

    (1) Changes in strategy ought to precede major cuts. This is not a call for delay. Strategy can be changed very rapidly. But before you can cut, you need to know what you can cut.

    (2) The risks associated with defense cuts are not inconsequential. I agree they can be managed effectively. But there is no perfectly free lunch here.

    (3) There is less waste, fraud and abuse than people sometimes think in the national security area. Yes, there are billions of waste. But again, it isn’t all fat there. Cutting also means cutting bones and muscle. Again, not a reason not to do it, but this isn’t just about waste and fraud.

    (4) The national security budget is huge, and has dramatically grown since 9/11. But future projections show it flat. It is a massive problem for the budget, but not a growing one at this point — unlike health care costs which continue to grow at 2x inflation.

    (5) Your claim about my view of the police/prison complex could not possibly be further from my actual position. I am a huge critic of our criminal justice system, almost across the board. I continuously rail against prosecutorial misconduct, the war on drugs, the private prison industry, etc. My views on these issue are about as radical as anyone’s in actuality, so I have no idea where your assessment of me comes from. On torture… well, suffice it to say, I have actively harmed my career by being as outspoken as I have about my opposition to torture and my view the Bush Administration officials should have faced criminal sanction for its torture policies.

  63. 63
    Bernard Finel says:

    @Feebog: Yes, but since 2000, we have passed two major new health care related programs — the drug benefit and ACA. Health care costs continues to grow much faster than inflation. Even in the past three years which have seen the slowest growth in those costs in a generation, they are still growing at 2x inflation. Our debt burden is also twice as high. We’ve already incurred a huge infrastructure debt from underfunding for a generation. Add it together and you’ll find that just funding current programs fully in 2022 requires over 23% of GDP and the number grows from there.

  64. 64
    mclaren says:

    @Aaron Morrow:

    I certainly wouldn’t characterize Bernard Finel as a Pete Peterson type. His arguments are much more nuanced than that, and Bernard’s whole outlook is far more progressive than Peterson’s. Unlike Peterson, Bernard genuinely wants a social safety net, he’s just debating how we get there.

    Finel is exactly right that deLong’s paper shows no prospect of growing our way out of these kinds of long-term deficits. As Bernard points out above, the basic problem isn’t boosting GDP growth for the next few quarters. The essential problem is that coming out of recessions America’s economic growth rate has successively dropped from the circa 7% (yes, 7% believe it or not) after recessions in the late 1940s and early 1950s.

    Here’s a really good long-term chart of inflation-adjusted U.S. GDP growth from 1950 to 2010. You can see there’s a long-term trend line that runs from about 4.5% per annum (weighted average) in 1950 to 2% per annum in 2010. This is a secular decline. It’s due to a lot of things, but it’s real, and it’s what Bernard is talking about (I think). Over the long term, this secular trend means we’re not gonna be able to grow our way out of these kinds of deficits.

    Thus we must cut something. What’s puzzling about Bernard’s posts is that, as Ezra Klein has noted, the long-term deficit is really about medicare. And we know how to fix medical costs in America: by shutting down our current broken greed-driven for-profit laissez faire medical services system, and setting up a nationalized single-payer health care system that mandates maximum prices for all medical services and devices. If companies and physicians don’t like that, they can leave America and go practice in France or Germany and see how much more money they’ll make. Hint: they’ll make a lot less, since doctors in Europe make on average about 50% of the salary of doctors in America.

    But Bernard doesn’t talk about genuine reform of the broken U.S. health care system at all in his proposed solutions, which I find inexplicable, given Ezra Klein’s graph above.

  65. 65
    Bernard Finel says:

    @mclaren: I would love to move to a single payer system that brings costs in line with the rest of the industrialized world. I just happen to see no plausible mechanism for bringing that about. Do you? How do the politics on that work? I mean, hell, it was hard enough to keep Dems from running away from ACA which is, actually, quite modest in comparison.

  66. 66
    General Stuck says:

    Sniffle sniff, wipes away eye moisture. Bernard and mclaren have found one another, my work is done. sniffle

  67. 67
    Brachiator says:

    @Bernard Finel:

    1) Allow all Bush tax cuts to expire bringing back Clinton era rates for everyone.

    You misstate the options. I don’t know if this is deliberate or just a lack of understanding on your part.

    It was never just about possibly bringing back Clinton era rates for everyone. There were tax year 2012 items held hostage, along with the need for an AMT patch for at least 2012. This part was such a mess that the last minute agreement has already resulted in tax filing being delayed until January 30 for most people, and February or March for the remaining 10 percent of filers. And, oh yeah, no AMT patch would have meant an immediate $3,500 extra tax bite for about 28 million taxpayers. It would have been very interesting to see the Democrats try to sell this to voters without committing political suicide. I just don’t think that “cause we need the money” would have cut it.

    Also held hostage were some of Obama’s stimulus measures like the expanded education credits and one of the last hopes for some homeowners, the Mortgage Relief Act. These measures would all have died had Obama followed your advice.

    And the biggest thing: it is abundantly clear that you believe that raising federal revenues is so important that it doesn’t matter whether this would also mean that low income taxpayers would have to absorb a huge de facto tax increase, since “simply letting” the Bush tax cuts expire would also mean that the child tax credit, the child and dependent care credit and the earned income tax credit, among others, would be greatly reduced.

    Your emphasis on federal revenues at the expense of real, actual human beings, is odd for someone who calls himself a progressive.

    You keep insisting that doing nothing was doable. Quite simply, you don’t know what you are talking about. The impact of this on ordinary people, and on the economy, would have been devastating, because doing nothing would have meant hitting lower income and middle income people with a huge tax increase. And you still have never offered any practical way of ameliorating the inevitable suffering that would result. You just keep implying that sacrifice is necessary.

    Your other solutions and proposals are an odd batch of speculation and guesswork that don’t really address issues of jobs and wage growth. Maybe you just don’t think this is important. And this is even before we get to issues such as health care and Social Security.

    You have not convinced me that federal revenues über alles is either realistic or meaningful tax and economic policy.

  68. 68
    Irony Abounds says:

    Who exactly are you trying to take care of in this “safety net” of yours that you think it takes 24-25% of GDP in tax revenues to sustain? Old people? Yes there are old people who need assistance, but at this point in our history it is nowhere near the numbers of pre-Social Security. Poor people? If there are so many poor people that you have to tax the middle class to support them, you can stick a fork in this country, cause it’s over. Government employees? Get them higher wages so they can be taxed more along with everyone else. Most people making under $250K a year are taxed enough, particularly when you add in all kinds of taxes, federal and state income taxes, payroll taxes, property taxes, sales taxes. Not to mention having to shoulder more and more of their health care costs and college costs that are soaring through the roof. Cut defense – significantly. Use the chained CPI and make provisions for the worst off seniors. Push Medicare and Medicaid patients into more cost efficient medical plans. Cut subsidiaries for corporate American, particularly agriculture. Give the middle class a chance to grow stronger for God’s sake.

  69. 69
    Aaron Morrow says:

    @Bernard Finel: While the paper was not focused on the point that stimulus is not “magical thinking,” it certainly does assume that “policies to reduce the deficit in the short run–before 2016, say–are highly, highly likely to actually increase the long-run burden of the national debt.” Indeed, long term inflation rates would be lowered because we pay down the debt later rather than now, i.e. Bernard Finel’s proposal. (Delong assumes that in times of high employment, lower interest rates leads to greater growth.)

    Brad DeLong just mentioned that again this weekend, along with the fact that the concept that “deficit reduction in the near future would reduce rather than increase the long-run burden of the debt” is a “unlikely assumption”

    Source: http://delong.typepad.com/sdj/.....-2020.html

  70. 70
    Aaron Morrow says:

    @mclaren: “The essential problem is that coming out of recessions America’s economic growth rate has successively dropped from the circa 7% (yes, 7% believe it or not) after recessions in the late 1940s and early 1950s.”

    I believe that stimulus is needed to strengthen the economy, as we had after those early post-war recessions. You and Bernard Finkel seem determined to replicate the slow growth of recent recessions and not preventing austerity measures that may actually cause a double-dip recession.

    “Over the long term, this secular trend means we’re not gonna be able to grow our way out of these kinds of deficits.”

    I think you’re underestimating the effect of having the Fed Reserve Board focusing on low interest rates, but I can’t say that I would focus on deficits rather than unemployment.

    I don’t know how the assumptions underlying Social Security and Medicare may differ, but the population growth (the driver in increased Medicare costs, source: http://theincidentaleconomist......-spending/ ) is said to no longer be a problem after 2035 or so under Social Security.

    (Had a chart the other day, but can quote this, “Program costs equaled 4.2 percent of GDP in 2007, and the Trustees project these costs will increase gradually to 6.4 percent of GDP in 2035 before declining to about 6.1 percent of GDP by 2050 and then remaining at about that level.” Source: http://www.ssa.gov/oact/TRSUM/index.html )

    Finally, I’m wary of anyone who thinks ending stimulus and promoting austerity now is a good idea. Deficit before jobs: that IS a Pete Peterson type.

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