StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between



Obama's Budget Message: You Can't Have Your Cake and Eat It Too

15 Apr 2011
Posted by Bruce Bartlett
On April 13, President Obama attempted to change the budget debate in Washington, which has been conducted entirely on Republican terms for the last two years. In particular, he is trying to put taxes back on the table as part of the solution to the nation’s debt and deficit problem.
 
Unfortunately, debate on policy issues these days is less about finding common ground and making deals than about framing them into all-or-nothing propositions. Those on each side have become more and more like lawyers in a courtroom, saying pretty much whatever they can get away with to advocate their position, whether as prosecutors or defense attorneys, with the idea that the truth will come out in the process.
 
Of course, one problem with this adversarial system when it comes to public policy is that there is no judge to enforce order and maintain honesty; nor is there an impartial group of citizens willing to take the time and effort to study the evidence, carefully listen to the arguments, and render a fair judgment. The closest we come in the policy arena is a media that fact checks and evaluates political statements and policies in somewhat the way a judge does, with voters voting for guilt or innocence on Election Day.
 
Since voters have many other things on their minds and often get their news from partisan sources today, the only way to get their attention and possibly change their minds is to ratchet up the rhetoric and take a position just as extreme as one’s adversary. Trying to be reasonable and appeal to the center doesn’t work any more. It just makes you look weak and forces you to fight policy battles on the other side’s turf.
 
Republicans clearly understand these rules better than Democrats, Obama especially. On the tax issue, the Republican message is simple, clear, unambiguous, and wrong. But it is repeated so relentlessly and aggressively that its logical and factual weaknesses get lost in the discussion. Rather than counter the Republican position with reason and evidence, Democrats mostly say nothing, perhaps hoping that the media will do the dirty work for them.
 
At its core, the Republican position is based on several falsehoods. First is that the budget deficit is 100 percent a spending problem that has nothing to do with revenues. Second is that the American people are grossly overtaxed and taxes must never be raised at any time for any reason. Third is that tax cuts have magical properties; they starve the beast and hold down spending, while at the same time so massively stimulating growth that revenues will actually rise based on phony-baloney numbers from the right-wing Heritage Foundation (see here and here.)
 
Unfortunately, Democrats and the media have really made no effort to refute these lies. Indeed, they appear incapable of even making the simple logical point that the deficit is the difference between outlays and revenues; therefore, tax cuts will necessarily increase the deficit. The Bush tax cuts, to which Republicans are obsessively devoted, reduced federal revenues by about 2 percent of the gross domestic product annually. This can be seen from the fact that revenues were 20.6 percent of GDP in 2000 and 18.5 percent of GDP in 2007 at the peak of the business cycle before the recession reduced them to 14.9 percent of GDP, where they have been for the last two years. (The postwar average is about 18.5 percent of GDP.) Without the Bush tax cuts – and those added by Obama – revenues would likely be more like 17.5 percent of GDP, which is where they were at the trough of the last three recessions.
 
If revenues had been 2 percent of GDP higher over the last 10 years, the federal debt would be about $2.5 trillion smaller. Instead of having a debt of about 60 percent of GDP last year, it would have been about 44 percent. And that doesn’t take into account of all the interest that would have been saved that now adds about $60 billion to the deficit annually. Together, higher revenues and lower interest spending would have reduced last year’s deficit by one-third.
 
Of course, Republicans claim that the Bush tax cuts stimulated growth in the last decade. But real GDP growth was much higher in the 1990s, unemployment was much lower, and we had budget surpluses instead of deficits. Arguably, these benefits flowed in large part because of the tax increases in 1990 and 1993, not to mention those enacted by Ronald Reagan in the 1980s. Yet it is Republican dogma that tax increases never reduce the deficit despite the obvious evidence to the contrary.
 
Of course, no one likes paying taxes and it’s not unreasonable for people to oppose any increase. But right now, Republicans are essentially promising them pie-in-the-sky, while Democrats have done little to inject realism into the budgetary debate. So it’s no surprise that people overwhelmingly believe they can have their cake and eat it too. Polls consistently show that people believe that the budget can be balanced with spending cuts alone and that none of those spending cuts will affect them personally. (See below.)
 
Until people are forced to confront reality, Republicans will continue to hold the strong hand. President Obama is the only Democrat in a position to talk directly to the American people and explain to them that there are trade-offs, that tax cuts have added substantially to our fiscal problems, and that the budget isn’t going to be balanced by cutting foreign aid and waste. Once people are really threatened by virtual abolition of programs like Medicare and Medicaid, as Republican propose, the option of paying taxes no higher than they paid in the 1990s will look a lot better to them.
 
In his budget speech, the president started to push back, defending the good that government does against relentless Republican attacks, standing up for the budget deals of the 1980s and 1990s that raised taxes and produced budget surpluses, and proposing a new budget deal that doesn’t delude people, as the Republican budget plan does, that we can cut taxes an additional $3 trillion over the next decade and still balance the budget. At a minimum, that would double the spending cuts necessary to stabilize the nation’s finances.
 
Whether Obama is successful depends on follow through. He can’t just give one speech and move on to other issues; he must be relentless, especially in spelling out the facts about the nature of taxes and spending, and the lies that underpin the Republican position. This is trench warfare and Obama should be prepared for it. I know that Republicans are.
 
Recent Polls on Taxes and Spending
 
An April 6 NBC News/Wall Street Journal poll found that 61 percent of people favor a balanced budget amendment to the Constitution, down from 71 percent in 1995. Support falls to 27 percent when people are told that this would require a 20 percent cut in entitlement programs.
 
An April 4 YouGov poll found that an overwhelming majority of people favor large budget cuts. However, majorities also favor increased spending for education and medical research, and a strong plurality favor increased spending on clean energy technology.
 
An April 1 CNN/Opinion Research poll examined peoples’ knowledge of how the federal government spends its money. It finds that most really have no idea what percentage of the budget goes to various programs.
 
March 31 Pew poll asked people which among these programs the federal government spent the most on: Medicare, education, scientific research, or interest on the debt. Only 29 percent of people correctly said Medicare, 7 percent said education, 7 percent said scientific research, and 36 percent said interest.
 
March 16 Pew poll found sharply declining support for Republicans on budget issues. It also found strong opposition to cutting Social Security and Medicare, which Republicans have promised to do.
 
March 15 ABC News/Washington Post poll found that only 31 percent of voters support the Republican policy of only cutting spending to reduce the deficit; 64 percent believe higher taxes will also be necessary.
 
March 9 Bloomberg poll found significant opposition to many budget cuts proposed by Republicans.
 
Also on March 9, the Harris poll found strong opposition to cutting Social Security or Medicare benefits to deal with the budgetary problems of those programs. People are also opposed to raising taxes to fund them.

And a March 9 Ipsos/Reuters poll also found strong opposition to cutting Social Security or Medicare to balance the budget.
 
March 7 Harris poll found strong majority support for every government program that people were asked about with the sole exception of foreign aid.
 
March 2 YouGov poll found that people want government spending cut, but only on programs that don’t affect them.
 
Also on March 2, a NBC News/Wall Street Journal poll found strong opposition to cutting spending for Social Security, Medicare, Medicaid, K-12 education, heating assistance for the poor, college student loans, Head Start, and unemployment insurance. There was majority support only for cutting nuclear power subsidies, aid to state and local governments, the EPA budget, and spending on transportation and infrastructure projects. The poll also found that 81 percent of people would support a surtax on millionaires to help reduce the budget deficit, and 68 percent would support eliminating the Bush tax cuts for those earning more than $250,000.
 
On March 1, the Tarrance Group issued a poll which found that 63 percent of voters incorrectly believe that the federal government spends more on national defense and foreign aid than it does on Medicare and Social Security. Also, three-fifths of voters believe that the budget can be fixed just by eliminating waste, fraud and abuse.
 
February 16 Harris poll found that support for cutting spending is largely confined to small programs such as foreign aid, and that people favor increasing spending for big programs such as Social Security. The poll also shows that there is considerably less support for budget cuts today than there was in 1980.
 
February 15 CBS News poll found that only 49 percent of people believe that reducing the deficit will require cuts in programs that benefit them; 41 percent do not. Also, only 37 percent of people believe that reducing the deficit will require higher taxes on them; 59 percent do not.
 

"This can be seen from the

"This can be seen from the fact that revenues were 20.6 percent of GDP in 2000 and 18.5 percent of GDP in 2007 at the peak of the business cycle"

Thanks for pointing that out. That makes it so easy to see the loss revenue.


I continue to believe you're

I continue to believe you're misreading the polls. People are against government spending in the abstract and against any tax increase to pay for government in the abstract. They are in favor of many government programs and would favor tax increases (especially tax increases on other people, such as those making over $250,000/year) to ensure their favored programs continue.

The starkest example is Medicare. Overwhelming majorities, including majorities of Republicans, want to see it continued with little or no changes, and would support tax increases, especially among very high income earners, to make sure it continues.

As you say, follow through is essential. The Democrats need to hammer the message "Medicare or millionaires."

Why Democrats have been so timid when they're playing a very popular hand is one of the great mysteries of politics.


What surprises me

The tax cut mythology doesn't surprise me one bit. It's been an article of faith for those on the right for a long time.

What surprises me is the SILENCE from the Tea Party over the impact of the Ryan Plan on Medicare.

If you recall, when health care reform was being debated, the Tea Party went absolutely nuts over the part of the plan that would reduce Medicare payments by $500 billion over 10 years (primarily through a scaling back of Medicare Advantage programs). That is what led to the "government get your socialist hands off my Medicare" signs at rallies. Furthermore, the inclusion of payments for VOLUNTARY end of life counseling sessions led to screams of "death panels!"

Yet here we have a plan (the Ryan plan) that replaces Medicare with vouchers, the net result of which is to increase the out of pocket medical expenses of seniors from 30% to 70%, and what do we hear about it from the Tea Party? Applause.


Surprised, or not?

Bruce, I'm really surprised.

You want to talk about mythologies. So here comes the President with his "plan", a plan that is so nonspecific as to avoid enraging any group and makes the silly argument that raising taxes on the rich is both the cause of the problem and the nature of the solution and you write a quite long post on how the other side is constructing a fantasy.

Further, the data you supply is correct but incomplete. Where's the spending comparison of 2000 (18.6) or 2007 (20.0) versus the current and projected basically forever 24%+. Where's the note that tax receipts as a percentage of GDP recover to the historical average (18.5) by 2020 with no changes at all in the tax code from current law.

Seriously, if you want to accuse both sides of creating myths (and not just with a throwaway sentence buried in the post) it would be a very interesting piece.

Actually, on second thought, I'm not surprised. This site lost all sense of balance quite a long time ago.


What's missing

I think something important to consider in this analysis is what some of my more libertarian Tea Party associated friends think is about to happen, and frankly what I've seen intimated by politicians: massive pre-World War II Weimer Germany style inflation. It's almost an article of faith that our country's credit is bust and it's only a matter of time (days, weeks, months?) before massive inflation sets in. My friends think we'll be back on the gold standard in no time (hence all the gold talk the last two years on am radio) and that government will shrink down to pre-1900 levels as a result.

While they dread this catastrophe, my friends also look forward to it. Anything that brings on the crisis, such as not raising the debt limit, is both expected and welcome. After all, it's going to happen sooner or later, a result of our profligate ways, anyway. It's a bleak, uncompromising, near religious faith that is downright scary.


Disaster-Porn sells. The

Disaster-Porn sells.
The Budget: Destroyed in Seconds!


Brazilians, that lived under

Brazilians, that lived under heavy inflation until some years ago, are terrified with what they see in the United States. Even people on the left that I´ve talked with complains that "Bernanke is printing money from the air".

That´s not a gold bug issue.


SSI and Medicare

If Obama and the Democrats were honest, they would say directly that the government deliberately held down contributions to each and if we want to not cut benefits we must drastically increase Medicare taxes and (probably) increase SS taxes. This will hurt younger taxpayers at the benefit of their elders. Alternatively, we must change the payout --- a la Ryan or some other plan. The main point is that in any poll the point must be made that the choice of keeping payouts and the same payroll taxes is not an option.


Excellent post, THANK YOU

Bruce -

THANKS for your return to CG&G. For a while there, Stan was the only one holding the fort, which some of us thoroughly enjoy reading.

Your point about how much better the Republicans are on staying on point, coming up with awesome language "death panels" "death tax" that are great soundbithes and change the nature of the debate, or maintain a large percent of the population disbeleiving the truth, is truly remarkable. We can expect a lot of "swift boating" as well as maintenance of untruths and even frankly lies.

FYI, I'd bet $1000 that Medicare costs could be reduced by at least 10%, probably more (except the population is living longer, and the Baby Boom generation is aging into America). The issues of self-referral, uncoordinated care, and use of expensive technologies, that aren't worth nearly their cost, high use of specialist care, unhealthy lifestyles [diabetes is huge already and an absolute time bomb]... the list goes on. One of the biggest problems with Medicare is how much power various interest groups have... This is my baliwick,so I'm pretty confident. And I do agree Ryan's vouchers is useful from a budgetary/forecast predictability standard, but incredibly wrong from a patient care/solvency point of view.

One thing that is truly scary is we have a combination of a President who doesn't lead, and an extremely well-funded highly vocal, energized, large opposition AND an electorate that is ignorant and generally clusters around people of the same opinion... YIKES!


Ricardian Equivalence re: Taxes

A rational economic actor understands that government spending determines tax rates in the long-run. Deficits are deferred taxes, either through inflation, higher future rates. Or deficits represent lower government spending net of interest and principal payments.

My point is that running time series on GDP and tax rates to determine cause and effect ignores economic theory. I could easily argue that Republican gains in 1994 caused expectations that spending and taxes would eventually be reduced, and that caused optimism to spur investments, hence higher GDP growth.

So both partisans like Bartlett, Norquist and others are wrong about taxes and growth. It's the expectations of the level of government spending as a percentage of GDP in the future that will affect how investors that affect GDP growth rates behave today. That's what determines the percentage of what investors will actually keep for personal consumption versus handing over for someone else to consume.


Ricardian Equivalence

Does not hold if one major political party has veto power over taxes and refuses to raise them at any time for any reason. 


Ricardian Equivalence

It would hold. Suppose that Republicans refuse to increase tax revenue collections as a percentage of GDP. Then if deficits continue to grow faster than GDP, then the only solution is a combination of inflation and interest expense crowding out expenditures in the remaining budget. It's simple mathematics and logic.

Or is there another solution (default?) that you believe market participants are expecting?

Again, it's all about future expectations. My guess is that the markets are expecting a Simpson-Bowles type of tax revenue increase combined with a milder version of Paul Ryan spending cuts. 21% of GDP for long-run spending and tax revenues sounds about right. Everyone will have to give up a lot to get there.


Rational?

People aren't rational, and so Ricardian equivalence is bunk.

Anyone who thinks people are rational needs to pick up a history book.


Rational?

People who are successful investors are rational and forward looking. The people who change history are 99% rational. Hitler, Mao, Stalin, Osama, Obama, are all rational actors, no matter how much you'd like to believe they're crazy and irrational.

The irrational actors are in insane asylums.


I don't think today's budget

I don't think today's budget debates, including Obama's speech, are all that meaningful, because the government has not given voice to a coherent plan or theory to deal with the economy in total, over the next decades. People are reduced to reading tea leaves in the words of various government functionaries. The government is acting too timidly.

Over the last decades, Japan decided to greatly increase government spending, in order to mitigate a collapse in demand. This was a plan. Everyone knew what was going on. Rather than taxation, the populace seems to have decided that the deal will be that banks and citizen buy bonds and hold savings, rather than have tax increases. Interest rates will be kept low, and gradually debts in private and corporate will fall or stabilize, and debts will shift to largely government held. And this will take many decades to carry though.

Japan's plan's slogan is still "steady as she goes". What's the slogan in the US?


No tax hikes before spending cuts

It seems like we have four options here:
1. Spending cuts/entitlement reform
2. Across-the-board tax hikes
3. Some combination of 1 and 2
4. Hell in a handbasket

I'll take numbers 1 or 3, but before I see anyone's taxes go up, I want to see spending reduction and entitlement reform. Only then will I be open to tax hikes. I read somewhere from some author that Reagan once struck a deal with Congress that they would cut spending by three dollars for every dollar he agreed to raise taxes. The tax hikes happened, but the spending cuts didn't. I don't want to make that same mistake. Once the government shows good faith that they're willing to make the reforms and spending cuts necessary to deal with the problem, then I'll be open to sending in more money to pay down the debt. Otherwise, I can't trust that politicians won't see tax revenues increase and use that as an excuse to spend even more money on programs and junk we don't need.


Whatever . . .

Typical nonsense of today's average ignorant voter. Medical costs are rising faster than inflation. Sounds good to cut Medicare when you are in your 30's, perhaps, but when you are in your 50's and fast approaching retirement, I will bet everything I own that you won't choose poverty and the tender mercies of the health insurance industry to increasing taxes rates on high earners and companies to ensure you get generous Medicare benefits. You are politically naive.


Unfunded liabilities with

Unfunded liabilities with just Medicare alone are astronomical. They're over $30 trillion and that number keeps growing every year. It's just mathematically impossible to pay for Medicare by taxing high earners alone, even if we use static analysis to estimate how much revenue we can tax from the rich. Even in the years when the highest marginal tax rates were upwards of 90%, federal revenues rarely exceeded 20% of GDP (with the exception of WWII, but then, taxes across the board were higher then).

As for corporate tax rates, the burden would be more spread out, but that hurts the competitiveness of US companies and we already have some of the highest corporate taxes in the world (nearly 40% when including state and local taxes). There's not much more we can milk out of that cow.

Basically, we've overpromised and the resources to meet those promises simply aren't there. Taxing the rich is a distraction. The sooner we scale back those promises to more levels, the less painful the consequences. If we just change nothing or only apply phony solutions like taxing the rich, the interest payments alone will destroy us. It will take some combination of spending reductions, entitlement reform, and across the board tax hikes to solve the problem.

Tax rates have gone up and down, but spending pretty much just goes up year after year, no matter which party is in power. There is no solution without reducing spending and reforming entitlements. Seeing the incredible resistance and wonderfully egregious hyperbole directed at the idea of cutting just $38 billion out of a budget with a $1.6 trillion deficit, I'm going to need to see politicians get their heads screwed on straight first. Then, I'll be willing to give more of my money to them. I think they're starting to come around.

So about your bet, it's really a "false choice". If I choose higher tax rates on high earners and companies and nothing else, that's a good way to ensure the program will be insolvent by the time I hit retirement. And I'll still be poor on top of that. But then, so will everyone. I'm approaching my personal finances with the assumption that I'll never see a penny back from Medicare and Social Security. If I'm right, at least I'll be prepared for it, and if I'm wrong, it's all for the better.

By the way, since I just gave you a substantive response without resorting to calling you naive or ignorant, I'd appreciate it if you respond in kind.


Happy to Oblige

In your original message, you stated ". . . but before I see anyone's taxes go up, I want to see spending reduction and entitlement reform."

Let's focus on your word "before". In essence you want Medicare, Medicaid and Social Security spending to be reduced "before" you or anyone else is required to pay another dime in taxes. I'll repeat it again. That's politically naive and ignorant. Pick up your history books. Read about the famous revolutions in the world (including the ones going on in the Middle East). When people have had enough, they overthrow governments.

Why? The tax increases that are supposed to come "after" the spending reductions and entitlement reforms never will. One party believes its sole purpose is to ensure taxes never go up under any circumstances whatsoever, no matter how many lower income and middle income people suffer while the wealthy rejoice. They won't rejoice long though.

Additionally, why does spending keep going up? Because Americans insist on it. Americans are going to pick financial security (Medicare, Medicaid and Social Security) over fiscal austerity every day of the week and twice on Sunday. And these programs are the fastest growing.


"Read about the famous

"Read about the famous revolutions in the world (including the ones going on in the Middle East). When people have had enough, they overthrow governments.

Why? The tax increases that are supposed to come "after" the spending reductions and entitlement reforms never will."

I don't recall any revolution that started because the government did not increase taxes. Do you have any examples in history of that happening?

And while you're curing me of ignorance, who exactly is supposed to pay the $60 trillion+ unfunded liabilities the federal government currently holds? Do you have any disagreement with my previous assertion that it's mathematically impossible to solve the problem by soaking the rich and only the rich?


No desire to soak the rich

I have no desire to soak the rich. Nor did I say that entitlement spending should not be cut.

All I said was you can't say we are going to cut Medicare and Medicaid and Social Security and raise taxes later. The tax increases will never follow. In essence, you want the poor and middle class to pay for the rich. Who are you kidding?

I have a concept - cut Medicare and Medicaid and Social Security and raise taxes primarily on the wealthy at the SAME TIME. My plan also has a tripwire. After the cuts and tax increases discussed in the previous sentence, if future administrations come in and announce they are going to increase Medicare and Medicaid and Social Security and/or pass new unfunded entitlements, taxes, by law, automatically go up for everyone to cover those payments. Stops it in its track. Likewise, if a future administration comes in and decides that Warren Buffet and Bill Gates need a tax cut because they are suffering under the burden of 40-45% marginal tax rates and they just can't make ends meet, once the tax cuts are passed, Medicare, Medicaid and Social Security spending go back to 2011 levels. Ends the nonsense right there.

The larger picture is this. Conservatives don't have the votes and never will to cut spending without tax increases on the wealthy and liberals don;t have the votes and never will have the votes to increase taxes on the wealthy without cutting spending. So, with that as FACT, why not meet in the middle and get what you can? Or, we can live in your political fantasy that everyone will vote for cuts "BEFORE" taxes increase.


"I have no desire to soak the

"I have no desire to soak the rich. Nor did I say that entitlement spending should not be cut."

Sure you didn't...

"Sounds good to cut Medicare when you are in your 30's, perhaps, but when you are in your 50's and fast approaching retirement, I will bet everything I own that you won't choose poverty and the tender mercies of the health insurance industry to increasing taxes rates on high earners and companies to ensure you get generous Medicare benefits."

"Americans are going to pick financial security (Medicare, Medicaid and Social Security) over fiscal austerity every day of the week and twice on Sunday."

Anyway, if there was a bill that seriously cut spending and reformed entitlements and increased taxes, I would take it. That would be enough to show me they're serious, and that's what I'm really looking for (although I'd keep a watchful eye on them). Right now, Paul Ryan has a plan that does the spending cuts and entitlement reform without tax hikes (it actually reforms the tax code so it lowers the marginal tax rates for everyone while eliminating special deductions and "loopholes" with the intent being that the two will balance out and revenue will be the same.) It doesn't have a chance of passing now, but depending on how the 2012 election goes, it (or more likely some variant of it) could pass. If that's enough to keep us solvent, great. If not, I would support across-the-board tax increases as long as I'm confident the people in charge won't use it as an excuse to increase spending, too. It's not beyond the pale to think taxes could increase. It happened under Clinton, Bush I, and Reagan. Who's to say it can't happen again?

I think (or at least hope) the political winds will shift as people learn about the true nature of the problem. Polls show that the public thinks we can get out of this by taxing the top 5%, cutting foreign aid, and cutting defense. In other words, they're still kind of clueless and there's a lot of educating to be done.


Your continue to live in a fantasy world

You state "I think (or at least hope) the political winds will shift as people learn about the true nature of the problem. Polls show that the public thinks we can get out of this by taxing the top 5%, cutting foreign aid, and cutting defense. In other words, they're still kind of clueless and there's a lot of educating to be done."

The political winds will never shift. Yes, perhaps the public will become more educated about the budget, but as people read day after day about CEO and Wall Street executives receiving massive increases in pay and bonuses year after year while the average American's paychecks stagnate, you honestly believe they will accept cuts in SS and Medicare without massive tax increases on the wealthy in return? What fantasy world do you live in?

If those cuts were implemented without corresponding tax increases on the wealthy, I can assure you the riots that follow will make the riots of the 1960's look like a walk in the park.


"The political winds will

"The political winds will never shift."

Yeah, because political winds never ever ever ever ever shift. Never has happened, never will. Okey doke. And you say I live in a fantasy world.

I give people a little more credit than to think that they'll riot just because taxes weren't raised on a group that mostly includes hard-working older couples who are advanced in their careers and successful business owners. Sorry to burst your populist bubble, but big business CEOs, Wall Street executives, and Warren Buffett make up a small minority of that group.

Well, it's been fun, but I think with that, I'm out.


There are many revolutions

that have taken place because government finances were fucked up. 


Exactly!

The debt has to be cut. I absolutely agree on this. But that's the math.

On the politics, anyone who insists that it can only be done by spending cuts lives in a fantasy world. The average individual in this country is not going to tolerate cuts in SS and Medicare unless they see that Wall Street folks and corporate CEOs take large pay cuts or have large tax increases. That's just the way it is. If Congress chooses to go ahead and cut spending on entitlement programs without the tax increases on the wealthy, the riots will be unbelievable.


I don't doubt that at all and

I don't doubt that at all and I worry about similar things happening here if we don't get our fiscal house in order. However, I was responding to Mike who argued that the famous revolutions around the world happened specifically because governments refused to raise taxes after cutting spending. I'm no expert in revolutions, but I can't think of any where people took to the streets to agitate for higher taxes.

Low tax rates can certainly be an indirect cause of revolutions or riots inasmuch as insufficient taxation can lead to budget problems which then lead to sudden cuts in benefits which lead to people taking to the streets, as we saw happen in Greece with their loose tax law enforcement. However, it's hard to argue that not raising taxes on the rich alone could be such an indirect cause considering that the revenue to be raised from doing so is a pittance compared to the magnitude of the problem.


Your hopeless

I wrote "One party believes its sole purpose is to ensure taxes never go up under any circumstances whatsoever, no matter how many lower income and middle income people suffer while the wealthy rejoice. They won't rejoice long though."

Your reading of this comment and my revolution comment is so shallow it's unbelievable. No revolution has occurred because taxes have not gone up. But revolutions have occurred (and are occurring in the Middle East) because a small group of people in a country have most of the wealth. Those who don't have the wealth, see no opportunities to obtain wealth, and see those with wealth rubbing it in, eventually say I have had enough and overturn governments.

Now, turning to this country. Anyone who has been paying attention knows income inequality is an enormous problem. But, you said you want spending on entitlement programs to be cut "BEFORE" taxes go up. Eliminating Social Security, for example, for the wealthy, may be a sacrifice, but not one big enough to impact a multi-millionaire in a way that they feel pain on the same level that a person who makes $50,000.00 a year will feel if their SS payments are cut. And if the middle class is going to feel pain, they are going to demand the wealthy do as well AT THE SAME TIME. The only way the multi-millionaire feels the same pain is if his taxes go up significantly. But since one party feels the wealthy never have to sacrifice and will do everything to avoid a tax increase on the wealthy, if we follow your plan of spending cuts before tax increases, the wealthy and the GOP will do everything possible to ensure the tax increases never occur. Then even more wealth ends up controlled by a small group of people. See Middle East above. Connect the dots next time instead of saying "point out the revolutions caused by failing to raise taxes."


Sorry, I couldn't resist.

Sorry, I couldn't resist. This is too rich. You communicate poorly, ergo I'm hopeless. Sorry for responding to what you actually said, I guess. You see, not everyone assumes that raising marginal income tax rates on the highest earners will actually decrease income inequality very much.

Food for thought: Do you suppose the Middle East revolutions might have something to do with the dictators running the place? Perhaps that might also be the cause of the concentration of wealth in few hands? I mean, the causation is important. When dictators and their cronies get wealthy, it's much more of a zero-sum game than when people get wealthy in a capitalist system like the United States (with some exceptions for criminals, trial lawyers, some Wall Street types, and incompetent CEOs).


Tax Facts and the scary example of Sweden

One of the most pernicious lies spread about the Bush and Regan tax cuts is that they increased the deficit. Nothing could be further from the truth. The actual fact is that tax revenue increased after the tax cuts.

The logical fallacy is assuming that tax cuts automatically leads to revenue loss and that tax increases leads to a growth of tax revenue. This fallacy Mr Bartlett also suffers from. He assumes that the Bush tax cuts les to a 2 % of GDP loss, that tax cuts and tax increases are arimetic i.e. a tax increase of 3% leads to a taxe revenue increse of 3 %.

We have empirical evidence from the large tax cuts instituted by the very first supply sider John F Kennedy and later Reagan and Bush. The large deficits created under Reagan was due to the fact that Reagan was unable to get the Democrat congress to agree to spending cuts. The Bush deficits were not because of tax cuts but once again because of no spending cuts but most because of new underfunded entitlement programs, No Child Left Behind and Medicare D, both supported wholeheartedly by Democrats. To make matters worse there were unfunded wars in Iraq and Afghanistan.

If you want to know what will happen to growth if you don't cut taxes and entitlement programs go to Sweden 1968-1993. Swden went from having one of the strongest economies on the world and the best welfare system to an economic basket case like todays Greece.

If you want to know what happens when you cut entitlement programs by 1/3, lower the marginal taxation rate by 50 % and as a result get a balanced budget at government spending lowered by 1/3 you can also go to Sweden post 1993. Today Swedem is the first out of recession, no deficits. This was the result of the harsh austerity measures instituted after our financial crisis 1993-1997.

So the US has a stark choice to make. The Ryan plan with extreme pain especially for the most vulnerable, as in Sweden 1993, or the Obama plan like Sweden 1968. The Ryan plan leads to prosperity, the Obama plan to financial ruin and the US will become an economic basket case, not like Greece but like California.


Whatever . . .

I am guessing you subscribe to this group's theories too: http://theflatearthsociety.org

The Flat Earth Society (also known as the International Flat Earth Society or the International Flat Earth Research Society) is an organization that seeks to further the belief that the Earth is flat, contrary to the scientifically verified fact that it is an oblate spheroid.


The Dems supported Medicare D?

http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm...

Gosh, I wonder where those 44 nays came from? Smurf-land? Middle-earth? Narnia? Harry Potter?


Judge

Of course, one problem with this adversarial system when it comes to public policy is that there is no judge to enforce order and maintain honesty

It should be the role of the press to adjudicate the facts. Unfortunately, all they do transcribe each side and say "It's been a fascinating discussion but we'll have to leave it there." Blah.


The middle class will most certainly need to pay higher taxes.

Anyone here who thinks that the middle class will not be paying higher taxes in 10 years, regardless of whether we have a Democrat or Republican-controlled government, is math illiterate. Our tax base is *shrinking* as people retire. The number of people dependent on our government is increasing as people retire and others become unemployable due to lack of skills. We're fighting 2 or 3 wars, depending on your definition of a war. This is unprecedented in our nation's history - our entitlement programs have never experienced such a dramatic drop in the worker to retiree ratio.

The budget debate is simple.
The GOP has proposed 100% spending cuts and 0% tax increases (plus a projected 98% employment situation) to reduce the deficit by $2 trillion to $3 trillion (spending is cut by $4 trillion, but corporate taxes are dramatically cut and the Bush tax cuts are made permanent, with a resulting loss of $1 trillion to $2 trillion in revenues).

President Obama has proposed roughly 70% spending cuts to 30% increases to reduce the deficit by about $4 trillion.

House Democrats have proposed sitting around and crying every time someone mentions raising taxes and banging their heads against the wall every time someone mentions cutting entitlements.

And that's our budget debate.


Tea Party

The reason the tea party is not exorcised over the Ryan plan to end Medicare is that they are covered. Most of these people are over 55 and will remain on gov subsidized health care. think of them as the "I've got my scooter asnd I'll be damned if I'll fund anyone elses scooter" crowd.

The local tea party had a rally at a major intersection on tax day-Fri. It looked like a mope and dope convention. 80% were over 65, carrying signs that stated that Obamacare made them sick and "cut taxes not deals". Many had a "do not tread on me" flag, although if you are under 55 and disabled, Ryan's plan crushes you and your future.


Sweden?

Like the Sweden with 90% tax rates for Uber wealthy? Hey Old Whig...what are you smoking? Our budget would be fine if we let the Bush Tax cuts expire and instituted a surtax on billionaires for another 10%...that would be about half what Sweden's top tax rate is and not nearly close to Sweden's rates for any other tax bracket. If you are going to Pontificate, it would be helpful if you were actually dealing with facts and not mis-representations....


A "Leftie" who agrees with Bruce

As a Progressive thinker, I find it extremely difficult to find common ground with some Lefties and most Republicans, but I find you posts Bruce, almost always a true breath of fresh air. I keep saying to myself "Wow, A Republican I can agree with". There are many people like myself that are relatively conservative fiscally, but extremely liberal culturally and socially, even though I am also a Christian....you just can't "pigeon-hole-me" and I find it extremely gratifying to be able to agree with Conservatives with whom perhaps I don't have everything in common with, but I am OK with that, since you obviously deal with facts, unlike most on the right side of the political spectrum as of late.

I find it ideologically blinding to just read and listed to people on the left, but I can't stomach the lack of facts and outright ignorance and blindness to the solution or compromise on the right...

I have been lurking for a while, but finally felt compelled to post a reply after this latest post. Kudos. Keep up the good work.




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