StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

What Republicans ought to bargain for (cont'd).

21 Feb 2010
Posted by Edmund L. Andrews

It's always odd to get into a simultaneous fight with someone on the left and someone apparently on the right, but I have to respond to two commenters to my post on Greg Mankiw's proposal for what Republicans could bargain for if they actually wanted to engage on the issue of deficit reduction.

   JakeCollins  thinks it's appalling that I would support a value-added tax or VAT, one of Mankiw's proposed trades,  because it "cuts taxes on the rich and raises them on the middle-class and the poor."    Why, he asks, would liberals favor that?

      I'm not saying liberals necessarily do favor a VAT.  I just said I am a comparatively liberal person, and I think it's a good idea.   Note, by the way, that the most rabid opponent of a VAT is the Wall Street Journal editorial page, which is righteously right-wing.

    But the real point is this: don't be dogmatic.

      1) A VAT is not the same thing as a flat tax, which really would be regressive. In European countries, the VAT comes on top of an income tax, which is still progressive.  I don't hear many people accusing Germany, France or Belgium of being right-wing.   (And having lived and worked six years in Europe, trust me: their conservatives are to the left of Bill Clinton and possibly Obama.)

      2) A VAT can be tweaked in many ways to keep it from being regressive.  Yes, middle-income families might end up paying more than before.   But it absolutely does not follow that wealthy taxpayers would end up paying less than before.     

     3)  I would submit that many middle-income people (including me)  SHOULD pay more.   The government needs to raise more revenue to provide the services that voters demand, and middle-class people benefit from those services too.

       Rich people should pay more taxes, and I support repealing the Bush tax cuts for households earning more than $200,000.   But our system is already too dependent on the very top earners, and you cannot raise all the additional money needed just by hitting up the top 2 percent.   Some of that money has to come from furtther down the income ladder.   And why shouldn't it?  Where is it written that 40 percent or so of taxpayers should not owe income tax?

   Jim Glass complains at length about my assertion that Republicans don't want to engage in serious discussion about deficit reduction.   "Who are the Democrats who are agreeing to engage on the spending side of the equation?"  And he goes on at length.

    Jim: get real.  Obama HAS said the entitlement cuts and other spending cuts are on the table.   So have many other Democrats, notably Senator Kent Conrad, chairman of theSenate Budget Committee.  

    Republicans in Congress have made obstructionism the North Star of their strategy.  They are blocking anything and everything they can -- health care, stimulus, a carbon-trading bill, even the deficit-reduction commission.  Along the way, Republicans have been forced to repudiate their own positions (like the seven who co-sponsored the deficit commission before voting against it) and they often tell whoppers and howlers to justify their positions.   (E.G., the stimulus bill hasn't created "one new job...")

     From a short-term polical standpoint, obstruction may well be the smart strategy.   It's mind-boggling to me, but Republicans are enjoying a bounce in the polls.  But let's be clear about what's going on: the GOP wants to deny Obama and the Democrats any and all legislative victories.  It has no interest in discussion, bargaining or compromise.   It's a deeply cynical strategy, but it's also transparently obvious. 


Edmund get real...

"Obama HAS said the entitlement cuts and other spending cuts are on the table. So have many other Democrats, notably Senator Kent Conrad, chairman of theSenate[sic] Budget Committee."

Hmm, entitlement cuts (that will never happen by the way) in order to create another entitlement. Ok...

Obama has also said that tax cuts for those under 250K are off the table. They're not off the table because if they were there would be no discussion about this issue within the administration.

This administration has said a lot of things. POTUS must believe he's modern day Pharaoh: 'so let it be spoken, so let it be done.'

Sorry, words mean nothing...

health care
The creation of one hundred and eleven new bureaucracies all through the slight of hand of cutting one entitlement to create another (and we all know the entitlement to be cut, Medicare, WILL NEVER get cut).

Good idea to obstruct this one.

An argument can be made that getting money into the hand of people is a good in terms of spending. Infrastructure is one such investment which takes time to get into gear. Unfortunately, the stimulus to date has been used very inefficiently. Money has gone to non-existent congressional districts, $50 million for the National Endowment for the Arts, $450 million for NASA (a portion dedicated to "climate-research projects"),
$600 million for NOAA (a portion dedicated to "climate modeling"), and more...

Good idea to block Stimulus II or whatever the administration is calling it since some of the money initially allocated remains unspent and monies paid back to the government are not being paid back to the taxpayer but confiscated for future spending.

Speaking of confiscation...

'Don't Cry For Me Argentina' -

carbon-trading bill
Tell me how the administration creates "Green" jobs at the snap of a finger? You know how you eliminate pollution spewing power plants? You let technology move forward, especially nuclear, and move towards more cost efficient sources of energy. It takes time and effort; there is no quick fix.

Do you believe the citizens of this country believe that Congress can be trusted to design effective carbon policy? The answer is NO.

Do you believe that Congress can be trusted to design effective carbon policy?

I am all for cleaning up the environment but I want facts, not ideology, driving the debate.

Ed, Why don't you get real?


Why don't you get real? Saying everything is on the table is not a proposal. So far, the only proposal from the administration in terms of entitlements is to expand Medicare Part D (by closing the donut hole) and eliminating the subsidies for Medicare Advantage. Oh and lets not forget the $250 payment to seniors in lieu of a nonexistent COLA for Social Security. Certainly seems fiscally responsible to me. Oh and making Pell Grants part of mandatory spending...seems pretty responsible to me.

And let's not forget Obama's FY2011 budget submission that projects deficits in the $750 billion to $1 trillion range as far as the eye can see (and that's with rescinding the tax cuts on "the wealthy" and a bunch of tax increases that will never pass). The fiscal responsibility consists of calling for a commission that doesn't even have the goal of balancing the budget -- they get to exclude interest.

Your second to last paragraph is interesting. Why is it surprising to you that Republicans would try to block Democratic driven bills on health care, stimulus, and cap&trade? Each of these bills was crafted in such a way that, from a Republican perspective, there was a great deal to which to object and each was also crafted in such a way as to be less advantageous to the deficit than it could have been.

The stimulus was spread out over several years, long after natural recovery would have occurred and thus wasteful. Furthermore, the "one time stimulus" was explicitly baked into the baseline budget for all years going forward as many projected and the administration denied at the time. The "tax cuts" weren't tax cuts, they were checks and thus would have no impact on business planning. Cap and trade was basically a foregone opportunity to generate revenue in the context of a bad policy with no ROI analysis ever conducted. Health care represents a pretty fundamental disagreement on the role of government in society and is taking the easiest offsets in the budget and using them to finance a new entitlement as opposed to reducing the deficit.

As it relates to the commission, I agree the Republicans were pretty horrible, but then again, so were the Democrats. Somehow they were able to whip up 60 votes (when they had them) for a HCR proposal that the majority of people didn't want (to the extent they understood the bill) but on the commission, despite the support of the President, they couldn't even come up with 40 votes.

I challenge you to show me a proposal from a Democrat or Democrat leaning economist to exercise any restraint over spending (other than military spending). There simply are none. That was Jim's point. If you believe, as most Republicans do, that you shouldn't solve the deficit with a tax only approach, you actually need a Democrat who is willing to reduce the growth in spending and I don't see any.

If you didn't have time for all of that, I'll give you this. Obstructionism is an appropriate response to what you consider bad policy. Both Democrats and Republicans stink on the deficit and the fact that you only criticize Republicans reduces your credibility (at least with me) on the topic.

A value added tax would be

A value added tax would be one of the best ways to address the potential climate change problem, without adding onerous dictates and removing personal choice, while inspiring the market to solve this problem by leveling the playing field.

That is, industries and processes that carry enormous external costs -- land degradation and toxin bio-accumulation in the food chain (coal), national security (oil), and pollution and increased greenhouse gas emissions -- are being subsidized, de facto, because these enormous costs are not integrated into their pricing structure.

Competing industries, on the other hand, do not have their enormous benefits (the absence or less prevalent nature or such costs) integrated into their pricing structure, and so in effect are being severely penalized.

A value added tax is a way to let the market work, while moving to lessen what is an enormous gap.

A bit afield, but a quick word on the science of climate change, since there is a HUGE amount of misinformation and misunderstanding out there on this topic.

First, data is the least important of all considerations here. But observed data does support increasingly accelerating change (including the fact that the eleven warmest years on record have all occurred in the last thirteen). By far the most important data here is the increasing evidence of breakdown in system stases.

Climate is "sensitive." (That is, from our perspective. Otherwise there is no such thing,-- it is what it is.) Looking back over the earth's geo-history, it has shifted radically, with less external forcing than we are experiencing now (and the fact that it "has not" yet is meaningless, since we are still in a literal geologic split second of time).

It is also, generally stable due to various stases within our system -- oceans, glaciers, permafrosts, etc.

These are starting to change, and as they break down,the processes feed upon themselves. (Melting permafrosts release methane, burning peat bogs release carbon dioxide, melting glaciers produce fissures allowing rapidly melting water to reach their deep recesses, reducing ice decreases land albedo dramatically, furthering heat absorption,etc.)

The amount of change we have already occasioned, from a geochemistry perspective, is radical. We know from ice core sampling that methane (the second most relevant greenhouse gas) is about 125% higher than at any time in the past 800,000 years, and CO2 is almost 30% higher. And now there is evidence to suggest CO2 may be at levels that the earth has not seen on a sustained basis since 15- 20 million years ago, when the earth was 5 to 10 degrees warmer, and seas were somewhere around 100 feet higher.

But by far, the most important fact, is that there is a huge lag between cause and effect when it comes to climate change. Yet we are looking at this as if the current conditions outside are a measure of what we have already done. They are nothing of the sort.

There are multiple reasons for this, but the main one is that is takes an enormously long time to heat oceans. Oceans are what drive climate. As they warm, our climate will slowly, then more swiftly begin to alter (with inherent variability and unpredictability not going away, but likely increasing, if anything). And the general heat retention trend of the oceans is unmistakable and unambiguous. One just doesn't hear about it in the press much, because the press, for the most part, does not understand the science of climate change.

Sorry, I know this was a bit of a digression. But in a world of misinformation, it seemed relevant to support the idea that addressing climate change is more than sensible.

The VAT raises needed revenue, is fair, and here can be used at the very same time to solve a dual problem without government dictate, removal of choice; and by using and motivating market efficiency and innovation and response, rather than dictating that as well.

Lets check reality

Jim: get real. Obama HAS said the entitlement cuts and other spending cuts are on the table.

Really? If you can show me where Obama has said "Cuts to entitlements, Medicare and Social Security, are on the table for this Commission" -- or anything even reasonably implying it -- I will gladly apologize and swing right around to your side.

But I've missed that. Apparently so have AARP, Krugman, young Ezra and all the other militant defenders of entitlements. Because none of them have said *peep* about it -- which shows how concerned they are about the prospect. And about the chance of cuts to any other spending they like.

As to being real, in my couple of decades of dealing with politicians I've come to appreciate that reality is deeds not words. As the economists say, "revealed preferences".

When the deeds are such as rolling $266 billion of the "temporary stimulus" into permanent baseline, exempt from paygo ... giving 100% of carbon permit revenue (what, $700 billion?) to big businesses when CBO said they'd be fully compensated with 15%, even after Orszag warned it would be the "biggest act of corporate welfare in history" ... creating a new entitlement supposedly 40% funded with cuts to Medicare, to be obtained using he same mechanism that has never been applied in the past, and which Obama himself as a senator voted against applying, with CBO warning there was no particular reason to beleive it would be applied any more in the future...

If I go on at too great length about such things, sorry -- it's just that there's so much. ;-)

Anyhow, the preference revealed does not seem to be one for cutting deficits -- except perhaps as in: "Why don't Republicans engage with us in offering tax increases to cover our spending increases? That would help fight the deficit."

But if I'm really wrong, just point out where Obama, Gibbs, Summers, anyone speaking for the Administration, "HAS said entitlement cuts ... are on the table" for this commission, and I'll very happily come over to your side.

Where was it said?

Obama just appointed two people to head the deficit commission. These to individuals both said entitlements are on the table. Why would Obama appoint two people who both said entitlements are on the table if they weren't on the table?

Or how about this from 4 days before he took office.

How much proof do you need? You said you would change your mind if you read anything about him saying entitlement reform is on the table. Already gave you two examples. Not trying to be snarky.

Jim Glass: Do you have some

Jim Glass:

Do you have some links for this statement?

"giving 100% of carbon permit revenue (what, $700 billion?) to big businesses when CBO said they'd be fully compensated with 15%"

If accurate, I would tend on this to agree with you, perhaps strongly. But some links would be really helpful. Thanks

Jim Glass: Do you have some links...

Orszag to House Budget Committee, March 3, 2009 (quoted in the WSJ):
... if you didn't auction the permit, it would represent the largest corporate welfare program that has ever been enacted in the history of the United States.

In particular, all of the evidence suggests that what would occur is the corporate profits would increase by approximately the value of the permit.

So that -- whatever that is, $600 billion, $800 billion, whatever the value is, would go in a sense almost directly into corporate profits...

CBO, Trade-Offs in Allocating Allowances for CO2 Emissions:

[G]iving away allowances could yield windfall profits for the producers that received them by effectively transferring income from consumers to firms' owners and shareholders....

The study of the hypothetical 23 percent cut in CO2 emissions concluded, for example, that if all of the allowances were distributed for free to producers in the oil, natural gas, and coal sectors, stock values would double for oil and gas producers and increase more than sevenfold for coal producers, compared with projected values in the absence of a cap...

Researchers generally conclude that less than 15 percent of the allowance value would be necessary to offset net losses in stock values in both “upstream” industries (such as suppliers of coal, natural gas, and petroleum) and energy-intensive “downstream” industries (such as electricity generators, petroleum refiners, and metal and machinery manufacturers).

Deeds, not words.

It's not 100 percent

But 80 percent for the first five years and declining via a complex formula over time.

Well, we could look at his budget

For an indication of what he really wants to do. Or we could look at the HCR bill he just released, promising to spend even more on Medicare by closing the Part D donut hole.

Or we could just listen to what he says because that's obviously more important than what he proposes.

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