Fiscal sanity, ctd.

And the New York Times (paywall) jumps on the Slate bandwagon! David Leonhardt, writing under the headline "Do-Nothing Congress as a Cure", lays out the case that the single most important thing that Congress could do would be to let the Bush tax cuts expire in 2012. He makes a good point that others have made before:

In reality, finding a way to raise taxes may well be the central political problem facing the United States.
As countries become richer, their citizens tend to want more public services, be it a strong military or a decent safety net in retirement. This country is no exception. Yet our political culture is an exception. It has made most tax increases, even to pay for benefits people want, unthinkable.

A lot of that is the usual corporate interests throwing their weight around, or opportunistic Republicans who aren't interested in policy so much as political cudgels. But, as Leonhard points out, the tax question is tied up fundamentally in the question of the welfare state - you raise taxes to pay for certain entitlement programs. And this hits up against what I think is a fundamental American meanness - meanness in both senses of the word, both a callous cruelty and a cheapness that I think are really at the heart of American culture.

We like to think of American meritocracy as unequivocally a good thing, but the nasty underside of it is that anyone who has not succeeded becomes perceived as not deserving of success. A lot of people I've talked to in this country really, honestly believe that the poor are poor because they don't try hard enough to succeed and aren't making the most of opportunities they have. Americans have really drunk the Kool-Aid on meritocracy and it leads to a "look out for No. 1" mentality, that says that not only pursuit of your own self-interest but also undermining others is the only way to be successful, with "successful" defined rather narrowly as "rich". And if you believe that, why would you ever want to do anything except take as much money as you possibly can for yourself, and make sure that everyone else gets as little as possible?

Fiscal sanity

Slate makes an admirable attempt to bring the debate on the budget back down to Earth with its "Do-Nothing" budget fix. Noting that the CBO's baseline projection predicts that if present trends simply continue, the budget deficit will be gone by 2019, Annie Lowrey explains:

So how does doing nothing actually return the budget to health? The answer is that doing nothing allows all kinds of fiscal changes that politicians generally abhor to take effect automatically. First, doing nothing means the Bush tax cuts would expire, as scheduled, at the end of next year. That would cause a moderately progressive tax hike, and one that hits most families, including the middle class. The top marginal rate would rise from 35 percent to 39.6 percent, and some tax benefits for investment income would disappear. Additionally, a patch to keep the alternative minimum tax from hitting 20 million or so families would end. Second, the Patient Protection and Affordable Care Act, Obama's health care law, would proceed without getting repealed or defunded. The CBO believes that the plan would bend health care's cost curve downward, wrestling the rate of health care inflation back toward the general rate of inflation. Third, doing nothing would mean that Medicare starts paying doctors low, low rates. Congress would not pass anymore of the regular "doc fixes" that keep reimbursements high. Nothing else happens. Almost magically, everything evens out.

She agrees that we don't necessarily want all of these things to happen, and they don't have to, as long as Congress makes sure it pays for whatever changes it makes. But the point is that there is no massive, dramatic plan necessary to fix the deficit - just some tinkering will do.

That is because, by and large, the hard work of fixing the fat part of the budget has already happened—through health care reform. The Social Security crisis you sometimes hear about is essentially a myth. The trust fund will run out in 2037, "at which point tax income would be sufficient to pay about 75 percent of scheduled benefits through 2084." Full Social Security solvency would require only about 0.7 percent of GDP, which you can get to by exposing income above $107,000 to the payroll tax. There is no debt crisis, either, as long as the U.S.'s lenders remain confident in the country. The crisis lies in spiraling health care costs. The Obama health care reform bill might not work, but it does contain programs that could turn the tide over time. The big wheels of deficit reduction are already turning—and it might be better for Congress to step back, stick to pay-as-you-go, and let them turn.

See? There is an alternative.

All about jobs, jobs, jobs

Paul Krugman, as so often, speaks my mind. In his column this week he points out that in all the clamor to reduce the deficit, the important discussion about job creation that was going on before the election has been completely left to one side, while unemployment is still sky-high. And once again, President Obama didn't even let the fight start before he caved:

I still don’t know why the Obama administration was so quick to accept defeat in the war of ideas, but the fact is that it surrendered very early in the game. In early 2009, John Boehner, now the speaker of the House, was widely and rightly mocked for declaring that since families were suffering, the government should tighten its own belt. That’s Herbert Hoover economics, and it’s as wrong now as it was in the 1930s. But, in the 2010 State of the Union address, President Obama adopted exactly the same metaphor and began using it incessantly. [...]

So who pays the price for this unfortunate bipartisanship? The increasingly hopeless unemployed, of course. And the worst hit will be young workers — a point made in 2009 by Peter Orszag, then the White House budget director. As he noted, young Americans who graduated during the severe recession of the early 1980s suffered permanent damage to their earnings. And if the average duration of unemployment is any indication, it’s even harder for new graduates to find decent jobs now than it was in 1982 or 1983.

Obama's not a fighter, and I'm sure he thinks he's got this all figured out. I almost trust him, because over and over again he's surprised me by how well he plays the long game. But emphasis on the almost.

Death or taxes

An editorial in The New York Times today makes what to me is the most salient point about the current fiscal problems states and the federal government find themselves caught in:

The federal deficit is too large for comfort, and most states are struggling to balance their books. Some of that is because of excessive spending, and much is because the recession has driven down tax revenues. But a substantial part was caused by deliberate decisions by state and federal lawmakers to drain government of resources by handing out huge tax cuts, mostly to the rich. As governments begin to stagger from the self-induced hemorrhaging, Republican politicians like [Speaker of the House John] Boehner and [Wisconsin governor Scott] Walker cry poverty and use it as an excuse to break unions and kill programs they never liked in flush years.

This is classic, Marxian class warfare - war waged by the rich on the poor, with no one crying foul until the poor start to fight back. But the tide of public opinion may be turning:

A New York Times/CBS News poll published on Tuesday showed that Americans oppose ending bargaining rights for public unions by a majority of nearly two to one. And the poll sharply refutes the post-Reagan Republican mantra that the public invariably abhors all tax increases. Nearly twice as many people said they would prefer a tax increase to cutting benefits of public employees or to cutting spending on roads.

I find it bizarre that not one American political commentator I have heard on the radio, seen on TV or read online or in the papers has suggested raising taxes as a means of cutting the deficit. I mean, shouldn't this be the obvious solution? We have some of the lowest effective tax rates in the developed world - surely we have at least a little bit of wiggle room?