The fiscal cliff

On the Sunday talk shows yesterday, one particularly juicy tidbit was the news that President Obama had invited Congressional leaders from both parties to the White House for a screening of Lincoln.  I assume that means the new Spielberg film, and not the one where Honest Abe goes around killing vampires.  The idea, I think, is to inspire folks to make a political deal.  Bit of a shame that; there’s a vampire out there that definitely needs a stake in his heart.

A lot of these negotiations have to do with the Bush tax cuts, which are set to expire in January. We’re essentially talking about two bills, the Economic Growth and Tax Relief Reconciliation Act of 2001, or EGTRRA, and the Jobs and Growth Tax Relief Reconciliation Act of 2003, or JGTRRA.  I love those names: Egtrra (you’d want to trill the r) and Jagtrra.  Clearly, the ruling generals of the alien invasion forces.  Anyway, they were supposed to expire in 2010, but were extended by two years as part of budget negotiations. Now, they’re set to expire again, and that expiration is part of the current negotiations. Basically both bills cut taxes, for rich guys mostly (since they pay most taxes), but also for the middle class.  They reduced the top marginal tax rate from 39.6 percent to 35 percent. President Obama wants to keep the tax cuts for the middle class, and raise taxes on rich guys.  He ran on that; mentioned it in all the debates.  And President Obama won.  Which, I suspect, he mentioned a time or two, when the movie was over.

I am on record as saying that, in my opinion, the Bush tax cuts were a bad idea.  I’ve since changed my view; I now regard EGTRRA and JGTRRA as together comprising the single most foolish and misguided policy of my lifetime. President Bush inherited a budget surplus. He also inherited a mild recession.  His response was to cut taxes, this was supposed to stimulate the economy. Macro-econ 101: tax cuts for rich guys can have a mild stimulative effect in times of high inflation, when the biggest problem is a lack of investment capital.  That wasn’t the case in 2001, or in 2003, and it certainly isn’t true now.  Tax cuts now, under the economic conditions we now see, accomplish nothing except increase the national debt.  Which, I suggest, would not be a particularly good idea.

That’s why we have this huge debt problem; it started with the Bush tax cuts.  Plus a massive Medicare expansion, unpaid for.  Plus two big wars, again unfunded.  Plus, finally, an international financial crisis, which came darn close to destroying our economy, along with Europe’s.  I know, I know, conservatives like to say it was ‘out of control spending’ by that noted profligate, Barry Obama.  The facts, inconveniently, do not support that view.

And this is where we run into ideology.  Conservatives didn’t used to believe in supply-side economics.  President George H. W. Bush (41) called it, famously, “voodoo economics.”  It has since become Republican orthodoxy, the notion that cutting taxes increases federal revenue because of their stimulative power.  Paul Krugman calls it a ‘zombie’ idea; an idea that, no matter how many holes you shoot in it, just keeps shambling forward.  Eating our brains.  And Grover Norquist, head of Americans for Tax Reform, has this pledge he tries to get Congresspeople to sign saying that they will never, no matter what, vote to raise taxes.  And he’s promised electoral retribution on anyone violating that pledge.  And he can generate enough post cards and emails through his organization to make that threat credible.  Which is why Grover Norquist needs a stake through the heart.

It all hangs together.  Conservatives believe that government has gotten too big. They want a ‘smaller’ government.  If you lower taxes, and cut spending, then ipso facto, government gets smaller.  Conservatives also consider taxes dangerous.  High taxes impede economic growth.  High marginal tax rates affect job creators, de-incentivizing investment and entrepreneurship.  In the current negotiations, Republicans consider deficit reduction the highest possible priority, and they want to achieve it through ‘entitlement reform’ and through cuts in domestic spending.  They see the current fiscal cliff ’emergency’ as an opportunity, a way to achieve their overall smaller government goals.  And they see this as a chance to overcome the enervating unanticipated consequences of the welfare state–welfare dependency, poor people living on the dole, the 47% who pay no federal income tax.  Moochers.

From a conservative point of view, then, liberals want the opposite of everything in the last paragraph.  Conservatives want smaller government; liberals therefore want large government.  Conservatives want entrepreneurship; liberals therefore are anti-small business.  Conservatives want lower taxes, so obviously liberals must like higher taxes.  And liberals see a political upside in giving poor people free stuff.  Liberals, in fact, want poor people to be dependent on government.

But none of that is true.  Liberals and conservatives are actually talking at cross purposes; we don’t even use the same vocabulary. Conservatives are certainly in favor of smaller government.  But liberals don’t want larger government.  Liberals are in fact entirely indifferent to the size of government. If it gets bigger, fine, if it gets smaller, fine.  We don’t care.  We want government to do the functions only government can do.  We want those functions done efficiently and effectively.  That’s really all we care about.

Liberals, in fact, rather like government reform efforts.  I was just reading about Harry Truman’s administration, and his efforts to reform the executive branch.  He formed a non-partisan commission to study ways to make government more efficient, and asked Herbert Hoover to chair it.  Out of that commission came such really good ideas as the formation of the General Accounting Office, the Council of Economic Advisors, the National Security Council, the CIA.  I think that’s one of the great Truman legacies, and one that’s not usually mentioned. Liberals love stuff like that.  Remember VP Al Gore’s Re-Inventing Government Initiative?  We adored that.  We’re generally pro-government, which means, we don’t like government waste and inefficiency.  We want government to succeed.

Fact is, we don’t like the welfare state because we want people to be dependent on government.  We like the metaphor of the safety net.  We love it when people go on food stamps for four months, to see ’em through an emergency, and then go get a good job. Which is basically the common profile of most food stamp recipients.

We also don’t see taxes as punitive, as harmful, as holding back the economy.  We’re mostly all Keynesians; we think government spending promotes economic growth. We believe this, because it does. We love that Oliver Wendell Holmes quote, about how he liked paying taxes, because “taxes are the price we pay for a free society.”   We tend to look back to the Eisenhower years, the phenomenal growth of the economy coexisting with powerful unions, and a very high marginal tax rate.  ‘No one groused about their taxes back then,’ we say.  I’ve heard some variations of this idea many times in liberal circles, ‘What we need today is more patriotic millionaires.’  But we do have some: the Warren Buffets and Bill Gateses, who agree that it’s preposterous that their secretaries pay a higher tax rate than they do.

So yeah, I want Obama to get what he wants out of these negotiations, above all, a return to Clinton-era tax policy.  I think it’s time for Grover Norquist’s malign influence to subside.  I think, for the good of the country, Norquist needs to lose this fight.

Entitlement reform?  I can fix Medicare right now.  Right now, the federal income tax is progressive, payroll taxes are regressive.  That is, rich folks pay more income tax, poor folks are hurt more by payroll taxes.  The maximum amount of income subject to FICA is $110, 000.  Raise it to $300,000, and Medicare is saved.  Or–and I prefer this solution–make investment income subject to FICA.  Conservatives like to talk about the 47% who pay no federal income tax.  Let’s change the subject; we should respond by decrying the lucky ducks who pay no payroll taxes, because all their income is in investments.

Good luck getting any of that through the House of Representatives, though.

So what happens if a deal gets made, it includes tax increases, and Republicans in the House won’t approve it?  That would seem to be about where we are, right?  What happens if we just don’t pass anything?

Well, the sequester kicks in–that was the deal Obama and Congress worked out before the election.  That means massive defense cuts–I’m fine with that, though I think it might be traumatic if they happened too suddenly.  It means massive cuts in discretionary domestic spending, which I’m opposed to; it might restart the recession and fray the safety net beyond repair.  And it means the end of the Bush tax cuts, which I’m completely in favor of.

Not good, in other words, but not the end of the world. I’m a liberal Democrat; I want to see the Bush tax cuts expire, and I want to cut military spending.  Republicans want the complete opposite.  I just have to think there’s a deal that can be made somehow.  But it’s hard to see what it might look like.

 

 

 

 

 

 

 

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