[PassedOut]

hrothgar, on 2010-November-12, 06:25, said:

Krugman has an interesting write up on this topic

http://www.nytimes.c.../12krugman.html

Although Krugman's pointed criticisms are certainly reasonable, I like the fact that the commission is drawing attention to the immensity of the US deficit problem. In particular, it illustrates what middle class America needs to give up in order to maintain the tax cuts for the rich. And it was the poorly thought out Bush tax cuts that got us into this mess.

As for tax cuts for the rich being necessary for job creation, that seems to be an old wives' tale that sleazy politicians constantly repeat to advance the interests of their campaign contributors. After ten years of the Bush tax cuts, job creation is still terrible.

As I've mentioned before -- and as Adam has laid out clearly -- US historical data simply does not support the theory that higher tax rates suppress job creation (even though I would like that theory to be correct). So politicians who rely on that theory need to explain convincingly why the past results no longer hold.

[luke warm]

i'm not an economist and never even fantasized about being one, but what would happen if a simple 20% income tax on every individual making over $100,000 per year and a simple 5% on all corporate profits was put in place? no deductions for anything... also, i'm not sure how much eliminating earmarks would save, but i'd like to see it done for another reason - it makes it harder to hide pork spending when that spending has to rely on its own bill

[PassedOut]

luke warm, on 2010-November-12, 10:00, said:

also, i'm not sure how much eliminating earmarks would save, but i'd like to see it done for another reason - it makes it harder to hide pork spending when that spending has to rely on its own bill

Earmarks now are about $15 billion per year, down from about $30 billion when republicans controlled the congress. Saving this amount would hardly dent the deficit.

But earmarks are simply directives from congress about how the executive branch is to spend portions of the total budget allocated for a department. I'm not sure where you got the idea that eliminating earmarks alone would save money -- that would require actually reducing the total allocation for the given department.

Here is some information about earmarks, along with a plan for reducing them: Earmark Reduction Savings Account

Quote

An Earmark Reduction Savings Account line item that is funded through cuts to extraneous program funding would ensure that savings would be dedicated to reducing discretionary spending limits. Reducing earmarks by 25% and depositing those funds in the Earmark Reduction Savings Account would save taxpayers $4 billion each year.

[luke warm]

PassedOut, on 2010-November-12, 10:37, said:

Earmarks now are about $15 billion per year, down from about $30 billion when republicans controlled the congress. Saving this amount would not even dent the deficit.

I'm not sure where you got the idea that eliminating earmarks alone would save money -- that would require actually reducing the total allocation for the given department.

i did say i wasn't sure how much it would save, eh? and it looks like it would save some number of billions (billion here, billion there, etc)

Quote

Here is some information about earmarks, along with a plan for reducing them: Earmark Reduction Savings Account

Quote

An Earmark Reduction Savings Account line item that is funded through cuts to extraneous program funding would ensure that savings would be dedicated to reducing discretionary spending limits. Reducing earmarks by 25% and depositing those funds in the Earmark Reduction Savings Account would save taxpayers $4 billion each year.

while that might not be much, neither is it nothing

[cherdano]

I have seen conflicting opinions on whether the tax reform proposal really includes a "tax cut for the rich". The effect of eliminating deductions is likely to have a quite progressive effect. It also seems that the co-chairs wanted to avoid the phrase "tax increase". But based on reading the reactions of people who seem to have had more time for reading the proposal than Krugman before he wrote his column, I would be happy to bet that the effect of their tax proposal would be a higher tax burden for "wealthy Americans" and also for high-income "middle class" (*), and have hardly any effect for low-income "middle class" or poor Americans.
But there is no need to bet, as I am sure someone will analyze the final proposal in more detail and tell us about the numbers.
It may also be worth noting that apparently the proposal includes an elimination of the capital gains tax, instead counting capital gains towards the normal income and thus applying the income tax rate. To say it more explicitly, I think awm's criticism is misinformed.

(*) For the purpose of American politics, it seems that "middle class" consists of a majority of Americans, each of which is struggling to make ends meet and to pay their bills. It also seems to include everyone with a household income below 250,000$. That seems a little inconsistent.

[PassedOut]

David Stockman, Reagan's first budget director, explained to Reagan how his tax cuts without spending cuts would lead to the fiscal disaster that actually occurred. However, the Reagan administration was dominated by economic fools who believed old wives' tales rather than simple arithmetic. "Voodoo economics" took over completely and Stockman didn't last long.

Now Stockman is again beating the drums for fiscal responsibility, but his fellow republicans who remain in the fools' caucus still don't believe in arithmetic: A Republican for Higher Taxes.

Quote

Stockman has been calling for Congress to take serious and immediate steps to start closing the $1.25 trillion fiscal 2011 budget deficit through a series of unconventional actions, beginning with allowing the Bush tax cuts to expire, as they are scheduled to at the end of the year. One of his more cogent arguments has been that since about half of us don’t pay income taxes anyway, letting taxes rise on the other half would be “progressive” (in tax parlance, this means it would hit hardest those with greater means to pay).

Stockman has also been talking about cutting military spending, cutting farm subsidies, cutting health-care spending, cutting Medicare payments and Social Security payments for the wealthiest Americans and for whom their financial impact is minimal — despite being rightly owed the money — in order to bring the deficits down and to show the world we are again serious about grappling with our proclivity toward fiscal mismanagement.

No doubt Stockman feels a special obligation to speak out strongly on this as he was present when the US government began its slide into fiscal irresponsibility, yet was powerless to stop it. But I believe that the rest of us who were around at that time owe it to the younger folks to speak out in the same way.

[hrothgar]

Here's a really good analysis from Kevin Drum

http://motherjones.c...mission-serious

Most of the discussion revolves around the following image taken from the deficit commision report



Here's what the chart means:

Quote

Discretionary spending (the light blue bottom chunk) isn't a long-term deficit problem. It takes up about 10% of GDP forever. What's more, pretending that it can be capped is just game playing: anything one Congress can do, another can undo. So if you want to recommend a few discretionary cuts, that's fine. Beyond that, though, the discretionary budget should be left to Congress since it can be cut or expanded easily via the ordinary political process. That's why it's called "discretionary."

Social Security (the dark blue middle chunk) isn't a long-term deficit problem. It goes up very slightly between now and 2030 and then flattens out forever. If Republicans were willing to get serious and knock off their puerile anti-tax jihad, it could be fixed easily with a combination of tiny tax increases and tiny benefit cuts phased in over 20 years that the public would barely notice. It deserves about a week of deliberation.
Medicare, and healthcare in general, is a huge problem. It is, in fact, our only real long-term spending problem.

To put this more succinctly: any serious long-term deficit plan will spend about 1% of its time on the discretionary budget, 1% on Social Security, and 98% on healthcare. Any proposal that doesn't maintain approximately that ratio shouldn't be considered serious. The Simpson-Bowles plan, conversely, goes into loving detail about cuts to the discretionary budget and Social Security but turns suddenly vague and cramped when it gets to Medicare. That's not serious.

[mgoetze]

nigel_k, on 2010-November-11, 19:39, said:

The bigger problem is that, in real terms, a tax increase is not paid for by those who have their wealth reduced but by those who are forced to reduce their consumption. If you make Bill Gates pay more tax, he will not reduce what he spends on himself. He will either switch to investments that are taxable in other countries or will simply reduce the amount he invests. Either way, the real losers are those whose jobs are destroyed as a result of the reduced investment.

You don't need rich people for investments, they can be done by hedge funds and banks with money they borrow at around 0% interest. Also, if we are only talking about a tax on income (or capital gains), I don't see why this would cause anyone to reduce their investments - they might just have less new money for new investments. Furthermore, there are big incentives to invest outside of the USA quite regardless of taxation.

In short, I don't believe in this causality.

[PassedOut]

hrothgar, on 2010-November-12, 14:29, said:

Here's a really good analysis from Kevin Drum

http://motherjones.c...mission-serious

Most of the discussion revolves around the following image taken from the deficit commision report

If the plan does not actually address healthcare spending, then I was certainly wrong about it being serious. Aside from the problem of inadequate healthcare in the US, the urgency of passing healthcare reform last year was to enable the government to get control over those exploding costs. To be sure, the bill did not go far enough, but it was an essential first step in getting the deficit pared down.

[kenberg]

As one of the links said, this is not the plan of the commission but the plan of two guys. They were upfront about this but then exactly why is this two-gur plan being put out?

The fundamental fact about health care is that we can now do a great many things that cost a great deal of money. I am going to die someday. Individually I would not want to detroy the family finances to keep me alive a little longer and really the same logic shouold apply to a large number of people and the national expense.

I hope to live a good many more years. But nothing lasts forever and the governemnt cannot change this.

[mike777]

Just a side note...if you want to tax income, then you need to define it. Trust me that is a huge debate.



That is one reason,not the only one, that theVAT is so popular as a tax vehicle by governments. You get to tax consumption, at least non blackmarket consumption, rather than income.


I`ve never been a deficit hawk. More a believer in trying to grow our way out of our problems. Jobs and morejobs.




"The most important ways in which I think the Internet will affect the big issue is that it will make it more difficult for government to collect taxes."
Milton Friedman


"The black market was a way of getting around government controls. It was a way of enabling the free market to work. It was a way of opening up, enabling people."
Milton Friedman

[PassedOut]

mike777, on 2010-November-12, 17:12, said:

"The black market was a way of getting around government controls."
Milton Friedman

Every crime is a way of getting around government controls.

[phil_20686]

Because medicine is very labour intensive, it suffers from baumol's cost disease (http://en.wikipedia.org/wiki/Baumol's_cost_disease) - so it is reasonable to expect that the cost of providing care should rise in line with gdp. I do not beleive that significant savings can be made without some innovation that will make doctors more productive - automated dignostic machines, or machines that allow surgery to be performed more quickly. We are at least 50 years away from that level of automation. And its not clear how comfortable people would be getting diagnosed by a machine. If you add to this new treatment options, it is inevitable that healthcare costs will grow faster than gdp.


All this talk about higher income tax causing greater gdp growth seems to miss the broader point, which is that the relevant number you want to examine is total governemnt revenue. By this I mean that income brackets on their own are a incomplete measure. Say i reduce income tax but increase co-operation tax in a revenue neutral manner, then I would not expect any growth. The cost of all taxes is ultimately borne by the consumer, and often large changes in the tax code are done in such a way that revenue is only slightly affected. In reality total government revenue as a % of gdp (I.e. the sum of all taxes) grew continuously from WW2 until about 2000 (at 35% gdp), there was a big drop (4-5%) in 2002, and then they went back on an upwards trajectory. Thus the classic interpretation should be that growth fell with time from WW2 until the present. Obviously life is not so simple and the economy tends to have cycles etc. Not to mention sudden burst of growth brought on by a particularly profound technological advancement. It looks to me like that thesis is broadly supported by awm's data. 3.5% gradually decreasing to about 2.5 %, if we make a few adjustments, eg 88-92 is a 4 year period containing a large recession, so it is artificially low, whereas 98-02 would have picked up both teh rebound form the early nineties recession and the dot com bubble (which marked the rise of the internet and like many new technologies it probably caused above average growth when it was first utilised.)

Also, lets not forget that awm's analysis misses out several pertinent points. Eg, what was the bracket for the top rate? If you look at my sources before you will see that the total %gdp paid in income taxes has been remarkably stable between 10 and 15% for over 50 years - if you lower the tax but increase the applicability in a revenue neutral way then you haven't really changed the tax burden at all. It should be clear that when one talks about tax cuts stimulating growth one should only be talking about lowering the total tax burden. The idea that if i tax one group less and another more I can stimulate growth seems flawed to me.

FYI, income tax makes up slightly over a third of total government revenue in the USA. Vat-like taxes make up slightly less than a third, with the other large contribution being "social insurance". I got my figures from

http://www.usgovernm...local=s#usgs302

[mike777]

"I do not beleive that significant savings can be made without some innovation that will make doctors more productive - automated dignostic machines, or machines that allow surgery to be performed more quickly. We are at least 50 years away from that level of automation."

Of course this is the main issue, innovation. If 50 years so be it, but that is not really forever.....this is good news, great news!

I link innovation with incentives, incentives work.

Now if we can have government policy that may shorten that 50year period even a bit....lets do it!

In any case my vote is for innovation and growth. I do believe America is a great country with great people. There are alot of really smart people in the world. Lets give them incentives to come here and incentives to those that are here, today!

[PassedOut]

phil_20686, on 2010-November-12, 19:04, said:

Because medicine is very labour intensive, it suffers from baumol's cost disease (http://en.wikipedia.org/wiki/Baumol's_cost_disease) - so it is reasonable to expect that the cost of providing care should rise in line with gdp. I do not beleive that significant savings can be made without some innovation that will make doctors more productive - automated dignostic machines, or machines that allow surgery to be performed more quickly.

Huge savings -- hundreds of billions per year in the US -- are available simply by eliminating excessive end-of-life procedures and by eliminating unnecessary tests performed to avoid lawsuits.

[awm]

I'm just trying to argue that the claim that "we should not raise taxes on millionaires because it will destroy the economy" has no factual backing. Certainly it's true that many other things effect the economy besides the tax rate on millionaires (including the other tax brackets, bubbles and busts, wars, the manner in which the government spends its revenues, etc) and that this is overall a complicated issue. But a lot of people seem to think it's somehow "obvious" that we shouldn't raise taxes on the richest segment of society, and I haven't seen any data to convince me of that (whereas there is a lot of data that seems to imply otherwise).

Eliminating the tax deduction for mortgages will kill the (already struggling) housing market and hurt the middle class substantially. Eliminating the capital gains tax rate hurts the wealthy, but the deficit committee also wants to cut the top tax rate to 23%, only slightly higher than the 20% capital gains rate we had under Clinton. I agree that we should see how the numbers add up, but it certainly looks to me that the wealthy come out of this pretty well, whereas middle-class homeowners will suffer.

[mike777]

awm, on 2010-November-12, 21:17, said:

I'm just trying to argue that the claim that "we should not raise taxes on millionaires because it will destroy the economy" has no factual backing. Certainly it's true that many other things effect the economy besides the tax rate on millionaires (including the other tax brackets, bubbles and busts, wars, the manner in which the government spends its revenues, etc) and that this is overall a complicated issue. But a lot of people seem to think it's somehow "obvious" that we shouldn't raise taxes on the richest segment of society, and I haven't seen any data to convince me of that (whereas there is a lot of data that seems to imply otherwise).

Eliminating the tax deduction for mortgages will kill the (already struggling) housing market and hurt the middle class substantially. Eliminating the capital gains tax rate hurts the wealthy, but the deficit committee also wants to cut the top tax rate to 23%, only slightly higher than the 20% capital gains rate we had under Clinton. I agree that we should see how the numbers add up, but it certainly looks to me that the wealthy come out of this pretty well, whereas middle-class homeowners will suffer.

What does your data say....raise how much to create jobs and jobs and jobs???

[mgoetze]

By the way, Germany is presently growing a fair bit, and the individual capital gains tax rate is 26.375%. Sounds impossible to Republican ears, huh?

[hrothgar]

mike777, on 2010-November-12, 22:47, said:

What does your data say....raise how much to create jobs and jobs and jobs???

Growth, growth and more growth...
Near perfect description of a cancer cell.

[PassedOut]

It's the weekend, so now I've taken the time to look at the leaked Power-Point version of the draft proposal instead of simply the pundits' reactions to it (I probably should have done that before posting at all in this thread): Co-Chairs' Proposal.

In my experience it's always easier to revise and fine-tune a draft than it is to create that draft in the first place, so I found it very interesting to go over. As I'm not a legislator (heaven forbid!) I don't understand all of the jargon now, but I suppose I could learn it if I wanted to. It seems to me that each line in the presentation could expand into a paper of supporting detail, which is just the kind of overview one would want.

I note that mandatory spending issues -- including healthcare costs -- are addressed starting on page 30.