Posts tagged Republicans

I’m in favor of lowering and simplifying America’s tax code. There is wide bi-partisan consensus amongst economists and (not-as-wide, but still some) consensus amongst politicians that America’s bloated, convoluted tax code can and should be made significantly simpler and smaller.

The US tax code is currently approximately 73,000 pages long. That’s longer than the Bible! But why? Why is it like this? The simple answer is: giveaways.

Between corporate lobbyists paying legislators for the chance to write the law in their sector to suit themselves, and craven politicians promising giveaways to constituents for housing and having kids, there’s more tax that is exempt than is actually collected, making the US tax code like Swiss cheese with more holes than cheese.

This can and should be fixed. It’s a glaring wart on the face of America’s image as a can-do place where things get done competently and efficiently. You could lower the top tax rate to 30%, (making it the same for individuals and corporations because after all, if corporations are people, they can be taxed like it), and make the bottom rate 20%, and still increase the overall tax take if you got rid of all the corporate giveaways that subsidize some of the most profitable companies in history (i.e. the oil companies), along with the tariffs on imported goods like Brazilian sugar.

But here’s the thing. We need to bear in mind that tax cuts almost always overwhelmingly favor the rich, which is why it’s always such a big, big deal and talking point for Republican and Libertarian types. And that’s why I think simplifying, lowering, and flattening the tax code should only be done in ways that are fair; i.e. ways that don’t comparatively disadvantage the poor and middle class.

The single best illustration of this point is the graph below, courtesy of The Atlantic Wired, that shows the winners and losers of current Republican presidential candidate Herman Cain (and darling of the billionaire Koch Brothers & the Tea Party) and his infamous 9-9-9 tax plan:

 it shows not only that tax liability would go up for the bottom 80 percent of income earners increase under Cain’s plan, but also that the tax savings of the top 1 percent and top 0.1 percent are several orders of magnitude greater than the tax increases on those poorer.

Yeah that’s right, under Cain’s plan tax rates would actually go up for the bottom 80%, while they went down for the top 20%, and down by several orders of magnitude for the top 1%. Now if Cain’s plan actually managed to lower rates, flatten and simplify the code - and increase the overall tax take, then I’d certainly be in favor of it.*

There are credible plans out there right now that do exactly that by widening the overall tax base, but Cain’s plan manifestly does not. It would merely accelerate the trend begun under Reagan; that has seen, contrary to what the voodoo economics of “trickle-down” theory piously preaches, ever increasing wealth redistribution - upwards.

America has consistently lowered taxes and seen vast productivity gains over the last thirty or forty years, yet the overwhelming majority of Americans have seen their share of the wealth at best remaining static but more often going backwards over that period.

The empirical data we have is quite clear: lowering taxes alone does not create the ‘rising tide that lifts all boats’ - at least not when the lowering of taxes is done American-style; i.e. by way of handouts rather than systematically, economic theories be damned. But we absolutely can, and should, flatten and simplify the tax code as one step towards creating a fairer system and an actual, rather than rigged, free market.

(*Public services that only government can provide, such as infrastructure, benefit everyone, rich and poor alike, but, completely opposite to lower taxes, they benefit the poor and middle class disproportionately. It’s said that the measure of how advanced any civilization is in how well it treats its lowermost members. Well, that’s the main difference between the developed and the developing world - the level of services like roads, schools and hospitals, that the middle class and worst-off enjoy. If America wants to start feeling like its civilization is leading the world again, it needs to arrest its headlong rush into ever lower taxes and services, pull its head out of its ass, and start thinking a bit more holistically about government).

I came across a post by Ann Barnhardt on American Thinker titled We The Stupid, and thought ‘ooh this sounds interesting’. I like thinkers.

I then stepped through a portal, into the Twilight Zone. Kansas-born Colorado resident Barnhardt sincerely thinks that:

The so-called “right” or “Tea Party” in this republic is being so thoroughly rolled and defeated that I am struggling to come up with an adequate [sic] violent submission metaphor that does not involve prison rape.

Holy alternative reality batman! Needless to say, this is not a viewpoint shared by economists, bankers, business leaders, or… the rest of the world outside America.

So let’s unpack this very shrill essay of paranoid victimhood. Barnhardt displays a fundamental miscomprehension of what the debt limit actually is when she snipes that “Obama gets over $2 Trillion to spend before the 2012 election… and he has made it perfectly clear that he will spend every penny of it”.

Firstly, I’ll turn to Reagan and H.W. Bush policy adviser Bruce Bartlett who explains in the New York Times that technically, the debt limit is redundant:

the decision to run a deficit and increase national indebtedness is made by Congress when it votes to cut taxes, create entitlement programs and enact appropriations that will necessarily cause spending to be higher than revenues – not when it raises the debt limit.

Bartlett counsels that “while politicians and the general public believe that the debt limit is an important constraint on national indebtedness, not one iota of evidence supports this belief.” He cites a 1979 General Accounting Office report that states:

Before 1974, it was plausible to argue that there was some virtue in having a debt limit because it forced Congress to acknowledge the consequences of deficit spending from time to time. But that year, it enacted the Congressional Budget and Impoundment Control Act, which requires Congress to enact a budget resolution annually that specifies an appropriate level for the deficit and the debt.

Consequently, a separate vote on the debt limit is at best superfluous.

Bartlett argues that it is “nothing but grandstanding for members of both parties to vote routinely for legislation that they know will create deficits and then profess shock and horror that the debt limit must be increased as a consequence.”

As such he believes the debt limit should be abolished, especially given its newfound potency as a political weapon for extortion as currently wielded by the Tea Party, as “sooner or later the shoe will be on the other foot, as Democrats hold the debt limit hostage against a Republican president”.

Back to Barhnardt. Obama doesn’t “get” anything to spend. Congress does. But Obama is arguably a sober and responsible pair of hands compared to G.W. Bush when it comes to increases in the deficit under his watch (most of which are only temporary), as the New York Times chart below vividly demonstrates:

It was Dick Cheney who famously stated that “Reagan proved deficits don’t matter”, and it has been under Republican leadership from Reagan onwards that deficits have ballooned the quickest.

I assume Barnhardt to be a Reagan fan (if not a Bush fan), so I’m wondering where all this outrage was when the GOP had the reins over the last 30 years? It appears odd that deficits only seem to matter under Democratic leadership, and to characterize the Democratic party as the spendthrifts given the actual, you know, facts.

Barnhardt complains that the expiration of the Bush tax cuts is a (terrible) certainty on January 1, 2013, and the (more than) $1 trillion in spending cuts over ten years is “accounting fraud… and essentially meaningless relative to the size of the problem”.

As a cursory glance at the graph above or accompanying article will show, it was the Bush tax cuts and war spending that are in fact the biggest policy drivers of increased deficits, but if they expire as scheduled future deficits will be cut by half.

Ms Barnhardt also professes worry over just who is going to lend the US this $2 trillion dollars. Uh, I dunno - maybe all the people who are already funding it? And saying that “Obama is going to embezzle considerably more than the entire economic output of Canada, India or Russia to his cronies before the 2012 election”, is just a fatuous, hyperbolic, ad hominem attack - not an argument.

She worries about the Fed printing money to fund the deficit - which is a legitimate concern, but says that there is only one possible result from the resulting currency debasement: HYPERINFLATION!!! AND TOTAL ECONOMIC AND SOCIETAL COLLAPSE!!!

Well I can think of at least two other possible outcomes from the Fed’s currency debasement. The first is a ‘normal’ level of inflation of say 2%-4%, which erodes the value of America’s debt, reducing in real terms the value of the treasuries other countries own - and hence the deficit.

(America is unique in its ability to export its inflation because of two reasons. The US is holder of the world’s reserve currency, so when America prints money much of it goes outside the country, which means the money supply within America is able to stay relatively stable compared to any other country taking similarly inflationary measures. Compounding that, oil is traded in US dollars or ‘petrodollars’, which further spreads America’s inflation outside its borders).

The second outcome of inflation causing a lower dollar is that America’s exports become much cheaper, boosting the agriculture and manufacturing sectors. This is a traditional, conventional policy route that countries take after suffering a recession to improve their competitiveness, and one denied Eurozone members because of their common currency.

It’s also crucial to reducing unemployment, which is by far the more acute problem America faces right now. In fact, policies that will increase employment/growth - particularly right now, are far more important to the long term deficit because it is the trend of the ratio of debt to GDP that is significant. Increase growth and deficits will quickly recede relative to GDP.

(Incidentally, bond markets disagree with Barnhardt’s assessment of hyperinflation, predicting inflation of around 4% over the next 30 years, despite the Fed’s two rounds of quantitative easing. I trust their predictions much, much, much more than Barnhardt’s).

Then Barnhardt goes in for a full wailing and gnashing of teeth at the (by no means guaranteed) expiration of the Bush tax cuts. “Taxes will increase significantly” she shrieks!

Yeah, if they do expire, for people earning over $250,000, who make up 5% of the population, they will go up from 35% - the lowest rates in 60 years - to 39.5%. That’s salary earners; the real wealthy will face their ‘income tax’ i.e. capital gains tax, increasing from 15% to 20%. But Obama has consistently stated he wants only those tax cuts to expire, and the tax cuts affecting the middle class (those earning under $250,000) to remain.

Okaaaaaay. So America is right now taking in less revenue from taxes proportionate to GDP (around 14% of GDP) than at any time in at least the last hundred years, where it has averaged between 19% and 23% of GDP. But taxes are far too high! Look out for new taxes!

You would think that if tax cuts were the magical spur to growth and employment they’ve been claimed to be, that after thirty years of consistently lowering tax rates America would be having one hell of a party right now. That it isn’t suggests there’s more to the mix to creating growth than constantly cutting taxes.

All that said, I do strongly endorse current plans to lower marginal tax rates across the board by eliminating the loopholes, exceptions, and industry giveaways that currently mean more tax is exempt than actually collected. This will also significantly increase the tax base and massively simplify the tax code, which is currently Swiss cheese with more holes than cheese.

Barnhardt puts the finishing touches illustrating just how uncritical a thinker she is with this absolute peach of crazy:

Obama is the enemy.  Obama is a Marxist-Communist usurper and puppet front for a cabal of Marxist-Communists who are actively trying to destroy the United States of America.  Everything they have done, are doing, and will do has the single goal of collapsing and destroying the U.S. economy, military, constitutional government and culture.  What part of “Marxist Revolution” do you not understand?

But wait, it gets better!

The Obama regime… has debased the currency by 50% of the GDP and guaranteed that our economy will collapse.  It has looted the Treasury for more than the size of a top-ten economy and embezzled that wealth into the hands of their fellow Marxists in preparation for the final collapse of the United States.  It has ground the economy of the United States to a screeching halt.  It has destabilized the entire Muslim world and ensured that there will be a nuclear war centered around Israel within the decade.

You read that right, it’s Obama who has destabilized the entire Muslim world. And although Obama ostensibly presents himself to the public as a centrist slightly to the right of Nixon policy-wise - it’s really all a sham designed to trick us into looking the other way while this brilliant Manchurian candidate disembowels the country he lives in Mugabe-style!

Honestly, this is just too supremely silly for words. The whole post is worth reading in its entirety for a raw glimpse of the Tea Party psyche.

Ann Barnhardt describes herself as a “livestock and grain commodity broker and marketing consultant, American patriot, traditional Catholic, and unwitting counter-revolutionary blogger.”

I’m sure she’s a nice lady, kind to her family and what not, but her viewing of facts through what can only be described as a rigidly ideological filter means she gets them consistently and overwhelmingly wrong. If her essay is symptomatic of the intellectual rigor of typical Tea Partiers then America truly is in trouble given their power over the GOP.

We The Stupid indeed.

Full disclosure: I am not registered with any political party, but would describe my general political outlook as a libertarian-leaning centrist liberal, for want of a better shorthand. Comments and polite disagreements welcome!

Pundits on both sides of US politics agree that you have to either cut spending and/or raise taxes in order to make a dent in the deficit between the money the government brings in and the money it spends.

Currently servicing the government’s debt of $14 trillion cost $190 billion in 2009, which is nearly 10% of total government spending, and nearly 50% of the interest payments are now leaving the country. Not to mention that the costs of servicing this debt are going to explode so much further over the coming decades in a way that will make a drunk teenager with dad’s credit card and an internet connection look a model of fiscal rectitude, unless something is done to realign government income with government expenditure.

Democrats ostensibly want to raise taxes so they can continue to provide government services at roughly the current level - around 20% of GDP, while Republicans ostensibly want to cut spending and shrink government services down to something closer to 16% in order to ‘promote economic growth’. (In fact most Democrats are arguing to both increase taxes and cut spending.)

So we’re faced with a stark choice: cut spending, raise taxes, or both.

For reasons that will become clear, both sides are - publicly at least - overlooking the best solution, option D. What would that best solution be?

What if you could lower taxes - but increase the tax take. Sounds counter-intuitive no? But this is not magical thinking, at least economically (it may be politically).

Harvard economics professor Martin Feldstein, former chairman of the Council of Economic Advisers from ‘82 to ‘84 under Reagan, outlines the argument in a New York Times op-ed.

Currently there are thousands of pages of codified giveaways written into the US tax code, which gives people money to have babies, buy houses, drill for oil, grow corn, and build weapons systems, amongst many, many more activities. This is why the US tax code is so mind-numbingly complex: there’s a giveaway for every constituency/lobby group right down to household pets.

But as Feldstein points out:

such tax expenditures create incentives for wasteful borrowing and spending; they have been factors in the mortgage crisis and the rising cost of health care.

Tax expenditures collectively increase the budget deficit by more than all other nondefense spending combined, other than Social Security and Medicare.

Many of these tax giveaways are exorbitantly wasteful. Corn subsidies for instance, do nothing but enrich big agribusiness like ArcherDanielsMidland, while raising the cost of food and doing nothing to increase energy independence or lower the cost of fuel. They’re a lose/lose for consumers/voters.

If you got rid of these distorting exemptions, you could lower overall tax rates (which are already at historical lows for the US) and increase the tax take at the same time. It’s a win for everyone except the vested interests and their lobbyists, which, not so incidentally, is why it will be so hard to make it happen.

Cutting spending and/or raising taxes is possibly the greatest false choice presented in US politics today. There is another way.

There’s an op-ed in the New York Times from five conservatives with constructive ideas on how to improve health care reform: Bill Frist, Mark McClellan, James Pinkerton, Charles Kolb and Newt Ginrich. Well, at least four of them have sound ideas.

I think that former senator Bill Frist’s snarky intro that the Democrats have “failed at healthcare reform” is not only premature (and immature), but to say that “they don’t believe in markets” is something people outside the US would just laugh at - given that the Democrats are arguably to the right of some of the rest of the first world’s conservative parties.

However, I do think he’s really onto something fundamentally essential to healthcare reform when he argues that:

The most powerful way to reduce costs (and make room to expand coverage) is to shift away from “volume-based” reimbursement (the more you do, the more money you make) to “value-based” reimbursement… The only way to [strengthen the healthcare system] is to align the incentives of doctors, hospitals, pharmaceutical makers and other health care providers through value-based purchasing.

The current system values ‘throughputs’ over ‘outputs’ for several reasons, and turning this equation around would make a huge difference to both the quality and cost of the care Americans receive.

Former Bush Medicare administrator Mark McClellan also talks sense when he sees the need for “meaningful changes in medical liability law; better opportunities for people to save money when they take steps to lower their health care costs; and Medicare savings from greater use of competitive bidding.” I guess they weren’t allocated the space to expound further, because I’d love to hear what shape meaningful changes in medical liability law would take. (That’s one of the biggest elephants in the room - America’s absurd medical litigation laws. Good luck trying to take on the American lawyers association in reforming that).

But McClellan nails it when he points out that:

Currently, doctors lose money when they work with nurse practitioners, pharmacists or wellness programs to help patients avoid costly complications — because Medicare doesn’t pay for this, and it results in fewer billings for the visits, tests and procedures Medicare does pay for.

Like I said - throughputs over outputs.

James Pinkerton, well, I tried to find something other than platitudes in his argument that spending more, so better technology will make everything better, but failed.

James Kolb, a former domestic policy advisor for H. W. Bush reiterates the point that “Medicare is an inherently inflationary fee-for-service system that rewards volume, not value”, but then proceeds to admit that “Market-based strategies cannot cover the uninsured or prevent some insurance companies from covering only healthy Americans.” Fairly sacrilegious stuff for a Republican, and all the more salient for it.

I think he gets at a major flaw in the Democrats’ attempt to reform healthcare legislation. Because the Democrats are shit-scared of repeating the mistakes of the Clinton era, they’re timidly attempting to build on an anachronistic system that massively expands the bureaucracy required to run it, when precisely the opposite approach is needed.

Our existing employer-sponsored system — a pre-World War II dinosaur awaiting extinction — offers most Americans little, if any, real choice among competing insurance plans. Both parties should jettison it in favor of giving Americans better health care choices.

That employer-sponsored system was relevant when a majority of Americans were employed with the same company for life. In today’s world, Gen X’ers and Y’ers are lucky if they’re at the same job for more than two years. It needs to go.

Former speaker of the House Newt Gingrich argues that expensive procedures such as CAT scans, blood tests, ultrasounds and Caesarean sections are often ordered unnecessarily because of the perverse incentives of the current system, with the result that:

A new Gallup poll, commissioned by Jackson Healthcare, indicates that doctors believe an astounding one in four health care dollars is now spent on unnecessary care… Doctors order these procedures to protect against frivolous suits filed by trial lawyers seeking an easy payout, particularly after a doctor makes a simple mistake. Seventy-three percent of the doctors surveyed said they had practiced defensive medicine in the past year. As a result, American patients not only endure extra hours of tests and treatments but also pay more for health care.

So respect to Newt for pointing out the elephant in the room - the first Republican to do so that I’ve seen. It’s certainly hard to disagree with his declaration that:

Congress must give states the incentive to reform their civil justice systems so that lawyers will think twice before suing doctors for frivolous cases. There is a place for health courts that address only medical malpractice cases, and a need for caps on damages for “pain and suffering” that have nothing to do with lost wages or actual damages.

What I think Americans would love to see out of the forthcoming bi-partisan healthcare summit is exactly how Republicans would realize the ideas published here, because they’re good ones.