The Curious Urgency of Now

by Eric Martin

Like Erik (sic) Kain, I find myself puzzling at the sudden, arbitrary hyperfocus on deficits, debt and fiscal austerity:

The notion that we need to balance the budget and pay down the debt right now is just taken for granted with no real attempt to explain why.

Is inflation out of control? No, not even close. Are our creditors closing our accounts? No, because our creditors know that all we need to do to pay them off is raise taxes or get out of this recession. When growth picks back up deficits will shrink. The deficit is not a problem in the first place. The whole thing is just a ruse.

Meanwhile, unemployment remains sky-high and so do corporate profits.

However, if you turn on the Sunday talkies, or flip to the Op-Ed pages of the major dailies, Washington elites are in the grip of austerity fever - placing the onus on the Obama administration to address both long term and short term fiscal issues in a way that was never asked of Bush.  But why? It's not as if Obama invented the deficit or debt (just look at the arc of each during Bush's 8 years), and the throes of the deepest recession since the Great Depression is the exact wrong time to get religion on fiscal discipline (or in this instance, join the cult).

Yet Republicans barely bat an eyelash at the stark hypocrisy of grasping the mantle of fiscal discipline after the GOP-dominated Bush years (during many of which the GOP controlled both Houses of Congress and the White House).  Along those lines, Kain cuts to the heart of the incoherence of these putative budget hawks: if reducing deficits and the debt were really so urgent, why not raise taxes? 

Or, even, why not let Bush's massive, multi-trillion dollar, deficit exploding tax cuts simply expire as they were, ostensibly, designed to do? (of course, if deficits and debt are such bad thing, why support these tax cuts in the first place?)  Or, even further, at least let the portion of those tax cuts that flow EXCLUSIVELY to the wealthiest Americans expire (the wealthiest also share in tax cuts when lower bracket rates are reduced because of the tiered structure of tax brackets, but the lower and middle classes don't enjoy the benefits of upper bracket rate cuts in kind)?

While I'm sympathetic to Keynesian arguments about holding-off on tax increases (or not allowing prior tax cuts to expire) during a recession, that argument is only persuasive if the speaker is not simultaneously calling for massive cuts in government expenditures during that same recession. Cafeteria Keynesianism doesn't fly.

The fact that the vast majority of Republican lawmakers won't countenance tax increases (even in boom times), or even allow for the inclusion of tax cuts in the revenue-neutral paygo framework, is revealing of the true lack of concern about running deficits and carrying debt.  Similarly, the treatment of the gargantuan defense budget as sacrosanct and untouchable belies claims of concerns about such matters.  The disconnect in rhetoric and policy recommendations is reminiscent of the constant evocations of the existential importance of the wars in Afghanistan and Iraq, but the reluctance to ask Americans to pony up the money to pay for them. Something doesn't add up.

In reality, this new-found urgency around deficits and debt is, for many GOP stalwarts, a means to assail entitlement programs that have been targets since their inception, as well as an opportunity to weaken public sector unions and otherwise gut the relatively tiny discretionary spending component of our Federal budget.  As a bonus, the constant carping about spending during Democratic administrations reinforces advantageous - if erroneous - political narratives.

Comments

[wonkie]

Exactly.

The reason the Republicans don't bat an eye at the stark hypocrisy of creating a deficit and then claiming it is a terrible problem that must be solved right now by budget cuts is that the Republicans craeted the deficit on purpose just so they could call it a crisis and use it as an excuse for attacking everything except those programs which benefit their corporate sponsors. They are doing what Norquist advised them to do.

[wonkie]

And why are Beltway pundits collaborating with teh Repubicans on this set of lies and manipulations? See Emerson's post.

[ral]

Eric, I think the simple explanation is this is the Republicans' way of attacking Social Security, a program they have always hated.

[cleek]

yup. it's a scam.

it's a GOP-generated frenzy that has become a manufactured crisis which can only be solved by, coincidentally, the same old shit the GOP is always trying to do.

and once again, the American public is eating it up.

[Eric Martin]

cleek: I'm not as sure the American people are eating it up, as much as the punditry.

The polls I've seen show Americans don't seem to rate the deficit/debt issue as a big one. But that is likely changing as the shepherding has begun en force.

[Countme--In]

These complaints, expressed so reasonably and exasperatingly, about the real goals of this dangerous (and murderous to Americans, much more so than al Qaeda, if their policies are adopted) group who call themselves the Republican Party are, with all due respect to good people like E.D. Kain and Eric and Marty and Slart and Turb and everyone else here, and even me a few short years ago, just tiresome.

The Republican Party is a sadistic virulence let loose too long ago and now refreshes itself in shorter and more momentous and extreme cycles.

Only a more dangerous and ruthless virulence will solve the problem.

John Emerson has the required attitude, but that's just a baby step in the direction of saving this country from these killers.

[Jeff Graver]

It seems to me that complaints about Republicans uttering budget nonsense are somewhat past their shelf life. Of much more concern is why DEMOCRATS aren't strenuously arguing the other side.

I think the R side of the ledger is easily explained. The Bush/DeLay era was one monstrous betrayal of what fiscal conservatives thought they were about. Now they want their pound of flesh and will get it any way they can. If R's had been better conservatives, we would be in much, much better shape now, having already had the really hard arguments.

If D's can't articulate why the R approach is wrong, then it is no surprise that Washington and the media follow the loudest mouths. And cleek is right - the public IS eating it up, because their ain't no other game in town right now.

[nous]

...and if deficits and fiscal austerity are what's on the minds of the pundits then the D's would be best served by using this brief window of impulse for fiscal responsibility to shape the dialogue about what gets cut rather than letting the R's have the megaphone.

a.) Long term we do need to reduce deficits and be more responsible with government revenue

b.) if the public is behind this now then we need to use this moment to consider how we spend our money

c.) but the economy is still vulnerable and we need to watch how our cuts affect the realities of those who are recovering and struggling

d.) and be ready to increase revenues to pay for any stimulus we may need to keep things going so that we can rebuild responsibly and not destroy the infrastructure we need to succeed as a more efficient, less profligate nation.

If the public wants cuts right now, then embrace the smartest of the cuts and pave the way for your counter when the cuts cause some strain. If you think Y will happen as a result of the cuts, then let some of those cuts happen while predicting Y so that you can grab the megaphone and win the next round.

...not that this is going to happen. I fully expect the D's to stick with losing rhetoric in support of responsible policy. It's their schtick.

[cleek]

I'm not as sure the American people are eating it up

something happened last November which makes me think you're incorrect...

[ral]

cleek, we have to hope for "buyer's remorse."

[hairshirthedonist]

Anyone who knows how to put this image into a comment, feel free, and thanks. Anyone who doesn't, like me, follow the URL. It's a telling graph - a visualization of a problem austerity can only exacerbate.

http://bilbo.economicoutlook.net/blog/wp-content/uploads/2011/02/US_Employment_losses_by_Recession.jpg

[RogueDem]

The Republicans count on people voting against their self interest. All that corporate money is not all for naught, the Citizens United decision seemed to already be paying dividends in the 2010 election, we'll see how it goes in the next round.

Of course, targeting ACORN and using the Congress to torpedo them and trying to restrict voter registration under the guise of combatting voter fraud has been elevated to an art form.

As for crying that all politicians are equally bad, corrupt, or whatever, that also is part of the game as it works to the disadvantage of those trying to move us out of the rut we are in.

The only silver lining is that the R's may overplay their hand, I really hope they shut down the Gov't and the administration hangs it on their neck but I seriously doubt that is how it will go down, the R's are not quite that reckless (and not that many Republican votes are needed anyway since all the Dems will vote for it).

The deficit blather from both sides is very depressing but to think that there is no difference between the two sides is just plain crazy.

I do not think Obama is triangulating so much as playing to the village idiots, he has to keep the media from turning on him en masse and so far he has done a pretty good job of that. You can fault Obama on a lot of things and I do, but he was given a very difficult hand to play and I am not sure if it could have been played much better.

[hairshirthedonist]

Here's an interesting article from the Guardian.

Excerpt:

Both sides agree that government spending will continue to follow the old "trickle down" theory, despite its failure to date. Massive federal outlays on the largest banks, insurance companies and selected other large corporations produced a "recovery" for them, but not in the rates of unemployment, home foreclosures and state and local austerity budgets that keep crippling the US economy. Federal largesse has yet to trickle down, but both parties proceed on the assumption that it eventually will. Neither party tallies the economic and social costs of massive unemployment, home loss and state and local austerity budgets. Neither party offers any alternative to "trickle down", as if no alternative exists or is worth debating.

another:

No matter what their sideshow yields, however, the basic prognosis for the fiscal 2012 federal budget, combined with the current crisis in state and local budgets, is grim. The social safety net is being further frayed; public employee layoffs will increase and thereby worsen unemployment; ecological concerns will continue to be neglected, and no significant individual tax relief is anywhere on the horizon.

In the US, the federal government is the tail that definitely does not wag the dog. This capitalist crisis is being "resolved" the way they usually are. As unemployment deepens and lasts, wages and benefits decline. As businesses close, the costs of secondhand machines, the rents for office and factory space, the fees of business-serving professionals (accountants, lawyers, etc) drop. Eventually, when those cost declines proceed far enough, capitalists will see enough profit in resuming production to generate a broad and sustainable economic upturn.

and one last:

The vast social and personal costs of this irrational economic absurdity – tens of millions unemployed, one third of US productive capacity unutilised (rotting and rusting), and vast quantities of needed output foregone and lost – are ignored lest they raise the uncomfortable question: why do we retain a system as dysfunctional as this?

[bobbyp]

nous,

your point a.): By buying in to the 'long term need' to 'reduce deficits', you concede a huge marker to the austerity bloviators. Take that back, please.

your point b.) Politics is ALWAYS about how 'we spend the money'. But this, too, is misleading. It's about who gets what. Focus.

your point c.) You implicitly concede the need for cuts. This is an absolute loser. See remarks, point a.) above.

your point d.) The government is not subject to a spending constraint. Disabuse yourself of the notion that the government must first 'raise revenue' to spend. In actuality, it must first spend to raise revenue. Under conditions of slack demand, government should spend to get output to that which we have the capacity to produce. Anything less is an abdication of its social responsibility.

You will not win this with the public by conceding ANYTHING the GOP and its conservative masters advocate. When will we learn this?

[bobbyp]

Eric: cleek: I'm not as sure the American people are eating it up, as much as the punditry.

The punditry is, by and large, lickspittle propagandizing the line laid out by the moneyed interests. The american people are constrained by a retrograde political system that allocates political power to all the wrong actors (the rich, the rural, the winner-take-all attribute of our electoral politics).

We do not have democracy.

[Tony P.]

At the House Budget Committee hearing yesterday, Paul Ryan once again invoked the "small businesses pay taxes at personal rates" mantra. I can't find a transcript on line, but his little spiel occurs between 27:30 and 28:40 in this C-Span video.

This GOP mantra -- that raising marginal tax rates on incomes over $250K would hurt small businesses -- is either totally cynical or totally ignorant. I used to think that GOP "intellectuals" like Ryan are cynical men relying on the public's ignorance. Now, I'm not so sure. Now, I think Ryan is actually the ignorant one. I think he sincerely does not understand the difference between gross income to the business and net income to its owner.

Not that it matters, much. A cynical public electing ignorant politicians, or cynical politicians exploiting an ignorant public -- what difference does it make? "Small businessmen" like the Koch brothers get their tax cuts either way.

--TP

[Gary Farber]

In reality, this new-found urgency around deficits and debt is, for many GOP stalwarts, a means to assail entitlement programs that have been targets since their inception, as well as an opportunity to weaken public sector unions and otherwise gut the relatively tiny discretionary spending component of our budget. As a bonus, the constant carping about spending during Democratic administrations reinforces advantageous - if erroneous - political narratives.

Not much to say to this but: yup, yup, and yup!

[Gary Farber]

On the same front, Kevin Drum earlier today: Is">http://motherjones.com/kevin-drum/2011/02/deficit-crisis">Is the Deficit a Crisis? And Deficit Fever.

And I tweeted this one earlier today: Understanding Social Security in One Easy Lesson.

Kevin has banged this, er, drum before, many times, and so has everyone with a clue about the facts, but still we get the idiot mantras about how Social Security won't be there, etc., simply because the Republican propaganda has been so successful. I mean, really successful, so that the simplest facts and math won't crack through to so many people.

Part of that is because it plays into the classic Republican narrative, so well popularized by Reagan, but dating back through prior to McKinley, that Government Is The Problem, Not The Solution.

[bobbyp]

TP,

"Small businesses, paying taxes at personal rates" Ha.

If I had all the personal expenses my employer has run through the business he owns as a "business cost" I would be very well off indeed.

Small businesses get incredible tax preferences, plus they take advantage of lax oversight and enforcement of tax law, such as it is. Plus there is always the "I'm closing the doors" option as the owner hides behind the sham veil of corporate limited liability.

[Gary Farber]

Of much more concern is why DEMOCRATS aren't strenuously arguing the other side.

Of much more concern to me is why DEMOCRATS don't bother listening to Democrats. I could give you a telephone book full of speeches made by Democrats in the past six months on this, but have you actually read the Congressional record, watched C-Span, read the blogs, read the press releases, kept up on what Democrats in Congress say?

Obviously not, because you're claiming they're not not talking about it, and they do, constantly, over and over and over and over.

This isn't an isolated thing, either. Every day I read a jillion complaints from Democrats, and liberals, and leftists, complaining about what the Democrats or Obama don't do or say, and while certainly some of the time that's true, and certainly many complaints along those lines are true, in general, it's simply a matter of people not paying enough attention.

That's reasonable in the sense that you have to be a fanatic like me to keep up, and I'm not claiming I keep up with more than a fraction, myself, either, but I keep up enough to know that this is more often than not a pack of nonsense.

But you have to actually read Roll Call, Hotline, follow the papers, blah blah blah, and that's work, and most people don't do it because they have lives, and most people just love to listen to people who agree with them, whatever their beliefs. So mostly people don't hear contradictory views, because they don't look for them, or filter them out.

Everyone is guilty of this: Republicans, conservatives, Democrats, leftists, libertarians, whatever.

Of course, I, as a Vulcan, am immune.

(That's a joke, son, a joke! But we Vulcans are famous for our lack of sense of humor, so you won't believe me until I give you the Vulcan Death Grip.)

[Tony P.]

You can fault Obama on a lot of things and I do, but he was given a very difficult hand to play ...

Not exactly given, no. Barack Obama campaigned hard to get to play the hand.

Maybe he could not have known, when he started campaigning, that deep in the bowels of Wall Street the banksters were feverishly plotting to destroy the world economy. The actual meltdown came right after the conventions, when it was too late to back out of the election, so I'm willing to allow that he was "handed" the financial crisis.

But that's just ONE card in the hand Obama campaigned for the right to play. Several other cards were already on the table when he launched his presidential bid.

The expiration date of the Bush tax cuts, at the very least, was a known known that day in Springfield. And Obama was completely clear what he wanted to do about them, if he got to play the hand. And the country elected him, and gave him big majorities in Congress to boot.

The national debt was not a hole card in the hand either. Obama was not "handed" the task of doing something about it; he sought the task, passionately.

And of course, Obama was not "handed" an opposition party consisting mainly of the proudly ignorant and the viciously cynical. That card was right out on the table from the start, too.

So, by and large, Obama is playing exactly the hand he ASKED to play. He's just not playing it as well as he could.

--TP

[McKinneyTexas]

Paul Ryan once again invoked the "small businesses pay taxes at personal rates" mantra.

Uh, my small business pays not only business franchise taxes, but the income is taxed at personal income tax rates. Subchapter S corporations pay tax at the personal rates. Lower corporate tax rates are illusory for a small business. If the corp retains its earnings and pays what, 30% (I can't remember the marginal corporate rate), the owner/shareholder doesn't get the benefit of any of that money until its distributed as salary, bonus or dividend, at which time it is taxed again. No one subjects their income to double taxation. Thus, to have a small business dollar taxed only once, it is taxed at the personal rate.

Nous is on to something, which is why the 2010 elections went the way they did. "Deficits don't matter, raise taxes!" is a guaranteed formula for being a permanent minority party, possibly even a splinter party.

[Eric Martin]

something happened last November which makes me think you're incorrect...

Aside from the fact that the GOP was going to take back a healthy chunk of seats regardless (the Dem victories were unrealistic, and unsustainable in a midterm), if you look at the polls, voters were upset about the state of the economy, and the high rates of unemployment.

Deficits were very low on the scale. In fact, the GOP was able to make more hay out of Obama's "attacks on Medicare" than they were out of deficits (a big reason seniors swung so hard to the GOP in large numbers).

Still today, that is true.

[Eric Martin]

"Deficits don't matter, raise taxes!"

Whose message is this?

"Deficits don't matter" is a direct quote of....Dick Cheney! When he was justifying...the Bush administration/GOP House/GOP Senate's runaway deficit spending/deficit exploding tax cuts.

Care to elaborate?

[McKinneyTexas]

Whose message is this?

From your post:

The deficit is not a problem in the first place.

if reducing deficits and the debt were really so urgent, why not raise taxes?

I don't care what Cheney said. I was summarizing one of the theme's I take away from your post--deficit spending isn't bad and we need to raise taxes to pay for more gov't services. This is a fairly common refrain here. I am simply pointing out that it is not wildly popular with the voters.

[Marty]

First, there is the reality of the odd alliance of Democrats and the Tea Party that is driving much of the focus on the DEBT. The deficit over the next ten years is the driver of the debt increase.

second inflation is a problem, now it is just a problem for the poorest of Americans because food and fuel inflation parts of the CPI are the ones that are rising the most:

Increases in indexes for energy commodities and for food accounted for over two thirds of the all items
increase.

The indexes for gasoline and fuel oil both increased in January, continuing their recent strong upward trend. The index for food at home posted its largest increase in over two years with all six major
grocery store food group indexes rising.

The index for all items less food and energy also rose in January. The indexes for apparel, shelter, airline
fares, and recreation all posted increases. In contrast, the indexes for new vehicles and for used cars and
trucks declined in January.

Over the last 12 months, the food index has risen 1.8 percent with the food at home index up 2.1 percent; both 12-month changes are the highest since 2009. The energy index has increased 7.3 percentover the last 12 months, with the gasoline index up 13.4 percent. The index for all items less food and energy has risen 1.0 percent.

But every time we reduce the value of the dollar by printing more money we build more inflation pressure under these numbers.

The good part of this is that the debt service(and deficit reduction in general) will be much easier when the inflation rate spikes to 10% (or even 4%). But the negative impact that raising taxes would have on the recovery would be marginal compared to the negative impact even a 4-6% inflation rate would have. (The last statement is an IMHO statement, thirty economists would be pretty split on it)

[Phil]

I was summarizing one of the theme's I take away from your post--deficit spending isn't bad and we need to raise taxes to pay for more gov't services.

It seems like you're conflating two things here, or maybe taking two different things Eric is noticing and trying to make them into a coherent policy position. The way I read them is:

1. The deficit is not a problem in the first place. The deficit qua deficit is not a problem for the US, at least not at its current level, not during a continuing recession, and not at 10% unemployment.

2. if reducing deficits and the debt were really so urgent, why not raise taxes? If the so-called deficit hawks were serious about their mission, they wouldn't pretend that the problem could be attacked solely from the spending side, and they certainly wouldn't have voted to continue tax cuts that were intended to sunset and cost the Treasury billions.

[Eric Martin]

Basically, what Phil said.

I'm saying that the deficit qua deficit is not a pressing problem right now (umeployment is the pressing problem).

But, if you want to argue that the deficit is a pressing problem right now, you should only be taken seriously if you also admit that the solution would involve raising taxes - or letting the Bush tax cuts (that contributed massively to said deficit) expire.

Otherwise, how big a problem could the deficit be if you're not even willing to let tax rates return to 1990s rates (which, IIRC, was a pretty good era for low deficits)?

So, the message is not: Deficits don't matter, raise taxes.

The message is: Deficits don't matter more than unemployment right now, we need more stimulus spending in a recession in order to stabilize unemployment and avoid a vicious cycle. After that, we need a combination of spending cuts and tax increases to stabilize our long term footing.

And, really, I'm not as concerned with what is a "winning political message" as what is optimal policy.

Hell, the winningest political message is: Let's keep cutting taxes, never raise taxes, and keep government expenditures high forever.

Awesome for me. So?

[Eric Martin]

Marty,

Fuel increases are not due to inflation. Oil prices have been going up in fits and spurts for some time. They have more to do with global supply/political issues in producing regions than inflation.

As for food, we could do much to reduce those costs if we stopped the idiotic subsidization of corn - especially for ethanol.

[Eric Martin]

Adding: If we're really concerned about the impact of inflation on poor people, why don't we let the upper bracket-only portion of Bush's tax cuts expire?

Seems blindingly obvious.

[Marty]

"Fuel increases are not due to inflation. Oil prices have been going up in fits and spurts for some time. They have more to do with global supply/political issues in producing regions than inflation."

This is not inflation? Supply/ demand factors driving increase in prices?

[Eric Martin]

You were talking about inflationary effects of monetary policy.

But every time we reduce the value of the dollar by printing more money we build more inflation pressure under these numbers.

And the debate is about inflationary effects of interest rates.

So, not really in this context, no.

[Eric Martin]

Also, to clarify: Recent fluctuations in fuel prices are not due to inflationary pressures of monetary policy.

I mean, fuel prices were skyhigh during Iraq war - does that mean there was a massive spike in inflation? And since then, we've had deflation?

[Marty]

well Eric we could just have a one line solution to everything if we were just concerned about that one thing in every conversation. Seems blindingly obvious. Kill the subsidy for corn, poor people would flourish. Great all done. We solved it all right here.

We could help poor people more by letting all of the Bush tax cuts expire and reducing the deficit problem by 3.7 trillion rather than just 700 Billion. Now we have really helped the poor people. Probably made some more poor people but heck we're already helping them so we're good.

So that's ok, Mother Jones can tell us how to fix that too.

And while I am being snarky, I am not so sure why what Cheney said ten years ago is in any freaking way relevant today. Ten years ago many people didn't have mortgages that were fifty percent of their take home pay and fifty k in credit card debt and they had a job, so when they thought about financing a car they thought , heck a car payment doesn't matter.

Facts are different now, deficits matter and Cheney is old news. Let it go.

[Eric Martin]

And while I am being snarky, I am not so sure why what Cheney said ten years ago is in any freaking way relevant today.

Ten? Less than that.

Facts are different now, deficits matter and Cheney is old news. Let it go.

The biggest difference being...Republicans are no longer in power!

Awesome.

Regardless, if deficits matter, then nibbling away at discretionary spending is a waste of time.

The real meat is in defense spending, tax increases and Medicare/Medicaid.

Unless you're talking about that, you're just blowing smoke and don't really have a grasp of where federal money goes in large amounts.

Ten years ago many people didn't have mortgages that were fifty percent of their take home pay and fifty k in credit card debt and they had a job, so when they thought about financing a car they thought , heck a car payment doesn't matter.

Which means...what exactly in terms of the FEDERAL BUDGET!

In fact, the "jobless" portion of that equation militates heavily in favor of keeping government spending up so that, you know, hundreds of thousands of government workers aren't added to the rolls of the unemployed.

Which has been happening steadily under Obama (massive shrinkage in government employment rolls on all levels)

[Eric Martin]

well Eric we could just have a one line solution to everything if we were just concerned about that one thing in every conversation. Seems blindingly obvious. Kill the subsidy for corn, poor people would flourish. Great all done. We solved it all right here.

First, I never said this was a solution to everything, but that it would help with food prices.

Also, if someone is arguing that, for the good of poor people, we have to reduce the deficit/debt because of inflation, but in doing so, we have to preserve the deficit increasing tax cuts that go EXCLUSIVELY to the wealthiest Americans, the argument is, at best, muddled.

[Marty]

"Regardless, if deficits matter, then nibbling away at discretionary spending is a waste of time.

The real meat is in defense spending, tax increases and Medicare/Medicaid."

See, now I agree with this. And I will trade you a substantial defense spending cut for an across the board Bush tax cut repeal and a Medicaid overhaul. I will throw in a repeal of all agriculture subsidies for the top 10% of the wealthiest agriculture combines and an additional 3% tax increase on everyone making more than 500K in non-earned income. But you have to agree to not touch SS.

[Marty]

"Which means...what exactly in terms of the FEDERAL BUDGET"

Oh, sorry, once you get to the point that what you owe starts to approach what yo amke you stop borrowing more until you pay some of it down.

[JustMe]

Nous is on to something, which is why the 2010 elections went the way they did. "Deficits don't matter, raise taxes!" is a guaranteed formula for being a permanent minority party, possibly even a splinter party.

McKinney, your voting patterns and the policies supported by the people you voted for resulted in a clear and direct crash of the economy and a fiscal disaster, along with massive unemployment. To say nothing of miring us in needless wars. That you now have the audacity top whine about not wanting to pay for this by going back to clinton-era tax rates and go on to support a movement to put those same destructive forces back in office leads me to believe both that you are untrustworthy and also that you need to be taxed more in order to bear the burdens and responsibility for what you did to us. It's about personal responsibility.

[Marty]

"McKinney, your voting patterns and the policies supported by the people you voted for resulted in a clear and direct crash of the economy and a fiscal disaster, along with massive unemployment."

Just to be clear, this is completly false.

[JustMe]

The greater point which I think McKinney is willfully ignoring in order to advocate for certain personal benefits for himself, is that people care about unemployment and the economy. Whining about how deficits are a priority is just Republicans trying to take advantage of a situation to undermine social security.

Marty: wrong.

[JustMe]

On another point about Marty is that, unfortunately, I see a sad lack of personal responsibility on his part. I see this from Republicans in general, given how there were such terrible results of their support of George W Bush and Republicans and in the end they woke up and said, "I don't know how this could have happened! Don't blame me!" But their big deflection of responsibility is to just argue, "well, now we just have to get together and cooperate in order to do exactly what Republicans want to do, now." That is not a compelling argument. They were happy to creep like locusts through the budget to strip the USA of its assets when the going was good. When everything inevitably went under, they don't want to pay for it and get angry that anyone might look at them askance or not take them seriously.

[Eric Martin]

See, now I agree with this. And I will trade you a substantial defense spending cut for an across the board Bush tax cut repeal and a Medicaid overhaul. I will throw in a repeal of all agriculture subsidies for the top 10% of the wealthiest agriculture combines and an additional 3% tax increase on everyone making more than 500K in non-earned income. But you have to agree to not touch SS.

I can live with that.

Oh, sorry, once you get to the point that what you owe starts to approach what yo amke you stop borrowing more until you pay some of it down.

But that "fact" is no different than it was ten years ago, which was your argument. Facts are different now, so we have to take a radically different approach than was taken during Bush's 8 years when the so-called "deficit hawks" ran the White House, House and Senate.

But did nothing but explode the deficits and pile on to the debt.

[Marty]

"They were happy to creep like locusts through the budget to strip the USA of its assets when the going was good."

I would like to know how I did this.

Once that is clear I will be glad to take personal responsibility for it.

It is a great visual though.

[Jeff Graver]

Gary: "But you have to actually read Roll Call, Hotline"

If progressive/liberal outcomes depend on this, then indeed, all hope is lost.

"have you actually read the Congressional record, watched C-Span, read the blogs, read the press releases, kept up on what Democrats in Congress say?"

I do read enough to know what D's in Congress are saying. And in Congress, they're saying good things. But I'd rather have my fingernails pulled out than actually read speeches in the Congressional Record, and I expect that I count as a reasonably well-informed voter. Congressional speeches simply don't move the public, as far as I can tell. It's not a productive communications strategy.

Liberal/progressive blogs are filled with posts and comments calling out Republican nonsense. And all of it is true. And none of it is persuasive. It's old news. It's preaching to the choir. That too is an unproductive communications strategy.

[Marty]

But Eric, the facts are different, GDP is not expanding as rapidly so the debt as a percetage of GDP, or debt as a percentage of income is growing much more rapidly. That fact is very different.

No matter what else you want to or even can blame the previous administraion for the circumstances today are different than they were then.

We have to deal the circumstances today.

Would it make a difference in that assessment if wee all got together and decided it was Bush/Cheney's fault? I would submit that there is a pretty clear majority in the House between Democrats and Tea Partiers (and probably a lot of silent Republicans) that agree with that.

It doesn't change the fact that things are different today.

[Eric Martin]

Facts are indeed different today. Now you're at least addressing some facts that matter.

That said, GDP growth has been rebounding, and the ratios are not as bad as you claim, nor am I convinced why they need to be addressed now.

But even if they did, we could simply let Bush's tax cuts expire and that problem would vanish in a flash.

Which Republicans fought tooth and nail to oppose - despite GDP to debt ratios being different today, apparently, the same old tax cuts should be re-instated.

Hence, I return to the substance of this post.

[hairshirthedonist]

We have to deal the circumstances today.

Yes. And today people are trying to pay down the personal debt they undertook in previous years, far more people are unemployed, banks and businesses are investing far less and sitting on lots of money, state and local governments are laying off cops and firemen, all meaning that the private sector and sub-federal-level governments are trying to save in aggregate. The economy lacks demand now far more than it did during the Bush era.

Reducing demand even further by trying to balance the federal budget when we have close to 20% of our potential workforce out of work and production well below capacity is entirely backwards. Deficits do matter. Right now we need deficit spending - smart, focused, demand-increasing spending - to restart the economy.

Or we can just let things errode badly enough for enough years that wages and prices become depressed enough that the private sector decides in aggregate that it's time to make a profit again, and after our productive capital, human and otherwise, has erroded such that our capacity is reduced. There's a growth strategy for you!

Feh! This is all so effing stupid I can't stand it.

[Eric Martin]

What HSH said.

Facts are different - meaning, now is an EVEN WORSE! time to try to balance the budget.

Gah.

Keynes 101.

And if we simply MUST balance the budget now because [something], then the quickest way is to return to the 1990s levels of taxation - a decade with a booming economy and budget surpluses.

[nous]

I think mcKinney's earlier point (and the one I was making in my comment) is that the furor that is driving the Tea Party's mantra about the deficits is partially a conflation of micro and macro economics. Gary's point about what the D's are saying and how much they are saying it is telling. The fact that no matter what they say they are perceived to be for higher federal budgets is a branding problem. Brand Reagan is still kicking Brand Progressive's butt because Brand Progressive's message is too complex.

Adopting the language and some of the impetus of the Right does not "concede a huge marker to the austerity bloviators" if the purpose of that shift is to get them moving in your direction rather than pulling back. It's not about winning the argument, it's about embracing the underlying concern and guiding them to your own position.

The D's need to stop viewing this as a tug-of-war and start treating it more as aikido.

[russell]

See, now I agree with this. And I will trade you a substantial defense spending cut for an across the board Bush tax cut repeal and a Medicaid overhaul. I will throw in a repeal of all agriculture subsidies for the top 10% of the wealthiest agriculture combines and an additional 3% tax increase on everyone making more than 500K in non-earned income. But you have to agree to not touch SS.

I can live with that.

Same here.

The only thing I would do different is leave the 10 and 15% brackets alone. That's basically single people under $35K, families under $70K. We're not going to get a ton of money out of those folks, and a couple of points difference in income is something they'll actually feel.

The thing that makes me truly angry in the current discussions of our fiscal situation are folks who will fight modest increases in taxation to the death, but who are fine with serious cuts to programs like SNAP.

That's not a luxury item, it's food.

I'm not sure the budget hawks in Congress have any concrete understanding of what the tangible, real-world consequences of what they're doing are actually going to be.

They're worried about marginal disincentives for small businesses to invest and grow. That's a worthwhile concern.

The solution is to stick it to the poorest people in the country. IMVHO that's FUBAR.

[Eric Martin]

Right. I mean, when people are less poor they consume more, which money flows efficiently to those building the better mousetraps.

Capitalism in motion, right?

[Marty]

"That's basically single people under $35K, families under $70K. We're not going to get a ton of money out of those folks, and a couple of points difference in income is something they'll actually feel."

Except thats probably a trillion dollars

[Marty]

Actually russell that number is probably not that high. A family of four, in fact, doesn't pay any income tax until they earn over fifty thousand dollars in 2010, 2011, 2012 so the amount collected for those between 50k and 70k isn't quite that high.

[russell]

Yeah, my thought was that in real-world terms, after deductions for kids, maybe mortgage, after EITC, etc., those folks are not really paying that much to begin with.

And those folks are the ones for whom a difference of a couple of points can actually mean a lot.

I have no problem with spreading the hit further down from the $250K plus folks down into the upper middle and middle class. Especially if that is going to keep the safety net in place for folks who now depend on SNAP, LIHEAP, etc.

That's food, shelter, and heat. It doesn't get much more basic than that.

[Rob in CT]

Hmm. I'm certainly not a Republican, but I have been concerned about the debt and deficits (when we've had them) since I became politically aware in the 90s.

Some of that might be b/c I grew up in a GOP-friendly household. Or it could simply be that the concept of "debt is bad, m'kay" was a key part of my upbringing. Or it could be that I've never depended on the safety net (which is different than saying I've never benifitted from government programs, which would be utterly false).

We spend a sh*tload of money every year just paying interest on the debt. That's money that cannot be spent on something else. The debt-to-GDP ratio is getting pretty high, and we don't have the sorts of advantages we had post-WWII (the last time the debt ratio was higher). I don't really care about the absolute $ amount of the debt. Debt-to-GDP, on the other hand, is something a reasonable person can be concerned about, dontcha think? I want this country on a strong fiscal footing in no small part because I want our government to have the resources to respond to a crisis.

I think tax increases should be part of our response. I would also phase in cuts over time, as austery *NOW* is not a good plan. Discretionary government spending should be counter-cyclical to the extent possible. Sadly, it hasn't worked that way, in part b/c of resistance to contracting spending during boom times and in part because "government spending" includes more than the Feds. State-level spending tends to contract sharply during recessions, counteracting Federal stimulus.

So... I think we have a medium-to-long-term problem, and I want it addressed sooner rather than later because the longer we wait the worse it will get. This is being driven mostly by medical costs.

I'd like to see us avoid stupid wars for a while. I'd like to see some seriousness re: medical care cost control (none of this "death panels" horsesh*t). I'd like a lot of things. Including a magic pony.

[Eric Martin]

Rob, I agree re: debt in general.

My objection is to the timing, and the hypocrisy, and the incoherence of the response for so many political actors.

[Phil]

In Wisconsin, at least, Democrats are having none of it when it comes to the state budget -- the entire Democratic caucus has left the state to deny the Republicans a quorum.

[Eric Martin]

But maybe unemployment in WI would be lowered if they fired a bunch of state workers. Amirite?

[Tony P.]

McKinney: Uh, my small business pays not only business franchise taxes, but the income is taxed at personal income tax rates. Subchapter S corporations pay tax at the personal rates.

Does your small business pay a franchise tax to the state or the feds? Is this tax a flat fee, a function of the gross income of the business, or a function of your PERSONAL income? I would like to know because I can't tell what relevance this business franchise tax has to the question of federal taxes on personal income, the federal budget, or the national debt.

Unless I misread you, McKinney, it's not your BUSINESS that pays federal income tax; it's YOU. So: should your PERSONAL income (profit from your own "small" business) and MY personal income (salary from a "big" business) be taxed differently?

If not, what the hell is the GOP mantra about "small businesses" and "personal rates" except a cynical ploy?

--TP

[liberal japonicus]

Crud, the comment I tried to make just before I left home didn't take.

To quickly recreate it between meetings.

As someone who has lots of ties to Wisconsin (though weak and quite a bit in the past) I am baffled at how that state has a Republican controlled gov. I mean, they elected a socialist in all but name governor (Lafollette). I can understand New Mexico and see how the Dem flight from the quorum happened there, but Wisconsin? Home of the Wisconsin Idea. Birthplace of The Onion! I understand the Jesse Ventura interregnum in Minnesota because Minnesotans have much more of a I'll go my own way vibe. But I don't understand Wisconsin. Cheeseheads and Packer fandom seem more explicable.

So if anyone wants to take a shot at explaining, I'm all ears. In fact, if you'd like to take a shot at explaining the political factors in your state or locale (furriners welcome), there is a guest post slot waiting for you.

[sekaijin]

"If not, what the hell is the GOP mantra about "small businesses" and "personal rates" except a cynical ploy?"

Memo to McKinney - the GOP doesn't give a crap about your small business, let alone any small business, for that matter. Nor - I truly am sorry to say - would they even give you and your business the smell of one of their farts.

"I'd like to see us avoid stupid wars for a while. I'd like to see some seriousness re: medical care cost control (none of this "death panels" horsesh*t). I'd like a lot of things. Including a magic pony."

Memo to Rob in CT - couldn't agree more, except to add that a magic pony is, given the state of affairs, the only plausible thing on your list.

[RogueDem]

Well, LJ, here's my take on the outcome of the 2010 election (not that there is any great revelation here).

The economy is, by almost every measure, in the worst shape since the great depression so incumbents were going to take a beating.

Money, lots of money. For example, in the recent Oregon governor's race Chris Dudley, who was primarily known for being a backup center for the Portland Trailblazers and is currently a wealth adviser helping rich folk avoid paying taxes, very nearly defeated (less than 1% of the vote) a prior governor who left office after two terms in 2003 (term limited) and was by all accounts still very popular, seemingly the best candidate the Democrats could possibly put forward. Dudley raised over 3 million dollars more than Kitzhaber (10.5 vs 7.4) and used it fairly effectively.

As for the problems related to the media, I think JE's prior post covered most of the bases.

[Hartmut]

Has no one mentioned yet that the Bush tax cuts had the explicit purpose to kill the budget surplus and that a certain Mr. Copper(II)acetate warned of the dangers of paying off the national debt?

[McKinneyTexas]

But, if you want to argue that the deficit is a pressing problem right now, you should only be taken seriously if you also admit that the solution would involve raising taxes - or letting the Bush tax cuts (that contributed massively to said deficit) expire.

The deficit is a pressing problem right now and so is unemployment. Raising taxes now, and not binding those increases to structural debt reduction and spending cuts, simply puts more money in the hands of the douche bags who got us where we are in the first place. My position is clear: first, a two year FICA holiday on the employee side only, then a massive cut in the corporate tax rate, then flatten spending increases for two years, then and only then, raise taxes on me and others to Clinton levels with the added proviso that the added revenue be used to pay down debt. These are do-able. I'd throw in ending two wars and cutting our NATO commitment by 75%, but those seem to be nonstarters.

Does your small business pay a franchise tax to the state or the feds? Is this tax a flat fee, a function of the gross income of the business, or a function of your PERSONAL income? I would like to know because I can't tell what relevance this business franchise tax has to the question of federal taxes on personal income, the federal budget, or the national debt.

Unless I misread you, McKinney, it's not your BUSINESS that pays federal income tax; it's YOU. So: should your PERSONAL income (profit from your own "small" business) and MY personal income (salary from a "big" business) be taxed differently?

If not, what the hell is the GOP mantra about "small businesses" and "personal rates" except a cynical ploy?

TP--a small business is owned usually by one or not very many individuals. They either incorporate and elect the Subchapter S option on their Fed taxes or they are a partnership (my business form) and they get a K-1 which shows their partnership income which is then reported on the standard 1040. Sub S corp's income all flows through to the owner who pays taxes at the higher personal rates. The corporate tax rate only applies to larger operations whose large earners are paid salary, bonus etc which is deducted by the corp and then taxed at individual rates. There are damned few tax gimmicks available to small businesses. If there were some, I'd use them shamelessly, but there aren't.

PS, my franchise tax is on partnership earnings and it's a percentage of the gross (I think it's on the gross--my CPA screwed this up three years running, so I had a major financial enema last year straightening it out). It's a state tax. My point was that small businesses have multiple tax burdens and it really is of no consolation who gets the money.

Bottom line: it is completely accurate to say that small businesses pay taxes at the individual rates, not at corporate rates. Unless, of course, the business owner is an idiot. How would an idiot pay both taxes? Assume a profit of 500K of small biz corp money. Pay 30% in corp taxes, then take home the difference and pay individual taxes on that. Better just to bottom out the money at year end and pay tax once on the 500K. At individual rates.

[Tony P.]

Bottom line: it is completely accurate to say that small businesses pay taxes at the individual rates, not at corporate rates.

No, McKinney. What's completely accurate is to say that small business OWNERS pay taxes at individual rates. Just like EMPLOYEES do. "Individual rates" are what INDIVIDUALS pay. I know you understand this, for you explain it clearly and concisely.

The bogus idea the GOP keeps trying to push -- either because they don't understand, or they figure the public doesn't -- is that a marginal tax rate of X% kicking in at $Y of PERSONAL income is somehow more burdensome to business owners who personally make $Y than to employees who personally make $Y.

The other bogus idea, of course, is that a sole prop, or a partner, or the owner of an S-corp, is a "small businessman" just like YOU are a "small businessman", and never mind whether he makes 10 or 100 or 1000 times the personal income you make.

Incidentally, you can look at either the pass-through structures, or at the C-corp structure, as a "gimmick". If you view the C-corp as a perfectly natural way to structure a business, then the pass-throughs are a "gimmick" designed to allow certain businesses (like yours) to NOT PAY INCOME TAXES. If you view the C-corp structure as a contrived, man-made thing, then THAT is a "gimmick" in the truest sense of the word.

--TP

[McKinneyTexas]

What's completely accurate is to say that small business OWNERS pay taxes at individual rates.

Well, isn't this semantics? Whether I write the check or my firm writes it, what is the substantive difference?

As for the owner vs. employee burden, there is a point there. It is this: a tax is simply an expense. The less paid by the business owner, the more that is available to maintain or expand the business. This is particularly true when credit is tight, as it very much is these days, having just renewed my LOC and refinanced my home. The employee, OTOH, has no obligation to maintain or expand the business. If a computer needs to be replaced, the owner pays for that. So, there is an argument there.

I agree "small businessman/woman" is like "middle class"--we're all middle class, aren't we?

Yes, you can look at pretty much any regulatory or tax scheme as a gimmick. My belief is that a dollar should be taxed once to the person who earns it, whether that person does business in the corporate or some other business form. The Sub S gives the owner(s) the limited liability protection of the corporate form but let's them enjoy the tax benefits of a partnership. Now we have Limited Liability Partnerships (I am one) in which the partner has unlimited liability only for his/her own torts, all other liability being essentially limited to the assets of the business.

[Tony P.]

Well, isn't this semantics? Whether I write the check or my firm writes it, what is the substantive difference?

I thought that the law biz is precisely where semantics IS substance. And that accounting is at least ONE place where pedantry is virtue :)

Suppose you do business as a lawyer and woodworking as a hobby. You rent an office; you rent a shop. The dollars to pay for either one come from the legal fees your clients pay. It's just semantic pedantry to insist that it's "your firm" that pays the office rent, and "you personally" who pays the shop rent, right?

Sure. But our tax laws are a monument to semantic pedantry, and your accountant will substantively thank you for keeping one bank account for "your firm" and a separate one for "your self". That's because "your firm" is substantively a non-profit entity for tax purposes, and "you" are not.

As for the owner vs. employee burden, there is a point there. It is this: a tax is simply an expense. The less paid by the business owner, the more that is available to maintain or expand the business ...

... or give to charity, or buy T-bills with, or invest in someone else's business. I mean, seriously, McKinney: ALL of us, business owners and wage-earners alike, have expenses -- including tax bills. Whatever's left over after we pay our expenses is available for "investment" to "grow the economy" and to "create jobs", whether we are "small business" owners like the Koch brothers or wage-slaves like teachers.

If you (or Paul Ryan) want to argue that cutting EVERYBODY's tax bill is the way to promote more "investment" in The Economy, then say so. We can argue, substantively, whether that's empirically true or not. But pretending that the PERSONAL incomes of "small business owners" is somehow different from the PERSONAL income of wage-earners is ... well, "semantics" would be the charitable word for it.

--TP

[McKinneyTexas]

Good morning, Tony. Nice to have a private chat. Our discussion started with this statement: "that raising marginal tax rates on incomes over $250K would hurt small businesses."

Let me try to be a bit clearer. My operation is a services business and therefore not capital intensive. Still, there are a couple of constants: my wife and I have the same economic imperatives in our private life as do employees. Actually, ours are a bit different since we pay for our health insurance and retirement directly. No matching funds, no pension or anything else that doesn't come directly off the bottom line. Second, even a service business has capital requirements: office space, computer network, phone system, etc. Third, at the owner level, income can and does fluctuate significantly. The capital and expense demands of the business remain more or less the same. I pay taxes at two levels: a variety of local, state and federal taxes (matching FICA for employees, self employment tax for myself) which get paid no matter what my income level happens to be. Likewise, operating costs have to be paid and to be paid timely. My gross income dropped precipitously in 2010, but my expenses went up. They go up every year. The second layer of taxes, of course, is Federal income tax. In good years, upwards of half my earnings go to taxes in some way, shape or form, mostly to the feds. In not so good years, I break even after living expenses, nothing gets put back against the day I can't carry my weight in the court room (a day that looms nearer and nearer). If I paid less tax, or more, my ability to retire debt, upgrade my systems and save for retirement would be enhanced or reduced accordingly.

If I were far more capital intensive, my ability to maintain existing equipment and expand would be a direct function of how much money is left after operating expenses and taxes. Lower taxes, more money to expand and maintain. Higher taxes, less money.

Employees don't have to look at what they made this year with an eye toward giving some or a lot of it back next year to keep the business going. Owners do. In these times, they do so frequently.

The dollars to pay for either one come from the legal fees your clients pay. It's just semantic pedantry to insist that it's "your firm" that pays the office rent, and "you personally" who pays the shop rent, right?

Actually, it's more like this: I own 100% of my firm's assets and get 96% of the profit, so as a practical matter, every dollar spent on anything is, because of how my partner and I split income, 98 cents out of my pocket (my partner is a part time lawyer, full time mom and gets half her personal collections and roughly 4% of the profit. If she was full time, she'd get 10%). The only issue is whether the dollar spent is a set off against income, in which case, the real cost is closer to 65 cents on the dollar, assuming I make enough money to get into the 35% bracket. But, unlike employees, I have to make payroll and pay rent when due. There are differences and Ryan does have a point.

As for lowering taxes to juice the economy, if I thought that was the answer, I'd say so. And I have--I would have an employee side only FICA holiday for two years. I think juicing consumption across the board is the way to go. Businesses would benefit hugely because they could forgo pay raises for the same time period with each of their employees having received an effective 8% pay raise.

[Tony P.]

McKinney, we do seem like a couple of guys playing a game of chess at a cocktail party :)

I just want to say: as a sole-prop for many years, I agree with your description of the interplay between gross income, taxes, business expenses, and personal income. We seem to agree on what reality IS, for "small business".

We still disagree over the implication that our PERSONAL income tax rates somehow affect The Economy more than anybody else's personal income tax rates. That's the implication that Ryan and the GOP in general are trying hard to convey. Not out of a tender solicitude for people like you and me, but in pursuit of low tax rates for people much, much richer than either of us.

You make much of a point that I agree with only too well: the damned variability of "small business" income. By your own account, and my own experience, that variability is entirely due to the ups and downs of our GROSS income -- which has nothing to do with our own personal income tax rates. It's hell, not knowing what our gross will be next year, or next quarter, or next week.

Parenthetically: wage-earners face "variability", too. Except it tends to be binary for them. Your gross and mine can vary +/-50% or more, continuously; their income can vary from 100% to zero, in one sharp transition.

Anyway, there used to be something called "income averaging" in the tax code. It was abolished years before I went into business for myself, so I don't remember the details of it -- or what abuses led to its abolition. Bringing back something like that might be something worth considering. If that's what Ryan and the GOP were championing, I might take seriously their pretense that they give a hoot about "small business".

--TP

[McKinneyTexas]

Well, perhaps someday we'll meet over drinks and continue this further. I think we are on the same page, more or less. I tend to agree that on incomes above, say 750K, a bump in the marginal rates tied to spending cuts and debt reduction is palatable. A "small business person" making that kind of money is in fairly good shape. Where the Dems miss the boat is that truly small operations will, in the aggregate, i.e. maybe not me, maybe not the person next door, feel the pinch in a real way if marginal rates are increased. That said, my view remains that taxes will have to go up once real spending discipline is instituted because we are carrying too much debt and spending too much servicing that debt.

As an aside, I travel a bit and would not mind knowing where some of the regulars here hang out so that, should biz bring me in that neighborhood, I could buy a round of drinks or two. HSH and Hogan live in Philly. We hope to get together someday. I just picked up a client in Cherry Hill NJ, across the river and am hopeful I can get up there.