The Deficit Reduction Committee II

On November 28, 2011 I posted and distributed my commentary entitled "The Deficit Reduction Committee" on the DRC's failure to reach agreement, and pointed out that Republicans on the committee never made a good faith effort to reduce the deficit, since the only proposal that they made would have increased the deficit. (In this connection it should be noted that in pushing for the extension of the Bush tax cuts for the very wealthy, they insisted that no offsets were necessary, when it came to to an extension of the of the payroll tax cut, they insisted that offsets are a sin qua non. Tax Cuts for working Americans, according to them, pose a danger to the economy, but Tax Cuts for the wealthy, who they call “Job Creators” are, according to them, good for the economy and need no set offs, no matter how much they increase the deficit.

I have received two comments to this article, but will postpone sharing them with you until the next post because of space constraints. In the meantime I invite further comments.

At the end of my last post, I promised to analyze point by point a column by Charles Krauthammer that appeared in the November 24 issue of the Washington Post, under the heading "The Grover Norquist tax myth." See here.

I suggest you first read it in full by clicking "here” above and then read my comments thereon, for which purpose I reproduce the article and intersperse my responses in contrasting type.

            Democrats are unanimous in charging that the debt-reduction supercommittee collapsed because Republicans refused to raise taxes. Apparently, Republicans are in the thrall of one Grover Norquist, the anti-tax campaigner, whom Sen. John Kerry called “the 13th member of this committee without being there.” Senate Majority Leader Harry Reid helpfully suggested “maybe they should impeach Grover Norquist.”

            With that, Norquist officially replaces the Koch brothers as the great malevolent manipulator that controls the republic by pulling unseen strings on behalf of the plutocracy.

Nice theory. Except for the following facts:

            ●Sen. Tom Coburn last year signed on to the Simpson-Bowles tax reform that would have increased tax revenue by $1 trillion over a decade  There was no Simpson-Bowles Tax Reform. This refers to a bi-partisan commission appointed by the President, the formation of which Republicans opposed. The President stipulated that its recommendations would only be submitted to Congress if 14 of its members voted for it. That vote was not achieved and the plan died. Sen. Coburn (R) voted for the report, but the Republican leadership in Congress showed no interest in it, and never brought it up for a vote in the House.

            ●During the debt-ceiling talks, House Speaker John Boehner agreed to an $800 billion revenue increase as part of a Grand Bargain. Yes, and then reneged when he found that his caucus would not consider it, despite the fact that cuts would have been three times the size of revenue increases.

            ●Supercommittee member Pat Toomey, a Club for Growth Republican, proposed increasing tax revenue by $300 billion as part of $1.2 trillion in debt reduction. This is precisely, what I was talking about in my last post. The proposal was to increase $300 billion in revenue, provided there was a decrease of $4 trillion in revenue, through a permanent extension of the Bush tax cuts. This means a net cut in revenue $3.7 trillion.

Leading, very conservative Republicans proposing tax increases. So why does the myth of the Norquist-controlled anti-tax monolith persist? You might suggest cynicism and perversity. Let me offer a more benign explanation: thickheadedness — the inability to tell the difference between tax revenue and tax rates.

            In deficit reduction, all that matters is tax revenue. The holders of our national debt care not a whit what tax rates yield the money to pay them back. They care about the sum.The Republican proposals raise revenue, despite lowering rates, by opening a gusher of new income for the Treasury in the form of loophole elimination. For example, the Toomey plan eliminates deductions by $300 billion more than the reduction in tax rates “cost.” Result: $300 billion in new revenue. This is unadulterated nonsense! Democrats don’t care how revenues are raised as long as they are raised. It is not a question of rates. Republicans have made clear they will not agree to anything that brings more revenue to the treasury.

The Simpson-Bowles commission — appointed by President Obama and endorsed by Coburn — used the same formula. Its tax reform would lower tax rates at a “cost” of $1 trillion a year while eliminating loopholes that deprive the Treasury of $1.1 trillion a year. This would leave the Treasury with an excess — i.e., new tax revenue — of $100 billion a year, or $1 trillion over a decade. Not extending the Bush tax cuts nets $4 trillion. As indicated, Republicans do not support the Simpson-Bowles plan. So this is a straw man. What is the significance of one Republican supporting it on the commission, when we don’t even know if he is prepared to support it in Congress? And it is one Senator. One!

            Raising revenue through tax reform is better than simply raising rates, which Democrats insist upon with near religious fervor. It is more economically efficient because it eliminates credits, carve-outs, and deductions that grossly misallocate capital. And it is fairer because it is the rich who can afford not only the sharp lawyers and accountants who exploit loopholes but the lobbyists who create them in the first place. This is the latest canard. No Republican reform plan proposed would increase revenue, and none of any kind has been proposed. What they mostly talk about is reforming the tax code, so as to do away with mostly middle class deductions, and a flat tax that would further shift the burden of taxation away from the rich and toward the middle class. This is truly class-warfare. It is war on the middle class and the poor.

            Yet the Democrats, who flatter themselves as the party of fairness, are instead obsessed with raising tax rates on the rich as a sign of civic virtue. This is perverse in three ways:

            (1) Raising rates gratuitously slows economic growth, i.e., expansion of the economic pie for everyone, by penalizing work and by retaining inefficiency-inducing loopholes. We should get rid of the loopholes!!! That is a good start. Lets do it now and reduce the deficit. Increasing taxation on those who can best afford it doesn’t slow growth, no matter how often it is repeated. If we wish to encourage work then we should reduce taxes on those who indeed work, and increase taxes on the “coupon clippers.” Or in other words, tax unearned income the same as earned income. Tax Capital Gains and Dividends the same as earnings from work. Tax Inheritance, at the upper end, since the beneficiaries have never worked for it.

            (2) We’re talking pennies on the dollar. Obama’s coveted repeal of the Bush tax cuts would yield the Treasury, at the very most, $80 billion a year — offsetting 2 cents on the dollar of government spending ($3.6 trillion). This is the ultimate in juggling numbers. It sounds like Enron. That is not 80 billion a year. It is $4 trillion over ten years. And no one expects spending to be anywhere near 3.6 trillion going forward. But of course spending has to be reduced, and the President and Congressional Democrats have proposed spending cuts three times as large as revenue enhancements. Their proposals would begin to bring the deficit under control. The answer has been No and No and No. Every Republican proposal, whether the Ryan budget, or the plan put forward by Republicans on the Deficit Reduction Commission, would actually increase the deficit.

            (3) Hiking tax rates ignores the real drivers of debt, which, as Obama himself has acknowledged, are entitlements. Deficits are driven by lack of revenue or spending or both. Most non-partisan economists feel it is both. Entitlements need structural adjustments and Obams’s “Patient Protection and Affordable Care Act” makes a number of changes that make a beginning in reducing these expenses, over Republican opposition. In negotiations, other changes have been proposed as part of a comprehensive debt reduction measure. Republicans have rejected each and every one, because small revenue enhancements were to be included.

            Has the president ever publicly proposed a single significant structural change in any entitlement? Yes, Many! Again and again, as part of a balanced approach, only to be rebuffed each time. After Simpson-Bowles reported? No. In his February budget? No. In his April 13 budget “framework”? No. During the debt-ceiling crisis? No. During or after the supercommittee deliberations? No.

Indeed, Obama was AWOL from the supercommittee — then immediately pounced on its failure by going on TV to repeat his incessantly repeated campaign theme of the do-nothing (Republican) Congress. Obama had actively negotiated with Boehner and they had a deal until the Republican caucus rejected it. After this failure, it was agreed to set up the super-committee, which was to work without interference from Boehner or the President.

A swell slogan that fits nicely with the Norquist myth. Except for another inconvenient fact: It is the Republicans who passed — through the House, the only branch of government they control — a real budget that cut $5.8 trillion of spending over the next 10 years. Yes, it does. It does away with SS, Medicare and Medicaid, and the whole safety net, and still has so many tax cuts that it increases the debt by $6 trillion. Obama’s February budget, which would have increased spending, was laughed out of the Senate, voted down 97 to 0. Dems didn’t want the vote, and turned it into a joke by voting against it. As for the Democratic Senate, it has submitted no budget at all for 2 1 / 2 years. Does the filibuster have anything to do with this?

Who, then, is do-nothing? Republicans should happily take on this absurd, and central, Democratic campaign plank. Bring Simpson-Bowles to the House floor Yes, why not, but all of it, not cherry picking it. and pass the most radical of its three deficit-reduction alternatives.

Dare the Senate Democrats to vote down the grandest of all bargains. Dare Obama to veto his own debt commission. Dare the Democrats to actually do something about debt. They already have, most particularly in the “Patient Protection and Affordable Care Act,” which Republicans want to repeal.

Krauthammer isn’t even consistent. On July 14, 2011 he wrote: 

 If conservatives really want to get the nation’s spending under control, the only way is to win the presidency. Put the question to the country and let the people decide. To seriously jeopardize the election now in pursuit of a long-term, small-government, Ryan-like reform that is inherently unreachable without control of the White House may be good for the soul. But it could very well wreck the cause. But they would never put their hostility to the entitlements to a vote. They would lose overwhelmingly. Instead, they will talk about anything else, and hope they can fool the voters, and do all they can to keep the economy from improving.