President Obama has proposed that we enact some version of the "Buffett Rule," which would ensure that millionaires pay at least the same tax rate as middle class workers. But do millionaires really pay lower rates than truck drivers in the first place? The AP fact checks Obama's claim and finds it wanting:

On average, the wealthiest people in America pay a lot more taxes than the middle class or the poor, according to private and government data....This year, households making more than $1 million will pay an average of 29.1 percent of their income in federal taxes....In 2009, taxpayers who made $1 million or more paid on average 24.4 percent of their income in federal income taxes, according to the IRS.

Hmmm. There's an awful lot of averages there. But you need to be pretty careful with that stuff. The average household income in Redmond, Washington, is $66,000, but that doesn't mean Bill Gates is pinching pennies to save up a down payment for his next car.

The whole piece is pretty ridiculous. Obama's point isn't that millionaires pay lower tax rates than truck drivers. It's that some millionaires pay lower tax rates than truck drivers — and as a simple matter of fairness and equity they shouldn't. Take a look at the table below, extracted from the Tax Policy Center. It doesn't just show the tax rates of mere millionaires, it shows the tax rates of the top 400 super-duper millionaires. Back in 1992, only 33 of them paid less than 20% of their income in federal taxes. Today, 289 of them do. That's just not right.

On Fox News, they brush this off with a yawn. "It's because most of their income comes from capital gains," they repeat tirelessly, as if that was sufficient explanation all by itself. But why? Surely even trust fund babies ought to pay some kind of minimum tax rate no matter where their income comes from. Is a 20% tax floor on the income of the rich really so outrageous?

Did Obama Get Rolled?

Was Barack Obama a naive waif who came to Washington untested and unready, and then struggled to control his White House staff? That's the portrait Ron Suskind paints, and to a certain extent I imagine it's true. In fact, I imagine it's true of every president. There's just no training position for the presidency, and no one walks into the job fully prepared.

But that said, how does Obama compare to other presidents? After all, every White House features plenty of chaos, plenty of policy dysfunctionality, and lots of interpersonal feuds (remember all the stories about Condi Rice vs. the alpha male Cheney/Rumsfeld/Libby/Addington pack?). Jonathan Alter suggests that Suskind's portrayal is a wee bit overblown:

I have a whole chapter in my book where I talked to all the former Clinton people who now work for Obama. I asked them all, compare Clinton and Obama....They thought Clinton was more creative and his policymaking, but they prefer to a person Obama in a crisis, which was what they were in. He was decisive and making as many decisions in a week as Bill Clinton made in a year, and making the decisions crisply. The idea that somehow all the former Clinton officials working for Obama were longing for Bill Clinton because they had this inexperienced president who didn't know what he was doing is not what they were saying at the time. I was talking to not just a few, but pretty much all of the former Clinton people in the White House at high and mid-levels. 

I don't doubt for a second that Obama struggled with the demands of managing an enormous crisis from the first day he stepped into the Oval Office. At the same time, I suspect that a lot of what people are interpreting as indecisiveness or inexperience is really something different: it's the fact that Obama agreed with the "wrong" advisors. They're reading about all the internal debates, noting that Obama eventually came down on a side they consider preposterous, and concluding that he got steamrolled. But as Karl Smith says, the more likely explanation is simply that Obama doesn't agree with them:

We observe a President not pushing for more stimulus and not appointing doves to the FOMC. What could be the reason? You could come up with all sort of theories involving intrigue and political strategery. However, here is one you might want to try: the President doesn’t want to do stimulus and is not interested in appointing doves to the FOMC.

Indeed, if I observe a person who cannot communicate — my baby for example — trying to avoid a situation, I am likely to conclude “Charlie does not want to do that.” I think this is generally sound reasoning.

There are, of course, political considerations always at work. On additional stimulus, for example, it's clear that Obama thought it was politically impossible and therefore not really worth debating at length on a policy level. More broadly, though, he just came down more often on the side of Geithner and Orszag than of Romer and Summers. That may have been a mistake, but it doesn't mean he got steamrolled. It just means that he was genuinely persuaded that the deficit is a problem that needs to be seriously addressed.

A loyal reader had the misfortune of hearing Rep. Phil Gingrey (R–Ga.) blather on the radio this morning about the woeful effect that a tax hike on the rich would have on "the small business owners and job creators." He asks, "Can you please do a post providing us with an evidence-based response to this? I have little doubt that most small business owners are pulling in less than 250K and that most people making over 250K aren’t small business owners, but my hunch doesn’t have much credibility."

But his hunch is exactly right! In fact, this is a zombie lie, and as you might expect with a zombie lie, I've written about it before. So here's a reprint of what I wrote 14 months ago, suitably updated with shiny new quotes making the same old complaints:


Back in the day, one of the key Republican arguments against the estate tax was that it forced hardworking, salt-of-the-earth children of small farmers to sell the family plot in order to pay their taxes after dad died. It was a sad story, but with one problem: no one could find even a single small farmer who had been forced to liquidate in order to satisfy Uncle Sam's voracious maw. Even the American Farm Bureau Federation was eventually forced to admit that it couldn't come up with a single example, and a few years later the Congressional Budget Office estimated that under the now-current exemption level, only a tiny handful of small farms were likely to owe any estate tax to begin with — and of those, only about a dozen lacked the assets to pay their taxes. And even those dozen had 14 years to pay the bill as long as the kids kept running the farm. In other words, the story was a fraud from beginning to end.

Good times. Today, though, we're getting a rerun. The subject at hand is President Obama's proposal to tax the rich at slightly higher rates, and the question is who exactly this will hurt. The obvious answer is, "the rich," but it turns out that, just as there are small farmers begging for our sympathy, there are small rich too: namely an alleged army of hardworking, salt-of-the-earth small business owners who would also end up paying higher tax rates. "Don't forget the fact that most small businesses file taxes as individuals," Rep. Paul Ryan declared earnestly on Fox News this weekend. "So when you are raising these top tax rates, you're raising taxes on these job creators."

My correspondent wants an evidence-based response to this, so let's give him one. Step 1: The biggest part of Obama's plan is to let the Bush tax cuts for the rich expire. The Brookings Tax Policy Center took a look at this last year and estimated that only 1.9% of small businesses are in the two top brackets that would be affected by repeal of the Bush tax cuts. That's a little better than the dozen small farms affected by the estate tax, but not by much.

Step 2: About half of that 1.9% aren't really small business owners at all. They're high-income investors who get part of their income from investments in small businesses. So we're down to about 1% of small businesses that would be affected.

Step 3: The top brackets are just that: brackets. When the top rate goes up, it doesn't affect your entire income, just the portion in the top bracket. So if the top rate goes back up from 35% to 39.6%, it only affects the portion of income above approximately $400,000. A small business owner making $500,000 would see an increase of about $5,000. This is a fairly modest amount for someone making a half million dollars, and anything higher than that is hardly a "small" business to begin with. And the marginal effect is even smaller for the second-highest bracket. And the proposed "millionaire's tax" would — of course — affect only people making more than a million dollars.

So that's the case. Raising taxes on the rich at the level Obama is talking about affects only a tiny number of small businesses; it doesn't affect them very much; and it generates revenues of several hundred billion dollars. If the only thing you care about is keeping taxes low for rich people, you won't be convinced. For the rest of us, it's a no-brainer.

Hmmm. Speaking of whether the Obama White House had the atmosphere of a boys club, Peter Wallsten and Anne Kornblut wrote more about this in the Washington Post yesterday. There really do seem to be legitimate complaints on this score, but on one of the most dramatic quotes about this, there's a striking mismatch between what Ron Suskind heard and what he reported in his book. Here's what he said he was told by former White House communications director Anita Dunn:

Looking back, this place would be in court for a hostile workplace....Because it actually fit all of the classic legal requirements for a genuinely hostile workplace for women.

But here's the full quote:

I remember once I told Valerie [Jarrett] that, I said if it weren’t for the president, this place would be in court for a hostile workplace....Because it actually fit all of the classic legal requirements for a genuinely hostile workplace to women.

This doesn't necessarily change the substance of the charge about the White House atmosphere — though it might, depending on what Dunn meant — but it definitely changes what it suggests about Obama himself. Why on earth did Suskind leave that bit out? It's only eight words, and it's not as if he was short on space.

UPDATE: Suskind explains the quote truncation here. As it turns out, his explanation sounds pretty kosher. He says it was Dunn herself who asked for the truncation when he reviewed the material with her prior to publication.

Is the Obama White House a testosterone-fueled boys club? Probably. As near as I can tell, pretty much all White Houses are. This kind of stuff is hard to change, but one way it does change is when one of the boys suddenly has an epiphany. Here is Ron Suskind describing Larry Summers' epiphany in late 2009 as the Obama economic team was trying to figure out ways to squeeze a bit better performance out of the economy:

[Christina] Romer, in meeting after meeting, came back with new plans, new ways either to locate $100 billion or to pitch it to Congress. Her appeals were passionate. She said they were falling into a "the perfect is the enemy of the good" trap. "It's about doing something, anything."

In November, as Obama's political capital began to wane, he took [Peter] Orszag's position at a briefing, reiterating the OMB chief's view that a small stimulus would be ineffective.

"That is oh so wrong," Romer blurted out, surprising herself, and everyone in the room, with her candor.

"It's not just wrong, it's oh so wrong?" Obama queried before launching into an unchracteristic tirade. "Enough!" he shouted. "I said it before, I'll say it again. It's not going to happen. We can't go back to Congress again. We just can't!"

....A few weeks later the economic team was back to the discussion of stimulus versus deficit reduction....Now Summers stepped up, offering, almost word for word, the position Romer had voiced previously. This time Obama listened respectfully: "I know you've got to make the argument, Larry, but I just don't think we can do it."

As they left the meeting, Romer—who was happy to have Summers speak for a small stimulus rather than leaving it all to her—said, "Larry, I don't think I've ever liked you so much."

"Don't worry," he quipped. "I'm sure the feeling will pass." But then something dawned on Summers, who'd never seemed sympathetic to the women's complaints: "You know, he sure was a lot more generous with me than he was with you."

It was an important moment. "That was the turning point," Romer said later. "After that, [Larry and I] really started to have a decent working relationship."

It's never possible to draw broad conclusions from a single anecdote. Romer, after all, was pressing her case in "meeting after meeting," and sometimes that can get tiresome when you know the boss has already made a decision. Alternately, maybe Obama had just had a bad day arguing with the Pentagon over Afghanistan earlier in the morning and his temper was frayed. Who knows?

But probably Summers was right. He probably did say the exact same thing as Romer, and he probably was treated better. At a guess, I'd say there isn't a woman alive who's attended a corporate meeting that hasn't seen this exact same dynamic play out. But no matter how many times you hear about this, there's nothing like the light bulb coming on over your head and finally feeling it in your bones. Apparently that's what happened to Summers that day.

That said, here's some advice for the men reading this: just STFU once in a while and listen instead, will you? It's surprisingly hard! But if you try, you can do it.

I've written before about David Brooks's strange schizophrenia. He knows that the lunatic fringe has taken over the Republican Party. I know he knows this because he's said so in blunt terms. He did it two months ago, and my response at the time was admittedly churlish: "I'll believe that Brooks has seen the light when he actually keeps this up for a few consecutive weeks."

He couldn't do it, really, but his inner demons didn't give way completely until yesterday, when he penned an anguished cri de coeur slamming President Obama for finally realizing the same thing that he himself realized in July: there's really no compromising with the modern tea party version of the GOP. You need to fight them, and you need to fight them in public. But now that it's actually happened, Brooks is an unhappy camper.

Anyway. Read the Brooks column here. Then read Jon Cohn's response. I wish I had written it.

So how about that crushing regulatory burden that our business-hating president has imposed on the American economy? Well, not so much, actually:

During Obama’s first two years in office, 555 new “significant” regulations, or ones that have a cost or benefit of at least $100 million in a year, have been enacted, according to the Office of Management and Budget. Over the eight years that former president George W. Bush was in office about 2,380 regulations were enacted, an average of 595 every two years.

Granted, these are just raw numbers, and some regulations are more onerous than others. But it sure doesn't sound like Team Obama has been a whirlwind of regulatory activity, does it?

Separately, here's a chart from a new study released today by Small Business Majority, a group that does a lot of research on healthcare and clean energy. "The best way to find out what small business owners want is to ask them," says their website, so that's what they do. And in their latest survey, small business owners said their biggest problem was uncertainty about how the economy is doing. Regulation came in a distant sixth.

One more time, then, this time with feeling: the big problem faced by businesses today is economic uncertainty, not regulatory uncertainty. Business owners may not like new rules (who does?), but their real problem is a lack of customers. That's something we could go a long way toward fixing if we really wanted to.

Peak Oil is Here!

Well, actually, it's been here for three decades. The chart below, from Stuart Staniford, shows oil use per person on a global basis, and as you can see, it peaked around 1973, took a dive around 1980, and has been at a steady plateau ever since.

There's nothing astonishing about this chart. It's just another way of saying that it takes less oil to produce a dollar of GDP than it used to — and the ratio has been dropping ever since the oil shocks of the 70s. Still, this is a strikingly simple presentation that, oddly enough, I've never seen before in exactly this form. But it's an interesting and dramatic way of looking at it.

Should the Fed tolerate higher inflation as a way of tackling our economic slump? Paul Volcker, who's most famous for throwing the economy into a massive recession in order to fight inflation in the 70s, thinks this would be a terrible idea. Karl Smith disagrees:

My point is not simply — as seems to be Ken Rogoff’s — that a jolt of inflation inflation would be good for the economy right now — though I believe it would be.

My case is that 2% inflation is a fundamentally bad idea. I argue that 4% inflation is not merely “OK” it is preferable. It is preferable because even in normal times it produces higher nominal interest rates. Higher nominal interest rates in turn give the Fed more leverage under traditional monetary policy.

As it happens, this has long been my view too. Volcker's response, I suspect, would be strong skepticism that 4% inflation can be maintained. Once it gets that high, there's simply too much temptation to let it get ever higher, and you quickly end up in an inflationary spiral like the one he had to deal with.

Maybe. But I think it's worth keeping in mind that the inflation of the 70s wasn't inevitable. It was the result of oil shocks and uniquely poor Fed policy. Arthur Burns could have kept the inflationary genie in the bottle if he'd had the spine to do it, but he didn't. He was too much of a political hack. And a deliberately chosen one, too: Richard Nixon blamed his defeat in 1960 on tight money engineered by the Fed, so when he had an opportunity to appoint a Fed chairman of his own he made sure to appoint one who would provide him with the easy money policies that would keep the economy roaring. Burns may have had some qualms about this from time to time, but basically he complied.

I suppose Volcker would scoff at this, but times have changed. The Fed has more institutional independence now than it used to, and its mandate to control inflation, though weaker de jure, is stronger de facto. What's more, to the extent that strong unions contributed to a wage-price spiral (about which the evidence is hazy), they no longer do. So the fundamentals are almost all in favor of controlling inflation these days.

But in the spirit of compromise, here's mine. In practice, the Fed doesn't target 2% inflation. If they did, it would sometimes be a bit below that and sometimes a bit above. In practice, they treat 2% as a ceiling, which leads to inflation that's lately been in the neighborhood of 1-2%. So why not adopt a target of 4%, but explicitly make it a ceiling? That would actually be easier to maintain (no more arguing about whether inflation has been above the target for "too long") and would probably produce actual inflation in the 3-4% range. The genie would stay in the bottle and monetary policy would have more bite.

Now all we have to do is get Ben Bernanke to agree. Who wants to be the one to pick up the phone and sell him on this?

Paul Ryan's Medicare plan has attracted nothing but scorn from liberals. Its basic problem is simple: it provides vouchers to Medicare beneficiaries to buy private coverage — which is basically OK — but it mandates that the value of the voucher will grow only at the rate of inflation. However, the cost of healthcare is almost certain to grow much faster than that over the coming years, which means that a couple of decades from now seniors would receive vouchers that paid for only a fraction of their coverage. They'd have to pay the balance out of their own pockets, and that payment would rise inexorably.

Now, Ryan says that competition between providers would bring down prices, so seniors would come out OK, but he doesn't seem to be willing to put his money where his mouth is. Despite his free-market convictions, his plan sets the value of the voucher by administrative fiat. Not only is this not a market-based solution, but it's a non-market solution we've been experimenting with for years in the form of Medicare Advantage, which allows private plans to compete with traditional Medicare coverage. So far, it's worked miserably: MA plans cost more than traditional Medicare, require higher government subsidies, and don't seem to have spurred any kind of innovation or productivity gains.

What to do? Via Reihan Salam, Yuval Levin proposes a revised version of Ryan's plan that's based on a genuine conviction that market forces can work. Each year, Medicare would define a minimum benefit level, and then providers in each Medicare region (there are four) would bid for business:

The level of the premium-support payment in each region for that year would be set at, for instance, the level of the second-lowest of the bids. Seniors would then be able to apply that amount toward the purchase of any of the plans on offer in their area. Thus, in each region, there would be at least one option that would cost less than the Medicare benefit, and seniors choosing that option would get the difference back as cash in their pockets; there would be at least one plan that cost the same as the benefit, so that seniors could obtain it with only the same out-of-pocket costs they have today; and there would be other plans that cost more (perhaps because they offered more, or because they failed to find ways to drive greater efficiency in their networks of doctors and hospitals) and for which seniors would pay an additional premium if they chose.

....In such a system, the premium-support benefit would grow exactly as quickly as required to provide a comprehensive insurance benefit, since the growth rate would be determined by a market process rather than a preset formula.... If market forces did drive costs down, as conservative health care experts expect, the reform would save the government an enormous amount of money....If market forces did not drive costs down, then we would have to find another way to address our entitlement costs. We would be back where we started, which is where Democrats want to end up anyway. Whether the reform succeeded or failed, seniors would have a guaranteed benefit and essentially no added financial risk.

Generally speaking, there's no reason this idea should offend liberals. In fact, Levin's proposal is ironic: it is, in essence, exactly the way Obamacare works. Within the insurance exchanges set up by PPACA, providers engage in competitive bidding based on a minimum coverage package defined by the government. The size of the federal subsidy for low-income families is set at the value of the second-lowest bid.

And that's not all that's ironic. Levin says that the one thing his proposal lacks is a Republican champion to fight for it. But Democrats actually proposed something very much like this for Medicare Advantage as part of PPACA. Why did it never see the light of day? Because Republican senator Jon Kyl, among others, looked at the estimated cost savings and "used it to argue that Obama was cutting Medicare benefits. The final reconciliation bill substituted administrative pricing methods for competitive pricing and introduced bonus payments for plans that achieved high quality ratings, thereby significantly reducing the size of the cuts to MA plans." In other words, Republicans not only didn't support the idea of competitive bidding, they demagogued it.

But why did they demagogue it? Two reasons, I assume. First, it was politically handy since Democrats had proposed it. Second, it probably would have reduced payments to big healthcare providers, and Republicans routinely support government handouts to big corporations. Both of these varieties of cynicism seem to me to be core parts of the Republican Party, so I have little confidence that we can ever get around either of them. Levin is probably more optimistic on this score than me. But in any case, on the off chance that Republicans actually do adopt a plan like this, one that demonstrates a genuine desire to fairly test whether competition works in the healthcare sector, I'd be on board.

More here on competitive bidding from Austin Frakt, who you should already be reading anyway if you care about healthcare. And yet more here on the basis of all this, the competitive bidding plan proposed by Robert Coulam, Roger Feldman, and Bryan Dowd. It includes a discussion of the massive political difficulties in ever getting this done.