Kevin Drum

Overhauling the Tax System

| Wed Dec. 8, 2010 2:15 AM EST

Niklas Blanchard says I was thinking too small in my previous post. Instead of just telling the left to embark on a campaign to sell the public on a more progressive income tax, I should have used Obama's tax deal as the launching pad for a complete overhaul of the tax system:

I view this very compromise as a golden opportunity for the left to reinvent themselves with regard to taxation, win an adjacent political battle (and a dear progressive goal), and wrap it all up in a bow that not only makes our government funding more efficient, but lowers tax rates for virtually everyone. And that is to begin a campaign of gradually removing the income tax, in exchange for a revenue-neutral tax on carbon, which would be gradually instituted as the income tax was phased out.

In addition, offer an automatic stabilization policy of payroll tax cuts [] in exchange for a sharply more progressive payroll tax, used to fund Social Security and Medicare/caid. Institute a progressive VAT or GST with a standard deduction of the first $25,000 of income for all taxpayers, and expand a means tested EITC, as well....At the end of the line, offer a land tax in exchange for really whatever the right happens to want for it. Repeal of the estate tax, maybe?

That would be a real “progressive” package that would end the debate regarding the level of income taxation (from any source; labour, capital, etc). It would simplify our tax code, and get rid of ridiculous inefficiencies like the mortgage income tax deduction. More importantly, contrary to our current tax code, the new consumption-based funding of government would encourage a greater savings and investment equilibrium.

I don't usually bother with blue sky stuff like this since it obviously has no chance of being enacted in my lifetime. Just for the record, though, I might be persuaded to support something along these lines if it were paired up with genuine national healthcare. I could live with a more efficient but (slightly) less progressive tax code, but only if it funded more progressive social programs.

On a more realistic but still Blanchardesque level, however, I continue to think that there actually ought to be a makeable deal to eliminate the corporate income tax and replace it with, say, a carbon tax. The corporate income tax, after all, is an absolute sink of inefficiency and corruption, every congressman's favorite playground for paying off campaign donors and rewarding favored industry groups. And reforming it won't work: we did that in 1986 and it took little more than a decade to degenerate back to its usual foul state. So why not just get rid of it? Corporations would love it, Republicans would love it, it would put lots of tax lawyers out of work, and replacing it with a carbon tax would be great for the planet. What's not to like? There are lots of enforcement details that would have to be worked out, but nothing insurmountable. This honestly seems like something that should be doable.

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Swallowing the Deal

| Wed Dec. 8, 2010 12:26 AM EST

Comrade Rotwang, whose lefty credentials are unassailable, says that treating tax cuts for the rich as a hill to die for is an indication that liberalism in America has become "withered and puny." Sure, Obama's deal may not be the greatest thing since sliced bread, but its five provisions are all worthwhile:

The rationale for all of these is to stimulate spending, by individuals both rich and poor, by workers, and by business firms. We desperately need such spending now.

Some features will be more effective than others, but all will be more effective than doing nothing. The rich may not spend much of their tax cut, but they will spend something. We could all think of alternatives that would be more effective still. A different president and congress might have spent the past 18 months making a case for such measures, but that was not to be. Nobody has explained how any politically-viable alternatives would be available now....At the end of the day, a small tax cut for "the rich" (small in terms of the incomes of the beneficiaries, small in terms of the overall deficit) should not be a big progressive issue. There are much bigger fish to fry, and we need the stimulus now.

Comrade Baker agrees. For myself, I'd just say that the spectacle of lefties blaming Obama for the current mess is a little hard to take. I have my own problems with both Obama's negotiating prowess and his distressing eagerness to lash out at his own base, but the time when Obama had some leverage to get a better deal was over the summer. His position at the time was clear, but congressional Dems caved in to their centrist and Blue Dog factions and failed to even bring up a tax plan for a vote. This made Democratic disunity so obvious that Obama simply had no credible negotiating position left after the midterms. He needed a deal during the lame duck session, and Republicans knew perfectly well that his own party wouldn't support a hard line. Under the circumstances, he did about as well as he could have.

In the end, this is the second stimulus we all wanted. It's not a very efficient stimulus, and it sadly caves into the conservative snake oil that the sum total of fiscal policy is tax cuts, but them's the breaks. Anyone who doesn't like it needs to spend the next two years persuading the public not just to tell pollsters they don't like tax cuts for the rich, but to actually vote out of office anyone who supports tax cuts for the rich. That's the only way we'll win the replay of this battle in 2012.

And now let's move on. With taxes out of the way, it's time to repeal DADT.

Adding Up the Tax Cuts

| Tue Dec. 7, 2010 6:31 PM EST

Ezra Klein adds up the tax cut numbers:

If you look at the numbers alone, the tax cut deal looks to have robbed Republicans blind. The GOP got around $95 billion in tax cuts for wealthy Americans and $30 billion in estate tax cuts. Democrats got $120 billion in payroll-tax cuts, $40 billion in refundable tax credits (Earned Income Tax Credit, Child Tax Credit and education tax credits), $56 billion in unemployment insurance, and, depending on how you count it, about $180 billion (two-year cost) or $30 billion (10-year cost) in new tax incentives for businesses to invest.

So that's $125 billion for Republicans and $216 billion for Democrats (not counting the business investment stuff). Yay Democrats!

Or not. As Ezra says later, quoting a senior administration official, "Republicans were extremely eager to get benefits for the top tenth of a percent of Americans." And when you're dealing with such a tiny number of people, a small pot of money goes way, way further than a bigger pot divided up among the vast majority.

Over the past 30 years the wages of most Americans have grown more slowly than the rate of overall economic growth. The difference isn't much: maybe half a percentage point or so. It's easy not to notice, or to handwave away if you do decide to notice it. But over 30 years, that adds up to a lot of money if it all gets funneled to the top 1%. This is fundamental to understanding what's happened to the American economy in recent decades: a little bit of money from a large number of people becomes a very large amount of money when it gets channeled into the bank accounts of a tiny number of wealthy rentiers.

So is $216 billion vs. $125 billion a victory for the common man? Of course not. It means most of us get a few hundred dollars while the rich get hundreds of thousands or even millions each. The rich are willing to make that deal every day. Wouldn't you?

UPDATE: The chart above, from CAP's Michael Linden, illustrates the whole thing graphically.

Obama Goes Medieval on the Left

| Tue Dec. 7, 2010 5:41 PM EST

Damn. I skipped Obama's press conference today, but I guess that was a big mistake. If my Twitter feed is anything to go by, progressive heads were exploding all over the intertubes. Here is Philip Klein's summary:

Obama reserved some of his harshest criticism for liberals, who he scolded for being "sanctimonious" purists who wouldn't be able to accomplish anything if they got their way. To drive home his point, he complained about the way liberals behaved during the health care debate, sounding like an unappreciated lover.

"Somehow this notion that we are willing to compromise too much reminds me of the debate we had during health care," Obama said. "This is the public option debate all over again. So I pass a signature piece of legislation where I finally get health care for all Americans, something that Democrats have been fighting for for 100 years, but because there was a provision in there that they didn't get that would have affected maybe a couple million people, even though we got health insurance for 30 million people, and the potential for lower premiums for 100 million people that somehow that was a sign of weakness and compromise. Now if that's the standard against which we are measuring success or core principles, then let's face it, we will never get anything done. People will have the satisfaction of having a purist position, and no victories for the American people. And we will be able to feel good about ourselves and sanctimonious about ourselves about how good our intentions are, how tough we are."

At the same time, Obama also compared negotiating with Republicans to negotiating with hostage takers, and if I had more conservatives in my Twitter feed I'd probably be hearing a few winger heads exploding too.

Still, it's obvious that Obama is more personally stung by criticism from the left than from the right. His outburst about "purist" liberals was considerably more impassioned than his rather clinical description of Republican "hostage takers." In one sense, this isn't surprising: you expect the opposition to show no mercy and that hardens you to it. You really don't expect it from your putative allies. But in another sense it is surprising: even if Obama thinks his progressive critics are off base, he must know by now how they're going to react to compromises like yesterday's tax cut deal. So why was he apparently so unprepared for this? Why deliberately make things worse with his base during a press conference?

Answer 1: he just lost his temper a bit. It happens to everyone. Answer 2: it was all precisely calculated. He's convinced that Democrats lost in November because of defections from independents, not liberals, so he's trying to do everything he can to distance himself from the left and win back the center. My guess is that #1 accounts for 10% of his performance and #2 accounts for 90%. After all, we've seen this movie before in 1994.

Anyway, here's a few predictions. (1) Purist liberals better get used to rhetoric like this. I think we're going to see more of it. (2) Even so, everyone needs to give up on the idea of Obama being challenged by anyone substantial in the 2012 primary. Even Democrats aren't that suicidal. (3) Hated or not, Obama's tax deal is fairly good for the economy and it quite likely cements his reelection chances. If GDP growth is even in the neighborhood of 3% a year from now, I don't think he's beatable. (4) Looking at American politics from a 100,000-foot level, conservatives have won. Programmatic liberalism is essentially dead for a good long time, and small bore stuff is probably the best we can hope for over the next 10-20 years — though social liberalism will continue to make steady advances. I reserve judgment on whose fault that is.

POSTSCRIPT: Several people think #4 could use a wee bit of further explanation. Agreed! The short explanation is here. The longer version you'll have to wait a while for. It's coming in a couple of months or so. (Print lead times are a bitch.....)

What Will the EPA Do Next?

| Tue Dec. 7, 2010 3:50 PM EST

With Republicans running the House, says Brad Plumer, new environmental legislation is dead. So whatever happens is only going to happen via EPA rulemaking. But that's not going so well. For example, take a new rule that would limit toxic pollution from industrial boilers and solid-waste incinerators:

This isn't just some abstract tree-hugging measure; it would arguably do more for public health than any section of Obamacare....(All told, the rule would have cost an estimated $6.4 billion each year while delivering between $138 billion and $334 billion in annual health benefits — not a bad deal.) But the affected industries all griped that the costs were way too burdensome and buried the EPA in angry comments.

Now, EPA officials say they're seeking a delay because all those comments made them realize that the air-toxics rule could be structured more carefully. That's plausible. But it's also true that the agency has been under excruciating political pressure of late. Nearly 100 lawmakers have complained about the boiler rules. The likely new head of the House energy committee, Fred Upton, has bashed the standards and is promising to drag EPA head Lisa Jackson in for enhanced interrogation. (Upton's concern? The Council of Industrial Boiler Owners thinks the costs will be far greater than EPA is projecting. It's worth noting that, historically, pollution rules tend to be cheaper than even the EPA expects.) And House Republicans will have a say in the agency's budget going forward, so Jackson can't just ignore them.

Yeah, I think it's safe to say that industry complaints about the cost of this new regulation will, as usual, turn out to be wildly overblown. And Jackson's caution in the face of a mountain of industry comments might simply be an attempt to make sure the new rule withstands court challenges after it's implemented.

More broadly, though, Brad suggests that this rule is a harbinger: there's plenty of other stuff coming down the pike, and EPA's willingness to tackle the boiler rules aggressively will give us a good idea of whether they're willing to tackle the rest of their agenda aggressively too. "It's unclear," he says, "just how hard the agency is willing to battle." Read the rest for more.

Have Yourself A Merry Little Christmas

| Tue Dec. 7, 2010 1:57 PM EST

A bit of holiday twittering today:

I realize this is possibly the least important topic of all time. But I'm just curious if anyone else reacts badly to "Have Yourself A Merry Little Christmas"? I know it's a beloved classic, I know it brings tears to the eyes of the audience in the movie, and I even know that my interpretation, ripped out of the context of the movie, barely even makes sense. And yet....the phrase "merry little Christmas" has always struck me as unbearably condescending. Like "cute little thing" or "something for the little people." It makes me wince every time I hear it.

Anyone else ever feel this way? Or is it just some bizarre Drumism?

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Playing Chicken With the Debt Ceiling

| Tue Dec. 7, 2010 1:31 PM EST

Mike Konczal is unhappy that raising the debt ceiling wasn't explicitly part of Obama's tax deal with Republicans yesterday:

This should be a no-brainer and a deal-breaker for liberals considering supporting this bill. No Democrat should support this compromise without this issue being addressed. The debt ceiling is going to be hit sometime early next year, between February and April. Alan Simpson is already bragging about how this vote will be a “bloodbath”, forcing the austerity agenda into action. It would not surprise me if the new Congress moved to cut back on the stimulus program and force deep cuts at that moment when this new stimulus is getting going, and the idea that Obama will show leadership in averting this crisis can no longer be assumed.

I'm going to put on my Slate hat and be contrarian about this. First off, it doesn't matter what Alan Simpson says. He runs off his mouth routinely and he's not even in Congress, let alone part of the Republican leadership. So who cares what he says? Second, and more important, the political incentives are different now.

With a comprehensive, budget-busting tax deal in place, the only thing left for Republicans to complain about is spending. And they will. But they're in a fairly weak position. They're already on record supporting a deal that blows up the deficit, so they can hardly claim to be simon pure on that front. And with the House in Republican hands, they're as responsible for the budget as Democrats. They'll fight for reductions here and there, but I frankly doubt that they're going to risk losing votes from important constituencies by pushing hard for significant cuts in major programs. In the end, they'll compromise with the Senate in conference, as they always do, with both sides making minor concessions. And once they've done that, they don't really have much leverage to complain about the debt ceiling. Some tea party backbenchers will blow off steam complaining about it, but the GOP leadership will let them vent and then get down to the business of rounding up the votes for passage.

I could be off base about this. But I'm just not sure that either John Boehner or Mitch McConnell has the stomach for this fight. What matters is taxes and spending, and once they've cut a deal on those two things — as I think they will — they can't really backtrack and pretend to get self-righteous about the debt ceiling. There may be a few days of drama as both sides play a bit of brinksmanship for their respective bases, but that's about it.

What are Julian Assange's Sex Charges All About?

| Tue Dec. 7, 2010 12:31 PM EST

Is WikiLeaks founder Julian Assange guilty of rape? That's for a Swedish court to decide. But if you're interested in the details of exactly what the charges against Assange are, Richard Pendlebury has a pretty thorough rundown in the Daily Mail today. Basically, it involves consensual sex that allegedly turned unconsensual because (in one case) a condom broke and (in the other case) Assange refused to wear a condom in the first place — both of which are crimes in Sweden under the circumstances Assange is charged with (i.e., forcibly continuing with intercourse despite the withdrawal of consent). Pendlebury is very clearly skeptical of both the charges and the women who brought them ("the more one learns about the case, the more one feels that [] the allegations simply don’t ring true"), so you should ignore some of the loaded language he uses. But he does lay out the basic narrative fairly well.

It's pretty obvious that the timing of the sex charges against Assange is fishy. At the same time, it's striking — though not really surpising — how ideologically charged this has become. The motivations of the accusers aside, if there's evidence that the Swedish court system is corrupt I haven't heard it yet. Skepticism may be in order, as it is with anyone accused but not convicted of a crime, but Assange's guilt or innocence surely depends on the evidence, not on whether you approve or disapprove of WikiLeaks.

UPDATE: Reuters has more details here: "The two Swedish women who accuse WikiLeaks founder Julian Assange of sexual misconduct were at first not seeking to bring charges against him. They just wanted to track him down and persuade him to be tested for sexually transmitted diseases, according to several people in contact with his entourage at the time."

Houston, the Tax Cuts Have Landed

| Mon Dec. 6, 2010 8:35 PM EST

Apparently President Obama has reached a tax cut deal with Republican negotiators. It will extend all the Bush tax cuts for two years and do a few more things besides:

The deal includes reducing the 6.2 percent Social Security payroll tax on employees by two percentage points for a year....It also includes continuation of a college-tuition tax credit for some families, an expansion of the earned income tax credit and a provision to allow businesses to write off the cost of certain equipment purchases.

The deal, which is not yet finalized, would include a 13-month extension of jobless aid for the long-term unemployed. Benefits have already started to run out for some people, and as many as 7 million people would potentially lose assistance within the next year, administration officials said.

....The White House was also said to have agreed to Republican demands on the estate tax that would result in an exemption of $5 million per person and a maximum rate of 35 percent.

This is....not too bad. I continue to think that it's stupid to extend the tax cuts for two years instead of three, and caving in to Republican demands for an estate tax cut for the absolute wealthiest sliver of the population is grating as hell. On the positive side, the payroll tax holiday (semi-holiday, anyway) is a good idea, the extension of various tax credits is a good idea, and the 13-month extension of unemployment insurance is much better than expected. This isn't anyone's idea of dream legislation, but it could be a lot worse.

But how stimulative is it? Answer: not much in a positive way, but it does prevent the elimination of current programs that would have been contractionary. And the payroll tax cut will be fully paid for out of the general fund, so it won't affect Social Security's long-term solvency. The big question, of course, is whether it will be possible to allow the payroll tax cut to expire in a year without a big fight from Republicans accusing Democrats (yet again) of wanting to raise taxes. I don't think that's going to be a big problem. Partly this is because 2011 isn't an election year, which makes posturing less effective, but mainly because Republicans don't care much about taxes on the middle class. Take a look at this interview with Grover Norquist: he's pleased about the main tax cut and "especially pleased" about the estate tax cut, but he doesn't even mention the payroll tax cut. He just doesn't care.

Politically, this is probably a win for Obama. The liberal base won't like the deal much, but they won't hate it either. And the vast middle of the country will like it just fine. I continue to think that running on repeal of the high-end tax cuts in 2012 will be a problem, but apparently Obama disagrees. We'll see.

POSTSCRIPT: I hate to move the spotlight away from jobs and onto "boutique social issues," but I sure hope that Obama has gotten a side deal from three or four Republicans to support repeal of DADT now that taxes are out of the way. It would be a serious dereliction not to nail this down during the lame duck session.

Chart of the Day: Who Votes, Who Counts

| Mon Dec. 6, 2010 8:13 PM EST

Via Ezra Klein (and simplified by me), this chart largely explains why sky-high unemployment hasn't produced any real sense of urgency in our political class. It's because unemployment is high among people who don't vote and low among people who do. If the stock market were crashing or corporate profits were down, that would be one thing. But unemployment? It's just not that big a deal.