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August 20, 2012

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Latest Posts from Economist's View


Posted: 20 Aug 2012 12:33 AM PDT
The Ryan budget plan is "a joke":
An Unserious Man, by Paul Krugman, Commentary, NY Times: Mitt Romney's choice of Paul Ryan as his running mate led to a wave of pundit accolades. ... But ... Ryanomics is and always has been a con game...
Let's talk about what's actually in the Ryan plan,... if we add up Mr. Ryan's specific proposals, we have $4.3 trillion in tax cuts, partially offset by around $1.7 trillion in spending cuts — with the tax cuts, surprise, disproportionately benefiting the top 1 percent, while the spending cuts would primarily come at the expense of low-income families. Over all, the effect would be to increase the deficit by around two and a half trillion dollars.
Yet Mr. Ryan claims to be a deficit hawk. What's the basis for that claim?
Well, he says that he would offset his tax cuts by ... eliminating enough tax deductions to make up the lost revenue. Which deductions would he eliminate? He refuses to say — and realistically, revenue gain on the scale he claims would be virtually impossible.
At the same time, he asserts that he would make huge further cuts in spending. What would he cut? He refuses to say.
What Mr. Ryan actually offers, then, are specific proposals that would sharply increase the deficit, plus an assertion that he has secret tax and spending plans that ... will turn his overall plan into deficit reduction.
If this sounds like a joke, that's because it is. Yet Mr. Ryan's "plan" has been treated with great respect in Washington. ...
The question now is whether Mr. Ryan's undeserved reputation for honesty and fiscal responsibility can survive his participation in a deeply dishonest and irresponsible presidential campaign.
The first sign of trouble has already surfaced over the issue of Medicare. Mr. Romney, in an attempt to repeat the G.O.P.'s successful "death panels" strategy of the 2010 midterms, has been busily attacking the president for the same Medicare savings that are part of the Ryan plan. And Mr. Ryan's response when this was pointed out was incredibly lame: he only included those cuts, he says, because the president put them "in the baseline," whatever that means. Of course, whatever Mr. Ryan's excuse, the fact is that without those savings his budget becomes even more of a plan to increase, not reduce, the deficit.
So will the choice of Mr. Ryan mean a serious campaign? No, because Mr. Ryan isn't a serious man — he just plays one on TV.
Posted: 20 Aug 2012 12:06 AM PDT
Posted: 19 Aug 2012 12:56 PM PDT
There's been a lot of talk about the budget deficit lately, and how to close the gap. Republicans tell us that large cuts to important social programs will be required, and some Democrats endorse this point of view. But as Paul Krugman noted in April 2011, it's possible to "balance the budget without the savage cuts assumed in the Republican plan":
The Progressive Budget Alternative, by Paul Krugman: I've been remiss in not calling attention to the budget proposal from the Congressional Progressive Caucus. It's not going to happen — but then neither is the Ryan plan. And unlike the Ryan plan, it actually makes sense.
The CPC plan essentially balances the budget through higher taxes and defense cuts, plus some tougher bargaining by Medicare (and a public option to reduce the costs of the Affordable Care Act). The proposed tax hikes would fall mainly on higher incomes, although not just on the top 2%: super-brackets for very high incomes, elimination of deductions, taxation of capital income as ordinary income, and — the part that would be most controversial — raising the cap on payroll taxes.
None of this is economically outlandish. Marginal tax rates on high incomes would rise substantially — enough to make even liberal economists slightly uncomfortable — but the historical evidence suggests that the incentive effects wouldn't be too severe. Overall taxes as a share of GDP aren't given, but they would clearly remain well below European levels.
It's worth pointing out that if you want to balance the budget in 10 years, you pretty much must do it largely by cutting defense and raising taxes; you can't make huge cuts in the rest of the budget without inflicting extreme pain on millions of Americans. So the CPC plan is actually much more of a real response to the deficit worriers than all the nonsense we're hearing from the right. What it doesn't do is address the long-run health cost issue, which is essential looking beyond the next decade. But as a medium-term proposal, it's quite sensible.
My guess, in fact, is that in the end we'll do something along these lines, although probably with more of the tax burden falling on the middle class.
So why does this plan get no attention, while the cruel fantasies of the right get headlines? I'll leave that as a question for readers.
Update: Aha. Although I couldn't find share of GDP in the working paper, it's right there on the home page. Revenues are 22.3 percent of GDP in 2021. That's 3 points higher than what Ryan claims his plan would produce, although he hasn't explained how he's going to make up for those $3 trillion in tax cuts for the rich. ...
At the very least, Democras should make something like this the opening bid in negotiations over the budget. But, unfortunately, "It's not going to happen."
Posted: 19 Aug 2012 09:23 AM PDT
Mitt Romney thinks the correct response to growing inequality is to cut tax rates for the wealthy:
Mitt Romney's peculiar approach to tax fairness, by Lane Kenworthy: Mitt Romney in a recent Fortune magazine interview: "I indicated as I announced my tax plan that the key principles included the following. First, that high-income people would continue to pay the same share of the tax burden that they do today."
That's odd. Sensible debates about tax fairness and tax policy focus on what rate each group should pay, not on what each group's share of total tax payments (the "tax burden") should be.
High-income people's share of tax payments is determined by their average tax rate, their share of total pretax income, and the average tax rate among all taxpayers.
Policy makers have a lot of control over tax rates. They have some, but far less, influence on the share of pretax income that goes to each group. Hence they have limited ability to control the share of total tax payments paid by a particular group.
In the past several decades federal tax rates on the top 1% of Americans have been lowered... If all else stayed the same, that would have reduced the top 1%'s share of total tax payments. But this effect has been dwarfed by the large rise in the top 1%'s share of pretax income, which causes their share of total tax payments to increase. Here's what the numbers looked like in 1979 and 2007, two years at comparable points in the business cycle (data are from the CBO).
The top 1%'s share of pretax income doubled, from 8.9% to 18.7%. Although the average tax rate they paid fell, their share of total tax payments increased, from 14.2% to 26.2%, because their income share jumped so much.
Consider what the Romney approach would have implied for tax rates paid by the top 1% during the 1979-2007 period. In 1979 their average federal tax rate was 35%; in 2007 it was 28%. Suppose policy makers had promised to keep the top 1%'s share of total tax payments at its 1979 level of 14%. Given the sharp rise in the top 1%'s income share, the average federal tax rate paid by the top 1% would have needed to fall to just 15%.
What does this mean going forward? In pledging to maintain the tax share of the richest Americans at its current level, Mitt Romney is in effect promising that if that group's pretax income share continues to rise as it has in the past three decades, he will slash their tax rates.
He is also promising that if the share falls, he'll raise tax rates for upper income households. Anyone think he'd really do that?
Posted: 19 Aug 2012 09:19 AM PDT
The "sheered beef" and "chicken refried" were hard to resist, but it was the promise of a "bed of letters" that finally sold me on the taquitos:
Bed-of-letters

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