The WSJ Editorial Page Embarrasses Itself Again

It amazes me that newspapers like the Wall Street Journal remain wedded to the Peter Principle, insisting upon promoting the weakest of thinkers to manage their editorial pages. It's not that the board is full of complete idiots -- they're smart enough to recognize that when you write an editorial this stupid you publish it as an unsigned editorial so your name is only indirectly associated with your assertions. But still, they wrote it and they published it.

Readers may recall the original Buffett Rule that President Obama offered as part of his re-election campaign that essentially posited a minimum tax rate for the rich of about 30%. Mr. Buffett heartily endorsed the idea and Mr. Obama hauled out St. Warren as a soak-the-rich cudgel to beat up Mitt Romney in countless speeches.

So it was fascinating to hear Mr. Buffett explain that his real tax rule is to pay as little as possible, both personally and at the corporate level. "I will not pay a dime more of individual taxes than I owe, and I won't pay a dime more of corporate taxes than we owe.

If it needs to be explained, there is nothing wrong and nothing hypocritical about following current tax law, even as you advocate changes that would increase your tax burden. This type of silly accusation is made with some regularity, and in a variety of contexts, but never by a strong thinker.

Detroit the City vs. 'Detroit' the Auto Industry

Robert Samuelson wrote one of the columns on Detroit that I find a bit frustrating, and leave me wondering if Samuelson has ever been to the city. Samuelson finds it to be a "great irony" that Detroit's bankruptcy "seems to suggest the obsolescence of central cities when just the opposite is true", pointing to the success and revival of "Boston, New York, Philadelphia, Seattle, San Francisco and others".

All have stubborn concentrations of poverty, but many have benefited from gentrification and stronger job markets. High energy costs, a backlash against commuting, lower crime and cities’ vibrancy have renewed their appeal.

But here's the thing: Detroit developed as something of a suburban city, the place where you could live the city life while residing in your own home. Detroit is not situated in an area in which developers are constrained by geography, and must redevelop within its limits. Instead, Detroit is sprawling - 139 square miles - with a low population density, roughly 5,100 people per square mile, as compared to New York City's 27,000 or San Francisco's 17,400. Thanks to poorly considered urban planning decisions in the 1960's, the sort of neighborhoods that have helped lead to redevelopment in other cities, loft conversions and the like, were bulldozed to make way for freeways. Mass transit is poor and, even if it weren't, if you were to develop new residential neighborhoods within Detroit, the jobs for people who could afford to live in them would largely lie outside of the city limits.

Samuelson then asserts that the leading reason for Detroit's failure is that "It became a prisoner of its dependence on the auto industry." Here, Samuelson makes the common mistake of confusing the common shorthand term for the domestic auto industry ("Detroit") with the actual city called Detroit. The problem is that the auto plants that used to employ residents of Detroit were for the most part around the city, and the hollowing out of Detroit was well underway before Michigan started losing those plants to non-union states. Workers were easily able to relocate to towns outside of the city limits while keeping their factory jobs. And as much as Samuelson complains,

In the 1950s and ’60s, most Americans — not just people in Michigan — took the dominance of the Big Three for granted. General Motors, Ford and Chrysler commanded about 90 percent of the vehicle market. Who could challenge them? The result was a plausible and self-serving business model: high wages, generous fringe benefits, job security (with supplementary unemployment benefits to cover workers during temporary layoffs). The compact generally bought labor peace between the companies and the United Auto Workers. Given their market power, automakers could pass most costs on to consumers.

But what made short-term sense spelled long-term suicide — for companies, workers, Detroit and Michigan. High costs, shoddy quality and mediocre management made the companies vulnerable to foreign competition from imports and nonunionized plants, generally in the South. Employment eroded. Worse, the auto industry’s model shaped the state’s labor market and policies. By 1978, average hourly earnings in Michigan were 32 percent higher than the national average. Michigan had an anti-business reputation. This frustrated the state in its efforts to diversify its economic base.

Again, Samuelson confused "Detroit", the domestic automobile industry with "Detroit", the city. Samuelson, who seems to be generally opposed to collective bargaining, drops "nonunionized plants, generally in the South" into the mix without mentioning the policy choices that led to the split between "union" and "non-union" states, as if the City of Detroit were somehow responsible for the Taft-Hartley Act. He neglects to mention that many of the southern states that benefited from the relocation of plants from Michigan subsequently experienced plant closings as factories were moved to the developing world. But perhaps most of all he isn't even capturing the reality of what was happening in Detroit and surrounding communities. Take a look at a household income map for Michigan from the year 2000. If you don't know that Detroit is in southeastern Michigan, well, now you do - now take a look at that map and tell me where Detroit is located. You can see that the area surrounding Detroit remained quite wealthy, while Detroit had average wages similar to the most isolated and rural parts of the state. In 2010 Michigan's per capita income was $25,135. The state with the lowest per capita income was Mississippi, at $19,977. Detroit's per capita income was $15,261. Michigan certainly has struggled in the face of a global economy and a loss of traditional manufacturing jobs, but the areas immediately surrounding Detroit remain the richest in the state while Detroit sits, impoverished, in their midst.

Now a second map. This map shows the ethnicity of the residents of the Detroit metropolitan area, "White people are represented by pink, Black people are represented by blue, Hispanic’s represented by orange and Asians by green." How many seconds did it take you to locate Detroit? Knowing that that the northern boundary of Detroit was Eight Mile Road, how many seconds did it take you to figure out where that road is located on the map? Knowing that there's a separately incorporated city within Detroit, the City of Hamtramck, how many seconds did it take you to figure out where Hamtramck is located?

Don't get me wrong - I don't mean to suggest that there is some sort of racial redlining at work, or that the boundaries of Detroit were drawn to include only poor black neighborhoods. The problem is that as Detroit has lost population it has been unable to provide adequate municipal services, while its property taxes are high due to the low value of its real estate. If you're an employer thinking about opening a business in Detroit, you have to consider that your workers are probably going to want to commute in from a suburb where they have better schools and municipal services, and that they're going to pay a city income tax. Unlike the cities that have existing working class populations, and where living in the city can mean a shorter commute - or a commute on public transportation - working in Detroit can mean a longer commute, with a higher tax bill to boot.

Samuelson pontificates,

By reducing debt and pension payments — though hurting creditors and retirees — bankruptcy might break this cycle. But there’s no quick fix. What Detroit teaches is that those who deny economic change often become its victims.

It's difficult to see how reducing Detroit's debt will "break" its cycle - which is much less a cycle and much more of a decades-long downward trajectory. It's even harder to see how reducing pension benefits for the city's retirees, many of whom still live in the city, will benefit the city. By national standards the pension benefits aren't even particularly generous. Samuelson's theories of economics often seem to be driven by austerity theory and thus tend to be counter-factual, but surely even he can recognize that further reducing Detroit's per capita income and giving its people even less money to support local businesses is more of a stumbling block than a road to recovery. The cuts may well be necessary to balance Detroit's books, but if Detroit does not do far more than that to reinvent itself this is likely its first bankruptcy, not its last.

What I would like to see Detroit accomplish is a serious plan to consolidate its all-but-abandoned areas, and to engage in the wholesale removal of abandoned buildings. To do that effectively will require an infusion of state and federal money - many abandoned buildings are simply too large or require too much environmental clean-up for the city to do itself, particularly when it has no money. But I don't see that the void inside of Detroit will be filled with new people, businesses and jobs unless developers are looking at brownfields ready for redevelopment, as opposed to having to spend a small fortune demolishing an abandoned structure, and it's not realistic that developers will want to erect new structures or homes alongside vacant, derelict shells. The reasons that there is development around Detroit, but little development within Detroit, are not state secrets. Detroit is not going to become what Samuelson describes as an "incubator[] for new ideas and industries" as long as most businesses don't preface the idea of building or expanding in Detroit with the phrase, "anywhere but...."

Samuelson's admonition about "Detroit" holds more true for the state as a whole, which makes sense given that the State of Michigan is more aligned with that conception of Detroit than is the city itself. Contrary to Samuelson's suggestion, though, that Michigan workers get paid too much and have benefits that are too good, the fact is that Michigan is best served by trying to attract the sort of jobs and talent that keep wages high in the counties around Detroit. Samuelson observes, "New York has recovered, led in part by a resurgent (and maligned) financial industry", so let's be honest - being grossly overpaid relative to your contribution to society isn't an impediment to urban renewal, or even something to which Samuelson actually objects. (We can note, also, that Beltway pundits are paid extremely well for what amounts to a marginal contribution to society.) It's a matter of finding jobs and industries that fit with the present economy.

Tax Idiocy on Capitol Hill

Why it only seems like yesterday that a Republican presidential nominee was lecturing us that it would be inappropriate to pay even a penny more in taxes than the government requires him to pay - that doing so would demonstrate that he was unqualified for the job of President. (And a little bit more recently, after he deliberately overpaid his taxes to avoid contradicting a prior claim about the percentage of his income he pays in federal income tax, that the electorate seemingly agreed with him.)

Now, the Senate Permanent Subcommittee on Investigations is concerned that Apple is paying only the taxes it's legally required to pay, and is taking full advantage of the massive loopholes that... yes... Congress wrote into the tax code, or at best has deliberately failed to close, to benefit companies like Apple (and individuals like Mitt Romney).

You know what Congress should do if it's concerned that corporations aren't paying enough tax? I'll give you a hint: It's not "Hold hearings to hear CEOs explain why their companies are not voluntarily paying more tax than the law requires....

David Stockman, Government Subsidies and the Minimum Wage

As David Stockman makes the rounds to promote his new book, I caught a few of his bon mots on government intervention in the economy. He takes the position that the technological advances we attribute to government programs would have emerged from the private sector, or that their rough equivalent would have emerged, and that the government should not be investing in private companies. I'm not entirely sold on his former point - yes, private industry might have come up with some of the technological advances resulting from projects spearheaded by the government, but there's no guarantee that it would have happened, that the process would have been more efficient, or the outcome better. At a minimum, we can say that those advancements would have taken considerably longer to develop - otherwise there would have been no need for the government-funded research. But sure, there's a cost-benefit equation to apply, reasonable minds can disagree on how much weight to assign to those costs and benefits, and we aren't able to test alternate time lines to see how the world would have turned out had the government not funded the space race, Manhattan project, military and defense R&D....

What I found more interesting... in a facepalm sort of way... was Stockman's position on the minimum wage. Stockman takes the position that the minimum wage is an incredible burden on business, and that there should be no minimum wage. Okay, standard libertarian home-brew thinking. Nothing to see there, right? He's the sort that would happily see somebody work two, three jobs and still not make enough money to support himself (let alone a family) because markets are groovy. And if Stockman left it there I would be willing to quip, "My reasonable mind can disagree with your unreasonable mind."

But Stockman's not that much of a libertarian. Not even close. He proposed that the government subsidize workers who cannot earn enough money to support themselves. I've not tried to delve into Stockman's reasoning - but if he's not going to eliminate much of the remaining 'safety net', it's difficult to imagine workers opting to work for 5 cents per hour (or whatever "the market" dictates) unless the subsidy provided by the taxpayer results in significantly higher remuneration than public assistance. If the subsidy is tied to hours worked, "the market" may well find five cents per hour to be reasonable - the worker will want more hours to get a greater subsidy, and the employer will not have to worry about paying a competitive wage because the government is picking up the bulk of the worker's compensation. And if you don't tie the subsidy to the number of hours worked, or cap the number of hours that will be subsidized, you introduce even more distortion. What such an approach might mean for the work environment or employee motivation, your guess is as good as mind... but my guess is that things would turn pretty ugly.

But more than that, if this is about "the markets", how is increasing the cost of minimum wage-level labor more of a distortion than passing along the bulk of an employee's compensation to the taxpayer? A great deal of the automation that has made lower-wage industries more efficient was created to reduce labor cost. Nations with the lowest labor costs are associated with slums and sweatshops, not innovation. Within the context of our society, why is it better to allow business to pay wages that require their employees to be subsidized by the taxpayer to maintain even a basic standard of living? Is it at all unfair to respond, "If a business cannot survive if it has to pay its employees enough money to support themselves, it's time for that business to innovate or die"?

Stockman would find it appalling if a business required copper to be available at $100 cents per ton in order to compete, with the government responding by picking up the difference between that and market price. So what is it that he sees as different about the cost of labor - which in this context is simply another line on the balance sheet. Why does the company that says, "Materials cost us $100,000 per week and we can't compete unless the taxpayer picks up 80% of our materials cost" undeserving of help, with any government intervention being an unacceptable manipulation of the markets, but when the same company says, "Labor costs us $100,000 per week and we can't compete unless the taxpayer picks up 80% of our labor cost"?

Also, frankly, Stockman's insistence that the minimum wage is harming the economy is not particularly consistent with the facts. The argument reminds me a bit of the person who rails against strong unions, then laments in the next breath that fewer and fewer blue collar jobs no longer pay a middle class salary. Might there be a connection between lower wages and the decline of labor unions? You would think that if the minimum wage destroys jobs, we would see some evidence of that destruction - of a minimum wage hike followed by a rash of business closures and bankruptcies. It's possible to imagine a minimum wage hike so high that it would make labor truly unaffordable for businesses that rely on minimum wage labor, but that's neither something that is going to happen in this country nor the basis of Stockman's argument. Why should we believe Stockman instead of our own lying eyes?

All that said, eliminating the minimum wage remains one of Stockman's better ideas....

What's the Alternative to Chained CPI

Matthew Yglesias is upset that the President has raised the possibility of using chained CPI for cost of living adjustments for Social Security:

The risk here now is twofold. Inside the Beltway, Republicans can say "well, look, we disagree about taxes but why don't we just do these entitlement reforms that even the president thinks we should do." Meanwhile, outside the Beltway Republican candidates can run ads castigating Democrats for bankrupting the country so badly that they want to add Social Security cuts to the dastardly Medicare cuts they already implemented. Part of the point of the Senate Democrats' budget was to stake out a position of easily defensible high ground. This seems like the White House wading into a much more exposed piece of territory.

If the leading concern is that the Republicans will take one of President Obama's proposals and run misleading or false attack ads, the President may as well close up shop and go home. That's inevitable.

If the leading concern is that the Republicans will propose a Social Security "fix" that renders the program solvent for the indefinite future, it's been pretty clear that the Democrats and President Obama would cooperate. That's been true for more than four years. Obama's "grand bargain" proposal from a couple of years ago included a Social Security "fix".

The Republicans won't propose to isolate Social Security, patch the program and end their demagoguery about its pending insolvency because they don't want to fix the program and leave it, essentially, as-is. Were they to actually propose such a Reagan-style fix, it would not be the Democrats whose agenda would suffer were it to become law.

I think Yglesias also misapprehends public sentiments about Social Security. That is, while there's not broad excitement or enthusiasm for benefits cuts, the net impact of decades of rhetoric about the program being on the verge of bankruptcy has created a context in which the public (including many Social Security recipients) is willing to accept cuts in order to preserve the program. There is no broad, public confusion about which party wants to preserve Social Security and which would prefer to privatize or end the program and, while the Republicans might create scare ads to try to gin up their base, I don't think many outside of the Republican base would be receptive to the notion that it is the Republicans who want to prevent cuts and save Social Security.

Social Security is supposed to be self-funding. If you want to preserve it as a self-funded program over the long-term, you need to look at its income and expenditures. If you want to complain that the President is looking at the wrong number, please tell us: what number would you prefer that he look at? Sure, you can argue that the President should be asking for a FICA tax increase to cover the projected growth in Social Security expenditures, instead of suggesting a cost of living adjustment that will lower payments over the long-term, but it's pretty obvious why the President isn't offering the Republicans a tax increase in exchange for their agreement with his tax increase for the general fund.

It would be reasonable to argue that there are presently two aspects of Social Security that are putting the most stress on the system, SSD benefits for disabled workers and the effective subsidy given to families where one spouse does not work outside the home or earns significantly less than a higher-earning spouse. If you believe the definitions are too lax, it would be reasonable to argue that Congress should revisit its definitions of what constitutes a disability for the purposes of qualifying for SSD. If you do not, it would be reasonable to argue that a spike in SSD applications and qualifications due to a significant downturn in the economy justifies a subsidy from the general fund, just as SSI payments for disabled persons who don't have enough work credits to qualify for SSD are paid from the general fund.

It would similarly be reasonable to argue that the benefits given to a stay-at-home or lower-wage spouse offer value to society, but would more reasonably be paid for out of the general fund as opposed to from wage-based contributions. Keep the program true to form, as a compulsory savings program, and to the extent that Congress believes it beneficial to society to provide a larger-than-otherwise-available retirement benefit to the lower-earning or non-earning spouse, pass that cost onto society as a whole instead of asking workers who will not receive that subsidy to take a benefits cut in order to subsidize other families. But... I don't hear anybody making that type of argument.

The proposal I hear most often is to remove the cap from FICA taxes, such that the wealthiest in effect experience a pretty massive tax increase. The argument is that if you look at the numbers, that move renders Social Security solvent for the indefinite future. The first problem is that it's a non-starter: nobody who is in a position to effect Social Security reform is backing it. It's not going to happen. The second problem is that you will shift some wealthy and powerful defenders of Social Security from the pro- column, based upon the largely equitable system for collecting and distributing benefits, into the anti- column, based upon your transforming a savings program into what will come to be perceived as a welfare program. You'll mobilize every anti-tax group that is presently agitating over significantly smaller numbers to target Social Security. So if that's your idea of "serious", you're agitating for a proposal that is completely unrealistic and, over the longer run, is apt to bring the roof down on our heads.

Let's recall also that one big factor here is that senior citizens vote. Yglesias is concerned about Republican ads that "Obama cut your Medicare and wants to cut your Social Security" because... senior citizens vote. So why am I to believe that if senior citizens realize that chained CPI is reducing their benefits to an unacceptable level, no politician will notice, and no senior will say, "Hey - let's vote for the politician who's going to fix this boondoggle and implement a more reasonable COLA"? We are presently talking about ten year budget plans but that means we're talking... five Congresses, two, maybe three Presidents... none of which can bind its successor. For a point of comparison, under the present formula if the cost of living adjustment would reduce benefits due to deflation, the COLA applied is zero percent - by design, not by accident. Seniors will notice what is happening.

Seriously, it's easy to say, "The President shouldn't have made that specific proposal, even though it fixes Social Security's books", but what's the alternative? And why should we view as "serious" a President who simply shrugs off the issue because a tough choice is involved or, shocking as it is, because politics are involved?

David Brooks and the Progressive Regressive Tax

Lost among the commentary on David Brooks' (lack of) grasp of budgetary details and proposals, is this:

My fantasy package, and I’m not running for office, would include a progressive consumption tax, and it would have chained CPI, and it would have a pretty big means-test of Medicare.

Many have pointed out that means-testing Medicare won't have a significant impact on expenditures, as the wealthy consume health care at roughly the same rate as everybody else. The "chained CPI" idea is meant to reduce Social Security benefits over the long term which, needless to say, will have the most pronounced impact on the poor. But seriously, a progressive consumption tax? The whole reason that factions of the political right are in love with a "consumption tax" is that it's inherently regressive. Take that away, and what's the point?

Brooks' reminds me of the people who want to impose a mileage tax on automobiles. You could simply increase gas taxes - which would also have the impact of placing a higher tax burden on larger, heavier vehicles and thus encourage people to shift to smaller, lighter, more efficient vehicles. But why not create an entirely new tax to accomplish part of what could be better achieved by adjusting the rate of an existing tax? If you want to raise additional tax revenue in a progressive manner without hammering the population of citizens that lives paycheck to paycheck, why impose a "consumption tax", imposing upon business an additional system of collection and remittance, with associated complicates system of exemptions or rebates to make it "progressive", when you can simply raise the already-progressive income tax rate and better accomplish your goal?

Unless, of course, the "progressive" part of your plan is a deceit - something to fool the masses before you hit them with a new, regressive tax. (Just as means testing Medicare and diminishing the return on Social Security might be seen as less about balancing the budget and more about undermining the present broad support those programs have as a result of their universality?)

Distorted Reports of Future Health Insurance Costs

My wife brought to my attention the breathless claim presently coming from right-wing ideologues, courtesy of CNSNews.com, a site that is comprised of little but hyper-partisan dog whistles,

The Internal Revenue Service issued a report Wednesday in which it estimated that under Obamacare, the least expensive health insurance plan available to a family in 2016 would cost $20,000 annually according to CNSNews.com.

If you investigate, what do you actually find? You don't find a projection of future health insurance costs. You find an example of how the regulation works using a set of arbitrarily selected, largely round numbers. (See page 70.)

I don't know if the people behind this story are fools or frauds... at this point, it's likely some of each... but if you care about appearing informed it's not something you should fall for.

As Long as the Health Insurance Industry Stands to Profit....

George Will has passed along the notion that, as the penalty for not buying insurance under the PPACA has been declared a tax, it will inevitably fail to inspire people to buy insurance. I'm not sure if he's still up to doing cartwheels down the halls of the Washington Post building, but you can sense a certain smugness, pleasure at the idea that legislation intended to help uninsured, underinsured and sick people obtain health insurance - and thus health care - at an affordable cost might fail. Will's argument appears to be the latest iteration of the position Michael Gerson was pushing some months back, that if the mandate is called a "penalty" people will pay it but if it's called a "tax" they will not. Gerson's idea was that if you call something a tax, people will apply a cost-benefit analysis and decide "I'm better off paying the tax as compared to buying insurance". Will proposes,

The point of the penalty to enforce the mandate was to prevent healthy people — particularly healthy young people — from declining to purchase insurance, or dropping their insurance, which would leave an insured pool of mostly old and infirm people. This would cause the cost of insurance premiums to soar, making it more and more sensible for the healthy to pay the ACA tax, which is much less than the price of insurance.

[Chief Justice] Roberts noted that a person earning $35,000 a year would pay a $60 monthly tax and someone earning $100,000 would pay $200. But the cost of a qualifying insurance policy is projected to be $400 a month. Clearly, it would be sensible to pay $60 or $200 rather than $400, because if one becomes ill, “guaranteed issue” assures coverage and “community rating” means that one’s illness will not result in higher insurance rates.

Dean Baker responds,

There are two problems with Will's logic. First, the insurance will likely pay for many non-serious illnesses that even healthy people would otherwise have to cover out of pocket. in other words, it is not a question of paying $400 for nothing as opposed to paying $200 for nothing. It is a question of paying $400 for insurance or $200 for nothing. It is not clear that many people will make the choice that Will wants them to make.

Baker also suggests that an economic consequence could be imposed upon people who don't buy insurance:

The more important problem with Will's thinking is that there are an endless number of ways to slice and dice the restrictions so that the option of not buying insurance is less attractive. For example, the cost of buying insurance can be made higher for those who had previously opted not to buy into the system. Suppose the cost of later buying into the system rose 25 percent for each year that a person opted not to buy in. (Medicare Part B works this way and the vast majority of beneficiaries do chose to buy in when they first become eligible.) This would make the arithmetic of opting out much less favorable.

The rules can also be changed to make pre-existing conditions uncovered for the first 2 years after buying insurance for those who opted to pay the penalty rather than buy into the system. Neither of these measures would in any obvious way run afoul of Justice Roberts' argument for the constitutionality of the ACA.

I agree that such consequences could be created, but I'm not sure that they would work or that they wouldn't be self-defeating - at least the ones proposed by Baker. When applying for Medicare, most people recognize that they will eventually need Medicare Part D, and the penalties are such that it makes little to no sense to put off enrollment. I'm not sure that the populations who are being targeted by the penalty view significant health costs as that inevitable.

Similarly, one of the goals of universal health insurance is to help society avoid the increased cost of care for a manageable or preventable medical condition. If you deny somebody care for a chronic condition for a couple of years, most likely the period of years after it becomes sufficiently severe that the person wants insurance, you create the risk that excluding the condition from insurance will increase the applicant's long-term healthcare costs, and you risk their condition worsening to the point of disability, perhaps taking them out of the workforce or shortening their careers.

It may be possible to work out penalty provisions that could work, and I don't want to treat a couple of "off the top of my head" ideas as the end of the discussion, but we would have to take care not to create a penalty that would undermine the goals of universality and perhaps even increase the overall cost of care.

Baker correctly points out that if a problem develops and the Republicans in Congress refuse to address it, "that route would have nothing to do with the constitutional restrictions put in place by Roberts". History tells us that Will's belief that "Republicans will ferociously resist exacerbating the nation’s financial crisis in order to rescue the ACA" is nothing more than a fantasy - when it comes to budgeting, Republicans are good at three things: Spending money, cutting taxes and thereby reducing revenues, and then whining about the fact that due to their policies we "can't afford" to pay the bills they ran up. Will confuses their "talking the talk", insisting that we must cut Social Security and Medicare in order to balance the budget, with "walking the walk", proposing actual, concrete cuts. When you look at their actions, you have... Medicare Part D, the unfunded prescription drug benefits that the Republican's leading fiscal scolds endorsed.

I continue to believe what I said in response to Gerson's column: That if the insurance industry finds that not enough people are responding to the penalty, such that their profits are at risk, the Republicans will adjust the mandate to increase participation. I find it exceptionally unlikely that they will tell insurers, "Be patient and take the losses, because in a few years we may be able to repeal the entire law." Let's not forget, there's a reason the Republicans favored this approach back in the 1980's, and why the insurance company agreed to get out of the way of the PPACA when it was proceeding through Congress: They believe that they will profit from the reform. Going back to the status quo ante may sound good to Will, but it takes away the anticipated profit. Losing money for years, in the hope of getting back to the status quo ante? Get real. Insurance companies didn't go to Congress and say, "We can't make money with Medicare Advantage", they said, "Give us a subsidy!" And they got it.

Will argues that by virtue of the penalty's having been declared a tax, "the penalty for refusing to purchase insurance counts as a tax only if it remains so small as to be largely ineffective". That's the argument that Baker was addressing when pointing out that Congress has more options than simply making the penalty larger. But I disagree with Will's conceit that the penalty tax can't be onerous - if it's reasonably related to the actual cost of providing care to the uninsured. Also, it's not a binary issue - if the tax is increased, it will not go from "too low" to "onerous", but will be ratcheted up until it becomes sufficiently effective.

The Roberts Court pointed out that by statute the penalty can never be more than the cost of insurance - but at that point, surely even Will can understand that most people will opt to acquire the insurance they're effectively already paying for, and the tax revenues from those who do not will be more than sufficient to ensure the continuation of the program. If everybody pays a premium sufficient to pay for health insurance, but some aren't receiving benefits, the result is that there's some extra money in the system. Also, as Baker points out, the threshold at which it makes more sense to buy insurance, as opposed to paying a penalty and paying for your own care, comes well before the amount of the penalty matches the cost of insurance.

The fact remains, if the penalty proves ineffective the insurance industry will come to Congress not to argue, "Repeal this program," but to say, "Fix things so that we're profitable." And just as the Republicans were happy to subsidize private competitors in the Medicare Advantage program, they will oblige the insurance industry by increasing the penalty - whether directly or through other measures along the lines of what Baker described - or by providing a subsidy.

A Better Approach to Balancing the Budget

The biggest problem we face in trying to balance the budget is that neither political party actually puts a high value on balancing the budget. The Republicans like to talk about deficits until they are in power, at which point the Dick Cheney "deficits don't matter" philosophy takes hold and deficits explode. The Democrats want to preserve "social safety net" programs to a much greater degree than the Republicans, but left to their own devices the Republicans are more apt to expand those programs than to shrink them. When it comes to the major expenditures of the government, neither party is willing to propose cuts that have any chance of balancing the budget.

Our nation's deficits are primarily driven by health care costs. Once the recovery is complete, tax revenues will rise to historic levels and much of the annual deficit will go away "all by itself". If we could reduce our nation's healthcare expenditures to those typical of other nations, the deficit issue would largely vanish. But a Congress that chooses to tie Medicare's hands in negotiating bulk discounts in order to keep drug costs (and profits) high is not likely to address health costs in a meaningful way.

Let's approach the deficit from a different angle. Rather than talking about hypothetical (and sometimes imaginary) spending cuts or loophole closures, lets look solely at revenues. That is, let's have a discussion about what taxes we might create and raise in order to balance the budget with the least possible disruption to the economy. Such tax increases can be postponed until the economy is in a normal state - and perhaps avoided at that time - but if the spending cuts and tax loophole closures aren't there or if Congress isn't willing to implement them, the solution must come from new revenue.

Once the sources of additional revenue have been identified we can have the discussion: Do we in fact want the budget to be in perfect balance and, if not, how much new debt can we reasonably accrue and sustain? Are the new taxes and tax increases the best, most cost-effective, least painful and most efficient means of balancing the budget? If not, what spending cuts or loophole closures might be substituted?

If John Boehner believes a word of his statement,

The American Dream is in peril so long as its namesake is weighed down by this anchor of debt. Break its hold, and we begin to set our economy free. Jobs will come home. Confidence will come back.

We do this not just to boost GDP or reduce unemployment, but to secure for our children a future of freedom and opportunity. Nothing is more important.

He will be willing to live up to those words by putting aside his lesser concerns - including his party's pledges to special interest groups, his enforcement of the Hastert Rule and contempt for passing budget legislation on a bipartisan basis, his lust for special interest money, and the like, and get the job done by any means necessary. Personally, I don't think he believes a word of it, but I would love for him to prove me wrong.

Nothing should make the budget picture more clear to the average American than, "This is what your taxes will look like if we maintain current expenditures while balancing the budget." If the public says, "Then that's what we'll have to live with," then that's the answer. If the public says, "We prefer the cuts you propose as an alternative," then that's the answer. If the public says, "We prefer to run massive deficits," then its up to Congress to determine the extent to which they're willing to balance the budget despite those popular sentiments, and to take responsibility for the decisions it makes.

Safety in Numbers

Although a growing number of Republicans are willing to refuse to sign Grover Norquist's anti-tax pledge, or repudiate their signatures, the party may be reaching a tipping point where they "toss[] aside Americans for Tax Reform’s pledge in order to secure a grand bargain". Norquist has played word games in the past to avoid accusing the Republicans of breaking their pledges, but if you push that type of game far enough you undermine the meaning of the pledge. On the other hand, if you accuse large numbers of Republicans of violating the pledge you are likely to find that they have the collective power to push back, "We have to do what's right for the country," and the legislators would likely have little concern about any effort to punish them - any effort at retaliation would become diluted.

You have to wonder, even if they agree with him in principle, whether a good number of the Republicans who have signed the pledge want to get out from under Norquist's thumb. Once the pledge is broken, it's not clear that Norquist or any similar pledge effort can regain the same level of power or control.

Hard Reality: The Republicans Don't Want to Balance the Budget

You would think that our national experience would teach us something: The Republicans are very good at cutting taxes and spending money, but have demonstrated next to no actual interest in balancing the budget. Still, the snake oil sells and a huge percentage of Americans believe that we can easily and painlessly balance the budget by cutting "welfare", funding for the arts and "foreign aid".

Diane Rehm interviewed Grover Norquist and a Republican Congressman-elect, and the incoming Congressman, Ted Yoho, insisted upon taking a principled stand: He was not going to sign Norquist's anti-tax pledge.

I made a pledge and a promise to the people that I'd go up to Washington and do the very best I could for our district and our country. And signing a pledge wasn't going to solve the problems our nation faces fiscally. You know, and I made a pledge to, you know, two things: one is to our country, I pledged allegiance. And I made a pledge to my wife to be the best husband I could be.

But as Yoho explained his philosophy toward taxes and the budget, Norquist had to be smiling. Why would he need Yoho to sign the pledge when Yoho has already internalized Norquist's "drown it in the bathtub" philosophy of government?

You know, we don't have a revenue problem in this country. You know, our debt is going to kill us, and the biggest part of our debt is our spending. We have got to get our spending under control. And if you look back where Canada was back in the 1960s when they had a real liberal congress or parliament and they put in all the entitlement programs and, you know, tax and spend more, you know, it killed their economy. And they're at the brink of disaster.

Yoho seems sincere, but "the biggest part of our debt is our spending" is an odd statement. Canada has a pretty good track record for balancing its budget, strong per capita income and growth, and its people have a good standard of living. He thinks Canada is at the brink of disaster because of its Medicare program? What's actually going on in Canada...

The report's outlook for the world is decidedly bleaker than for Canada, pointing out that after five years of crisis the global economy is again weakening and risks proliferate.

"The risk of a new major contraction cannot be ruled out," said Pier Carlo Padoan, the OECD's chief economist, citing the ongoing recession in the euro area, a below-par economy in the U.S. and a slowdown in many emerging markets.

That is, the biggest threats to Canada's economy are external.

In fact, the OECD anticipates the U.S. economy will speed up faster than Canada's next year at two per cent and in 2014, at 2.8 per cent growth.

Because the U.S. is starting from further behind, Canada will still maintain an advantage in the recovery over its southern neighbour, however. For instance, the organization projects Canada's unemployment rate will fall below seven per cent by 2014, while in the U.S., it is expected to remain close to eight per cent.

Yoho's positions on Canada are, to be blunt, divorced from reality. Yoho continues to present the Republican / Tea Party line:

This has been, you know, over the course of the last 15, 20 years, bad policies and people not dealing with it. It's time for us to stop talking about it and putting another Band-Aid on it. These are going to be some tough decisions that are going to be -- have to be made. And this is the year we need to do it because if we don't make these decisions, we're going to be in the same place where Greece or Spain was.

Except here's the thing: The Republican Party is not interested in making those tough decisions. They claim to have a budgetary genius in Paul Ryan who, after years of careful thought and collaboration with presidential nominee Mitt Romney, was able to specify a desire to cut funding for PBS. They have a leader in budget negotiations in the form of John Boehner who, building on last year's negotiations and Ryan's budgetary proposals, tosses out numbers that are neither supported by specific budgetary proposals nor sufficient to balance the budget. That's not leadership - it's a continuing display of cowardice.

And why are these Republican leaders such cowards? Because they know what Yoho will find out if the budget is balanced through cuts - the people who have been buying that snake oil will howl when they find out that the Republican approach to balancing the budget necessarily involves inflicting serious pain upon them. It's not that Boehner couldn't propose specific cuts to government programs, including Social Security and Medicare, it's that he doesn't want to face the political consequences. He hopes to trick the Democrats into proposing the cuts so he can argue, "I only voted for them because I'm fiscally responsible, but the cuts that hurt you came from the Democratic Party. I had no choice."

Paul Krugman has reproduced a graph I have at times shared, illustrating that it's Republican policies that have created the present "deficit crisis". Here's the thing: If you and your party are unable to actually identify budget cuts, if you and your party are the ones primarily responsible both for revenue shortfalls and for the unfunded expenditures that drive up the deficit, you owe the voters a moment of honesty. You need to either admit that you don't care about balancing the budget, and that the entire debate is a pretext for your long-standing goals of cutting Medicare and Social Security to the bone, or you need to admit that although you would like to see the deficit reduced you would prefer to have out-of-control deficits and spending growth if the alternative is to raise taxes or risk losing the next election.

Perhaps I underestimate Yoho, but if I do, what are the implications of this:

Rehm: But let me just ask, Congressman Yoho, would you be more willing to raise taxes on upper-income Americans, more willing to do that than to allow us to go over the cliff?

Yoho: No, ma'am.

If you care about balancing the budget, you balance the budget. Once you figure out how to balance revenues and expenditures, you can take a deeper look at the numbers, figure out where you can or should cut, where various taxes and tax rates might be adjusted or tweaked, etc., all without throwing the budget out of balance.

If you protect low tax rates for the wealthiest Americans despite budgetary consequences that you insist threaten the health and future of the nation, can't we be honest about it? You might not mind it if somebody else did the hard work and took the political risks necessary to balance the budget, but you have other priorities.

Politics, Policy and the Fiscal Cliff

Robert Kuttner analyzes the President's proposals on taxes and the budget as we approach the so-called fiscal cliff:

However, despite the president’s elegant move on tax policy, there are two other aspects to deficit and budget politics where his posture is not quite so firm.

One is whether to include Social Security and Medicare reform (by which the right means cuts) in a Grand Bargain.

This was always a dubious idea, and part of the right’s hidden agenda to mix up current budget politics with long-term issues about social insurance. Yesterday, Obama came closer than ever before to saying that he would not sacrifice Social Security.

First, the President expressed during the first debate that Social Security reform was on the table:

You know, I suspect that, on Social Security, we've got a somewhat similar position. Social Security is structurally sound. It's going to have to be tweaked the way it was by Ronald Reagan and Speaker -- Democratic Speaker Tip O'Neill. But it is -- the basic structure is sound.

If the Republicans can put politics aside, they can get a Social Security deal inside of a few hours of negotiation - minor adjustments that improve the program's fifty year projection and make the accountants happy. The President appears to be telegraphing that no further deal will be made.

Second, the Republicans made clear first with their demagoguery about "death panels" and Obama's Medicare spending cuts, and second with their retreat from their own voucher proposals for anybody under fifty-five, that they have no stomach for actually reforming Medicare. They want to do it, but they lack the courage and fortitude.

The President can play the same game that Romney and Ryan attempted during the election - "We'll preserve Medicare for now, but we'll cut spending in the future, when the economy is stable and we've had time to study the issue and identify savings." Frankly, if the goal is to avoid the "fiscal cliff", that's all you can do in the short term. Whatever is agreed it's reasonable to anticipate that three, five years down the line when the cuts are supposed to be put into effect, Congress will blink. Just as they do every single year with the "doc-fix".

Kuttner argues,

Obama has let it be known that he wants the deficit reduction to be “back-loaded”—little if any in the first year or two, and then a gradual phase-in. That’s better than the reverse. But in the end game, the most important thing for Democrats is not to be locked into any multi-year mandatory cuts.

Barring some kind of multi-year super-deal—that Obama should avoid—the rules of Congress prohibit one Congress from binding another.

Right now, arbitrary, mandatory cuts are working pretty well for the President. If a new fiscal cliff is created to compel another round of negotiations a year from now, it's likely to be Congress that is running scared.

Realistically speaking, any deal would be in two parts - tax and spending changes that will be put into effect this year and an agreed framework for future years. I'll grant, if you push cuts too far into the future you are likely to see that although some reform measures are put into immediate effect, key future measures not. Neither side wants to fumble that ball - they both have wish lists they want put into immediate effect, and likely both hope to trade them for promises of what they "will" do in the future.

How to Approach Tax Reform and Balancing the Budget

Mark Thoma quotes Robert Reich on "grand bargain" negotiations, with Reich proposing how President Obama could open negotiations by describing a set of tax increases and loophole closures that would balance the budget, without any need to "raise taxes on America’s beleaguered middle class, cut Social Security or Medicare and Medicaid, reduce spending on education or infrastructure, or cut programs for the poor".

Although Reich presents his argument in apparent earnest, I don't think he expects that the President will follow his advice. Thoma presents a more basic suggestion,

Obama should at least reverse the Republican pre-election mantra and insist: raise taxes first, then we'll talk spending cuts.

I think you can take a bit from all three columns. The President could actually use Reich's model to illustrate "This is how we can balance the budget with tax increases," followed by, "Here are the tax increases and loophole closures I actually propose." He can add, I'm not saying these tax increases and reforms cannot be reduced or eliminated but I am saying this: before I'm willing to revisit that part of my proposal we must identify enough spending cuts to balance the budget, and only if we accomplish that can we start talking about additional spending cuts that might offset the revenue we otherwise need to raise through the tax changes I've identified."

I also think he should stick to his guns on Social Security, even if it makes some people gnash their teeth, with the same sort of tweaks that were made in 1982. Change as little as possible, in a manner that will make the CBO happy over a fifty year projection. It's the position he took in the debates, and it's consistent with the notion that Social Security should be self-funding.

Frankly, I think the conceit of the "grand bargain" can get in the way of good policy formation, just as throwing three competing goals (universal coverage, revenue neutrality, reduction of healthcare costs) into healthcare reform unnecessarily complicated the debate and legislation while arguably producing a weaker bill than might have been achieved through separate legislation. Social Security expenditures are increasing, but are not out of control. The federal deficit is not all that bad when you remove Medicare, Medicaid and Social Security from the mix. The real issue is the present cost and projected growth of healthcare expenditures. Ezra Klein summed up the issues a few days ago with a series of CBO graphs.

What these three charts tell you is simple: It’s all about health care. Spending on Social Security is expected to rise, but not particularly quickly. Spending on everything else is actually falling. It’s health care that contains most all of our future deficit problems. And the situation is even worse than it looks on this graph: Private health spending is racing upwards even faster than public health spending, so the problem the federal government is showing in its budget projections is mirrored on the budgets of every family and business that purchases health insurance....

Page 9 of the report includes this remarkable statistic: If we just continue on the way we’re going , then “spending for Social Security, Medicare, other major health programs, defense, and interest payments” will “nearly equal all of the government’s revenues in 2020 and would exceed them from 2022 onward — leaving no revenues to cover any other federal activities, such as income security programs, retirement benefits for federal civilian and military employees, transportation, research, education, law enforcement, and many other programs.”

The projection does not include reforms not yet in effect, i.e., those of the Patient Protection and Affordable Care Act ("Obamacare"), but it's beyond obvious that healthcare costs are the elephant in the room. The cost control measures of Obamacare are not going to fix the problem, but at least they're a starting point. If the Republicans choose to continue to pretend that this is a problem we can fix by repealing the first serious effort to bend the cost curve, or by cutting funds for PBS, they're (still) not serious about balancing the budget. If you recall, when the Democrats proposed a modest measure to help patients understand end-of-life care, something that could conceivably lead to better care and outcomes for elderly patients, the Republicans demagogued about "death panels".

The only Republican reform ideas we seem to be hearing about on healthcare are to turn all public insurance programs into voucher programs, and to strip preventive care out of health insurance and pretty much make everything but catastrophic care self-funded through a MSA. "Let's not look at what is working here, and certainly not at what is working in the rest of the world." If our nation's per capita healthcare expenses were reduced to the levels typical of other developed nations, most of our immediate budgetary problems would disappear - we would still have a cost curve issue, but we would have a much better starting point. The Republicans won't consider emulating even the most market-based foreign healthcare models - not just because ideology trumps balancing the budget, but because it's easier to argue for cuts if you first contrive a crisis.

David Brooks Rejects Moderation - Anything to Get a Tax Cut

David Brooks pens a predictably partisan "analysis" of how Mitt Romney would supposedly govern as a "center-right moderate". Not in the sense of Brooks' recent definition of "moderate", but in the sense of the guy who stakes out a position between two extremes and calls himself a "moderate".

Now let’s try to imagine the world if Mitt Romney were to win. Republicans would begin with the premise that the status quo is unsustainable. The mounting debt is ruinous. The byzantine tax and regulatory regimes are stifling innovation and growth.

Brooks told us that a moderate is informed not by politics or philosophy, but by history. What does history tell us about Republicans and deficits? It tells us that they campaign against deficits and then, once elected, run up deficit spending to unprecedented heights. Brooks may want to believe that "this time will be different", but that can only be because his eyes are clouded by his own wishful thinking and political partisanship.

Brooks is also not being honest with his readers. He pretends, "", but he knows that's a lie. He knows that a lot of government regulation that stifles innovation was created and is maintained at the behest of businesses that don't want competition. He knows that the tax code is complex, byzantine, not because it's necessary to include that level of complexity, but because a simple tax code makes it difficult for large corporations and phenomenally wealthy individuals (such as Mitt Romney) to avoid taxes. Brooks knows that Romney made his fortune by exploiting tax loopholes, by larding up businesses with debt and deducting the interest

Dos Brooks truly believe that Romney is going to take away the loopholes that allowed him to get $100 million into his IRA? That he's going to do away with carried interest, the loophole that allowed him to have his massive income taxes as capital gains? That he's going to shut down the loopholes that make private equity funds so profitable? Not in this lifetime. You need only look at who is funding Romney's run for the White House to know that there's a zero percent chance he's going to do any of that.

Does Brooks believe that Romney is terrified of disclosing his tax returns because they'll disclose his scrupulous, honest nature, his self-sacrifice, his interest in closing tax loopholes? Only if he's on crack. Most likely, Romney is concealing the fact that he took advantage of the tax amnesty on dubious offshore bank accounts - an important tool in tax avoidance and one that Romney has made no mention of eliminating.

Which tax loopholes is Romney going to close? He refuses to specify - and of the ones he's mentioned in the abstract they all inure to the benefit of the middle class. Which government spending is Romney going to cut? He mentioned PBS - but history tells us that he won't cut PBS (even if such a cut mattered in the greater scheme of things). He has talked about cutting or privatizing FEMA. I suspect that, as I type, Brooks can look out of his window and get a sense of how likely that is to happen. Seriously.

What history indicates is that Romney will follow the path of George W. Bush. He ran on a promise to cut taxes, those who paid for his campaign are going to want him to deliver on those tax cuts, and he will do so without regard for the deficit or national debt. To the extent that people remind him of his pledge to cut spending to offset the tax cuts, history says he'll talk about growth and cuts to occur in the future - it's a ten year plan, remember? And history tells us that ten years later when, just as with G.W.'s tax cuts, the Romney plan turns out to be bunkum and to have put the nation into an even deeper fiscal hole, you can expect David Brooks to be telling us to vote for the next Republican because "he's going to govern from the center-right and this time he really will balance the budget."

Republicans would like to take the reform agenda that Republican governors have pursued in places like Indiana and take it to the national level: structural entitlement reform; fundamental tax reform.

You'll excuse me for asking, but how many Republican governors are there in the state of Indiana? Last I checked, Indiana followed the crazy model of only having one governor at a time. And what is the gist of Indiana's tax reform? To limit property taxes and overcome the loss of revenue by increasing the state sales tax? How in the world does Brooks propose to translate that type of reform to the federal government? Does Brooks even understand how taxes work? And other than jumping on the money-losing "drug testing for welfare recipients" bandwagon, what "structural entitlement reform" are we talking about?

I recognize that as a Republican partisan Brooks is happy to pretend that conclusory statements and platitudes constitute policy proposals, and is happy to suggest that "We'll balance the budget by doing things we're not going to tell you about" is an actual plan to balance the budget, but get real.

These reforms wouldn’t make government unrecognizable (we’d probably end up spending 21 percent of G.D.P. in Washington instead of about 24 percent), but they do represent a substantial shift to the right.

Recall how, when pressed for specifics about his tax reforms, he announced that his solution was to just "pick a number" - an entirely random number?

And so, in terms of bringing down deductions, one way of doing that would be say everybody gets -- I'll pick a number -- $25,000 of deductions and credits, and you can decide which ones to use. Your home mortgage interest deduction, charity, child tax credit, and so forth, you can use those as part of filling that bucket, if you will, of deductions.

That's not even close to serious. On top of that, Romney is promising massive increases in military spending. History tells us that when Republicans promise to cut taxes, they cut taxes. When they promise to increase spending, they increase spending. And when they promise to balance the budget... it never happens. There is absolutely no reason to believe that Romney will reduce government spending. He may shift it around, he may make life even easier and more lucrative for those at the top, but cut it? Sorry, David, those were numbers, not beams of sunshine, that Romney pulled out of his posterior.

At the same time, Romney would probably be faced with a Democratic Senate. He would also observe the core lesson of this campaign: conservatism loses; moderation wins.

But if Romney wins, that won't be the lesson of the campaign. The lesson will be that you can lie your way into the White House, all the while being enabled by columnists like David Brooks, because you promise an agenda that they like - one that keeps them and their peers, and the even richer elite they so admire, in their positions of wealth and privilege. You'll note that Brooks isn't pointing to anything Romney has said or done to paint his portrait of what's likely to happen, and he's intentionally ignoring history. Why? Because honesty loses elections, and Brooks wants Romney to win.

Only a few days ago Brooks was lecturing us that "Moderates start with a political vision" derived from history and "is not just finding the midpoint between two opposing poles and opportunistically planting yourself there". Yet now we're suddenly to regard as "moderate" a "center-right" Mitt Romney who gets legislation through the Senate by staking out a position between the Republicans in the House and the Democrats in the Senate and asking, "Is this a good enough way to split the baby?"

This is funny, as well - and false:

Romney’s prospects began to look decent only when he shifted to the center.

This election has been close from the outset. While Romney did dip in the polls after the Republican National Convention, his subsequent "bounce" has been much more a return to the baseline than anything else. And yes, his latest reinvention of what he believes and what he stands for seems to have helped him move back to the status quo ante, I think it's much more fair to say that his demagoguery, his race-baiting surrogates like John Sununu, and his exploitation of the financial crisis and mendacity about the recovery have helped him build what is in no small part an anti-Obama vote. He can't win as Mitt Romney, so he's running as "But I'm not Barack Obama". To the extent that people believe Romney stands for something, it's wishful thinking - "For no good reason, I'm sure Romney agrees with me on issue X, and that the dozens of other positions he's taken on the subject were all self-serving lies." A Romney victory would be a sad indictment of our political system, and frankly also of how it is covered by people like David Brooks.

A President Romney would look at the way Tea Party extremism had cost the G.O.P. Senate seats in Delaware and Nevada — and possibly Missouri and Indiana.

Even before his latest reinvention of himself, candidate Romney was aware of the dangers of being too closely identified with the Tea Party movement. But again, Brooks is forgetting his history. The Tea Party movement isn't a new thing - on the whole it's little more than a new name for a faction of the Republican Party that has been around for decades. Republican presidents have a long history of making broad promises to that faction, while being pretty modest about advancing that type of ideology when in office. Why? Because, as Brooks knows, the presidency is a national office. While Romney may represent a new extreme in how far a party nominee may go in pandering to an extremist element when seeking the nomination, then adopting a contradictory agenda when running for office, the rest is par for the course.

Brooks fails to mention that the danger the Tea Party poses to the Republican Party comes not at the level of the White House, but at the level of the primary. In states that have a significant Tea Party movement, candidates like Rick Santorum seem viable. Even long-term senators like John McCain start trembling in their shoes at the thought of a Tea Party-driven primary challenge. An honest Brooks would acknowledge that the newly center-right Romney may well be able to peel off some Democrats to support his agenda, but if he strays too far from the Tea Party line he's apt to lose as many Republicans, perhaps more. That could be paralyzing for any "moderate" or "centrist" agenda.

You know what else? Whether they win or lose in certain state races, the Tea Party has never been closer to having its agenda implemented by the Republican Party. There's no reason to believe they're going to back off.

To get re-elected in a country with a rising minority population and a shrinking Republican coalition, Romney’s shape-shifting nature would induce him to govern as a center-right moderate.

"Romney’s shape-shifting nature".... What a description. It's the description of a man with no core, a man with no backbone, and yet Brooks seems excited at the prospect of his becoming President. Let's take another look at history, shall we? Twelve years ago we had a Republican President who was going to usher in immigration law reform - he saw the handwriting on the wall, and was going to build ties with the Latino community.

We had a prominent Senator who also favored immigration reform and championed the DREAM Act - one John McCain. Let's recall, shall we, how much the President accomplished toward immigration reform.... He made immigration more difficult. And what of that Senator? Eight years later he was running against the immigration policies he once championed, and as time has progressed he has moved further and further away from his former positions. He also used to champion campaign finance reform... fat chance that he or President Romney are going to get behind that idea.

Seriously, it's safe to say that a man like Romney - a man who appears to care for absolutely nothing but advancing his own interests - will govern in a manner he believes is likely to result in his being reelected. But history is instructive, and there's far less reason to believe that Romney wants immigration reform as compared to Bush, and there's no reason to believe that Romney will succeed where Bush failed. Beyond that, what does Brooks imagine Romney will do to appeal to "a country with a rising minority population"? Apologize for all of the race-baiting he and his surrogates have engaged in during his campaign?

To get his tax and entitlement reforms through the Democratic Senate, Romney would have to make some serious concessions: increase taxes on the rich as part of an overall reform; abandon the most draconian spending cuts in Paul Ryan’s budget; reduce the size of his lavish tax-cut promises.

Brooks is, in essence, repeating himself. And we're back to this notion that the Republican Party is going to break with history and suddenly prioritize balancing the budget over cutting taxes for the rich. I mentioned the head count in my last post, 236 out of 242 Republican Members of Congress, and 40 out of 47 Republican Senators, have signed Grover Norquist's anti-tax pledge. The numbers may change slightly after the next election, but not significantly. Also, there is no reason to believe that Romney is going to decide that the best way to win reelection is to tell his largest donors, "You know what? Obama was right about taxes as well." Some degree of compromise may be required for him to get his tax cuts through a Democratic controlled Senate, but he will make it a priority to keep of that promise to his donors (and, frankly, to himself).

As for "the most draconian spending cuts in Paul Ryan’s budget", Romney has already abandoned them. When it comes to how he'll balance the budget, he won't get more specific than cutting PBS. Romney and Ryan are both cowards - they have both failed to explain who would feel the bite from their proposed cuts. And while Ryan proposed turning Medicare into a voucher program, and Romney proposes to push forward with that idea, the cowards have pushed the implementation of that reform so far into the future that they'll be long out of office before anything changes. They are not serious about balancing the budget and as much as Brooks attempts to fool himself - or is it only others that he's trying to fool - they will not hesitate to run up the deficit and the national debt. And when they do so, they'll claim "It's all Obama's fault."

You gotta love this:

The bottom line is this: If Obama wins, we’ll probably get small-bore stasis; if Romney wins, we’re more likely to get bipartisan reform.

All of four days ago, Brooks was telling us about the difference between being "moderate" and being "bipartisan", in that column and at the start of this one Brooks told us that Romney's latest reinvention of himself involved advancing a "moderate and sensible agenda", and yet here he is, admitting that his favorite spineless pretzel of a politician is not advancing "moderation", but is embracing the shallowest form of "bipartisanship", "finding the midpoint between two opposing poles and opportunistically planting [him]self there".

Romney is more of a flexible flip-flopper than Obama.

Yes, Brooks sees that as a good thing - a basis for endorsement. "You can't trust a word out of his mouth and you'll never know what he stands for (other than himself), so vote Romney."

He has more influence over the most intransigent element in the Washington equation House Republicans.

You'll excuse me for asking, but what evidence can Brooks offer that Romney will have any influence over House Republicans?

He’s more likely to get big stuff done.

If by "big stuff" you mean "tax cuts for the rich", yep. If you mean addressing any of the nation's most serious problems, Romney is expressly campaigning on a platform of leaving the hard stuff for the next guy - even if he serves a full eight years. He'll start the country on the path to have the budget balanced... in ten years. He'll start the process of privatizing and voucherizing Medicare and the first people who get vouchers instead of insurance will receive them... in ten years.

Romney is a coward, and he'll govern as a coward. If that makes Brooks comfortable, I am hard pressed on that evidence to believe that Brooks cares about anything other than getting a tax cut.

How Mitt Romney Will Cut Taxes for the Rich Without Technically Lying

E.J. Dionne restates the conventional wisdom on Romney's stated tax policy, but makes a good catch:

During the same nomination battle, Romney abruptly changed his tax policy to placate the supply-side-Wall-Street-Journal-Grover-Norquist axis in the GOP. Romney’s initial tax proposal was relatively modest. The right wasn’t happy. No problem, said Romney, and out came his new tax plan that included a 20 percent cut in income tax rates, “rate cuts” being a term of near-religious significance to supply-siders.

Romney pointedly asserted (again, in the primaries) that he wanted the tax cut to go to everyone, “including the top 1 percent.” But this doesn’t sell to swing voters now, especially after the leaked video in which Romney wrote off 47 percent of Americans as incorrigibly dependent. So in the first debate, Romney tried to pretend that he didn’t want to cut rich people’s taxes. He reassured us that “I’m not going to reduce the share of taxes paid by high-income people.” (By the way, he could cut taxes for the rich a lot and still keep their “share” of the government’s overall tax take the same.)

Here's what Romney said:

Well, sure. I'd like to clear up the record and go through it piece by piece. First of all, I don't have a $5 trillion tax cut. I don't have a tax cut of a scale that you're talking about. My view is that we ought to provide tax relief to people in the middle class. But I'm not going to reduce the share of taxes paid by high- income people. High-income people are doing just fine in this economy. They'll do fine whether you're president or I am.

There is a difference - a huge difference - between reducing the "amount" and reducing the "share". If I pay $80 in taxes and you pay $20 in taxes, I'm paying 80% and you're paying 20%. If a politician says he's going to reduce the amount of your taxes but not mine, the meaning is pretty obvious - your taxes go down, mine stay the same. A 20% tax cut would leave me paying $80, but you would pay $0.

But the word, again, is "share".

Back to that 20% cut: If both of our tax rates were reduced by 20%, I would pay $64 an you would pay $16. And guess what? My share of the taxes would still be 80% despite a massive reduction in the amount I paid.

Ah, you say, but how do you square that analysis with the following:

And finally, with regards to that tax cut, look, I'm not looking to cut massive taxes and to reduce the — the revenues going to the government. My — my number one principle is there'll be no tax cut that adds to the deficit.

How can that work if you issue a significant tax cut?


If Romney does nothing, the deficit is going to drop by hundreds of billions of dollars as we emerge from the recession. Let's say the deficit were projected to drop next year to $600 billion. You cut taxes by $400 billion and the deficit goes right back up to $1 trillion. But wait - didn't you just increase the deficit? No! You reduced the deficit from $1.1 trillion to $1 trillion. Sure, it might have otherwise be smaller, but you can say with a straight face (or psychopathic smirk), "I told you the truth. There was no tax cut that adds to the deficit."¹

But you object, "The deficit isn't going to drop that quickly." To which I respond, "Taxes will be decreased in phases." Romney's been playing games with spreadsheets for most of his adult life. This is just another game, but with a far less sophisticated audience than he dealt with at Bain.
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Similarly, Romney's stated "jobs plan" is to lean back in his chair, watch the economy grow - natural growth over the course of the next four years is projected to add 12 million jobs, even if the President does nothing - and call it a "plan".

Promising the Moon then Passing the Hard Work to Congress Isn't Leadership

A central theme of the Romney/Ryan campaign is that they don't have to be specific about the more difficult aspects of their otherwise pie-in-the-sky plans because they're simply going to delegate the task to Congress.

"Here's our specific proposal for a $4 - $5 trillion tax cut, inuring largely to the benefit of the wealthy. Now it's your job, Congress, to find the loopholes to close and deductions to eliminate to make our plan revenue-neutral.

I have forgotten. Which branch of government controls the purse strings again? Which branch of government is infamous for its pork and earmarks, for not wanting to cut anything that might alienate a constituent or wealthy donor? Which branch of government has two-faced "budget experts" who publicly decry stimulus spending while privately pleading for stimulus dollars to be sent to their districts? Which branch of government delegates its difficult budgetary tasks to committees and forces "up or down" votes on committee reports, because that allows its members to avoid taking personal responsibility for any resulting pain? (Give me a "C", give me an "O", give me a "N"....)

This would be the same Congress that created those deductions and loopholes? This would be the same Congress that passed, with "budget expert" Paul Ryan's support, authorization for two unfunded wars and the massive unfunded entitlement expansion, Medicare Part D? This would be the same Congress that has passed each and every budget that has added to our national debt? When he's not campaigning, and professing deep regret for his career of deficit-expanding votes, Paul Ryan is very much part of the problem.

If Romney and Ryan believe what they're saying, they're fools. But you know what? They're not fools. They're hoping that the rest of us are fools, and that a pliant media continues to go along with their game.

To be leaders in this context, Romney and Ryan don't have to take a "my way or the highway" approach. They simply need to put together a credible proposal and say, "If Congress can improve on this, that would be great, but as you can see this really can work." You know what else? If they're deferring to Congress, with Paul Ryan being the GOP's "budget expert" in Congress, Ryan should be able to speak for the House majority right now. If this proposal were to come before the Republican majority in the house, what would Ryan endorse right now? It's a fair question, and one a leader would not be afraid to answer.

Were they honest, they would admit that they're not willing to risk their political futures by telling the truth - that even if we assume there are enough loopholes and deductions to close, there is simply no way that Congress is going to take responsibility for inflicting that kind of pain. If they were courageous they would stand behind their convictions and state exactly what their plan entails, accepting the political consequences. Were they leaders they would produce an actual plan and present it to Congress and the nation. But alas, they're none of the above, so they pretend that its enough to pass the buck to Congress, knowing full well that Congress will demur.

The Only Assumption You Should Make About Budget Promises

Although it's basic gist - that Ryan's budget is drivel that serves the wealthy at the expense of everybody else - is correct, Daily Finance gets this dead wrong:

Ryan's plan streamlines the tax code, condensing the current six tax brackets into just two: 10% and 25%. The plan doesn't specify where the cutoff line between the two brackets would lie, but it seems reasonable to expect that it would stay somewhere near where the 25% bracket currently hits in, at $70,700 for a married couple filing jointly.

If that was the case, and if the standard deduction stayed the same, the average household would see an immediate drop in its base tax rate. A couple filing jointly would pay $3,810 -- a savings of $1,035 when compared to their base tax rate under the current code. While not the stunning $265,000 that the average millionaire household would save under the Ryan plan, it is nonetheless a nice chunk of change.

No, it does not seem reasonable to expect that a married couple earning $70,700 or more would get a tax cut amounting to a "nice chunk of change".

Even if we ignore what that couple might be losing in government services in exchange for a $1,035 tax cut, a "chunk of change" those in Romney's stratospheric income bracket might mistake for pocket lint, there's absolutely no reason to believe that the tax cut would be delivered. Why not? Because Ryan and Romney have not specified a cut-off point, such that the only thing that's "safe to say" is that they know the math doesn't work and thus that they have no intention to deliver the inferred-but-not-promised tax cut.

Forced Savings Plans as an Alternative to Social Security

I've seen a number of forced savings plans offered as an alternative to, privatized version of, or supplement to Social Security. All of them have been flawed - the best intended versions require a guaranteed return on investment, and perhaps also some form of mandatory annuity purchase upon retirement, raising issues including management fees and costs, potential losses that the government must cover, and the big question of how the money would be invested and who would make that call - and the worst of which pretty much guarantee nothing except huge profits to the private firms than invest the money that the government compels you to place in their hands.

I wasn't expecting, though, the idea that the solution to Social Security's long-term, fixable problems lies in Singapore,

Singapore makes no promises but instead requires all citizens to save up to 36 percent of their income for their own retirement and health care. The government invests the savings in stocks and bonds; the money is not used for current expenditures.

The "solution" requires removing the cap from FICA taxes, increasing the FICA tax to about 36%, and... having the government invest that money? Yeah, no chance of any problem with that plan. Let's see, tax about $13 trillion in total personal income at 36%, use that $4 trillion plus to buy marketable securities... hey - in roughly four years Uncle Sam can own all the stock of all U.S. companies.

It should have been pretty obvious up front that you could not take something that works in a small, authoritarian city state and implement it on the U.S. economy without asking yourself, "Will this scale". Or that, even controlling for the problems with having a government-owned fund buy private securities, that it would not scale. And what does the author think would happen to the U.S. economy if consumers had even 5% less money to spend, let alone 15 - 30% less.

Believe it or not, the editorial gets worse from there,

Now, compare Singapore’s system to our own. When Medicare was debated and enacted, Paul Samuelson was America’s most influential economist. He was an adviser to presidents Kennedy and Johnson, author of the nation’s best-selling economics textbook and a soon-to-be Nobel laureate. In 1967, Samuelson wrote in Newsweek about the funding mechanism for Medicare and Social Security: “The beauty about social insurance is that it is actuarially unsound. Everyone who reaches retirement age is given benefit privileges that far exceed anything he has paid in. . . . Always there are more youths than old folks in a growing population. More important, with real incomes growing at some 3 per cent per year, the taxable base upon which benefits rest in any period are much greater than the taxes paid historically by the generation now retired. . . . A growing nation is the greatest Ponzi game ever contrived.”

In other words, the author of the editorial is quoting right-wing references to Samuelson, not Samuelson himself, because Samuelson was in fact defending Social Security and was not actually comparing it to a Ponzi Scheme. Paul Krugman has attempted to explain that, but you really need only look at Samuelson's actual words:

The beauty of social insurance is that it is actuarially unsound. Everyone who reaches retirement age is given benefit privileges that far exceed anything he has paid in. And exceed his payments by more than ten times (or five times counting employer payments)!

How is it possible? It stems from the fact that the national product is growing at a compound interest rate and can be expected to do so for as far ahead as the eye cannot see. Always there are more youths than old folks in a growing population. More important, with real income going up at 3% per year, the taxable base on which benefits rest is always much greater than the taxes paid historically by the generation now retired…

Social Security is squarely based on what has been called the eight wonder of the world — compound interest. A growing nation is the greatest Ponzi game ever contrived. And that is a fact, not a paradox.

Nobody who has read Samuelson's words could argue with a straight face that he was indicting Social Security as a "Ponzi scheme". Frankly, the author's abridged quote (which even includes the Samuelson's italicization of "actuarially") is a sufficient hint at Samuelson's actual meaning that you have to wonder about the author's sincerity.

The author then trots out the usual whinges about U.S. debt - there's too much of it, foreign investors will eventually stop buying it, invisible bond vigilantes are everywhere.... And you know what? I can agree with much of that (not the invisible bond vigilantes, though). I'm at heart a fiscal conservative. I deplore the manner in which the Bush Administration squandered a budget surplus, engaged in ruinous fiscal policies and reckless expenditure, ignored the growing housing bubble, and left us in economic catastrophe. Had the Bush Administration been fiscally responsible we would have far less debt, we would not have needed to debate how much stimulus spending we could afford, China would own far less U.S. debt, and we might not even have to keep hearing about invisible bond vigilantes. Oh well.

But you know what else that history tells us? That with modestly higher taxes, we can have significantly lower deficits. Astonishing as that may sound, when you increase government revenues the government need not borrow as much money to fund its operations. While I don't favor raising taxes in a manner harmful to the economy - nobody of consequence does - as the economy improves there's no reason why tax increases couldn't or shouldn't be part of the solution.

The author asks, with apparent sincerity, "What do the Chinese think of our system?" Because any good Republican, forming fiscal policy for the U.S., should use "What does an authoritarian, oppressive communist dictatorship think of our budget" as a starting point?

The author closes with a worthy question, posed rhetorically, but easily answered:

Will our leaders give us an honest accounting and discussion of our choices, or will we have to wait for a debt crisis to force the issue?

That second thing? Yep. That's what it will take.

Mortgaging a Community's Future With Budget Chicanery

For all of the uproar about federal budget deficits, we hear far too little about the games states play to feign "balancing" their budgets. Common approaches are to sell off decades of future revenues (e.g., parking meter revenues) for a one-time cash payment, or to contract for services with payment to occur out of future budgets.

How will future sessions of government balance the budget with those pre-existing commitments and reduced revenues? Who cares, right? It's all about "right now", and with term limits the legislators who mortgaged the future probably won't be around when it's time to pay the bills.

I don't recall the source, but I was recently directed to a particularly egregious example of a local government selling out the community:

The bottom line: For borrowing $105 million in 2011, taxpayers will end up paying investors more than $981 million by 2051, or almost 10 times what the district borrowed. That’s wildly more expensive than a typical school bond, in which a district pays back two or maybe three times what it borrowed.

Forty years of crippling debt in exchange for an easy way out for the school district. This, because it's too politically difficult to raise taxes even in the modest amount necessary to support a fiscally responsible bond issue? The right wing fantasy once again crashes into reality. The "beast" isn't starving, and the money to pay off that $billion debt will come out of taxpayers' pockets.

Really, while granting that state governments are at least as guilty as local governments when it comes to this type of game, it's time for states to impose some limits.