President Obama and Speaker Boehner are, apparently, approaching an agreement on the “fiscal cliff”:
WASHINGTON — President Obama delivered to Speaker John A. Boehner a new offer on Monday to resolve the pending fiscal crisis, a deal that would raise revenues by $1.2 trillion over the next decade but keep in place the Bush-era tax rates for any household with earnings below $400,000.
The offer is close to a plan proposed by the speaker on Friday, and both sides expressed confidence that they were closing in on a major deficit-reduction plan that could be passed well before January, when more than a half-trillion dollars in automatic tax increases and spending cuts would kick in.
There’s an example I’ve given before of the shortcomings in mechanical compromise, the sort where one side stakes out a position, the other stakes out a position, and they agree on a middle point that makes no sense whatever from either point of view—they agree for the sake of agreeing. Let’s say one group wants to build a bridge across the river while the other group doesn’t. The mechanical compromise is building the bridge halfway across the river. It’s an agreement; it’s in the middle; it’s nuts.
Whether you’re a fiscal hawk concerned about balancing the budget or a folk Keynesian interested in more stimulus spending (or, at the very least, not reducing present spending), the agreement described in the article cited above doesn’t cut it. It’s an agreement; it’s in the middle; it’s nuts.
I don’t understand the obsession with nominal tax rates. Increasing the marginal tax rate won’t necessarily raise more revenue. If you want to raise revenue, we should be increasing the effective tax rates rather than the nominal ones. Increasing the marginal rate on the top 1% of income earners may raise revenue little or not at all.
The present effective tax rate on people in the top 1% of income earners is estimated as 27.5%. The estimated effective tax rate in 1960, the halcyon days of 90% marginal tax rates for the upper crust, was 31.2%.
Another thing to take into account: it doesn’t matter what the marginal rate is. What matters is how you calculate income.
And, of course, if your concern is stimulating the economy, the proposed agreement will, if anything, slow growth farther.
The proposed antonym of synergy, the condition in which the whole is greater than the sum of its parts, is dysergy. The proposed agreement sounds very much like dysergy to me.
It sounds even more like my favorite Soviet era wisecrack. Seen in a sign in a factory: we pretend to work, they pretend to pay us.