Hoisting the White Flag

by Dave Schuler on April 11, 2012

Ezra Klein believes that Democrats have raised the white flag on the “Bush tax cuts”:

To put it differently, Democrats have, for the most part, admitted that Bush was right, and the Clinton-era tax rates were too high on most Americans. For all that Democrats talk about returning to the Clinton-era tax rates, they only ever mean for the top two percent of taxpayers — the folks who are now in the 35% bracket, but whom they would like to see in a 39.6% bracket.

The reality is that, on tax policy, Democrats are now closer to Bush than to Clinton. But neither side much likes to admit that. For Democrats, it means confessing to how far right they’ve moved on taxes. And for Republicans, it means admitting how far right Democrats have moved on taxes.

I don’t think it’s so much that Congressional Democrats have moved to the right on taxes as that, with typical Congressional cowardice, they don’t want to bear the possible electoral consequences of voting to raise everybody’s taxes. There may be little difference in practice between a sincerely held philosophical position and a tactical decision but emotionally there’s all the difference in the world.

However, I wonder if Mr. Klein recognizes the implications if he’s correct. If the Congress, regardless of whether there’s a Democratic majority or a Republican one, will only raise taxes on the highest income earners that kills the Simpson-Bowles plan for broadening the tax base and places a limit on how much additional revenue can be raised. That in turn means that either the budget won’t come into the same timezone as balanced for the foreseeable future unless we either a) make cuts that nobody has the courage to make or b) we continue to borrow and/or simply spend the difference between the revenue the federal government takes and the expenditures that Congress has authorized.

{ 17 comments… read them below or add one }

michael reynolds April 11, 2012 at 5:05 pm

with typical Congressional cowardice

How dare you call those poltroons cowards?

PD Shaw April 11, 2012 at 5:24 pm

Is this a temporal state or the new normal? “You don’t raise taxes in a recession,” said Obama. So long as the payroll tax is not returned, I presume we are in recession. If this is the new normal for the economy, we won’t have any tax increases until the poor health of those on Medicaid is pandemic.

Dave Schuler April 11, 2012 at 6:53 pm

That’s the crux of the problem, PD. We’re not in a recession. This is the recovery phase of the cycle. If you can’t raise taxes during the recovery phase, you can’t raise them at all.

Not every tax increase reduces economic activity to the same degree. In particular, cutting or eliminating tax expenditures actually removes distortion from the economy and should reduce economic activity less than, say, ending unemployment benefits would. The Grand Wazoo of tax expenditures, the home mortgage interest deduction, is probably sacrosanct (I’d cap it at $20,000). How about the next in line: the exclusion from personal income tax of employee benefits?

PD Shaw April 11, 2012 at 7:36 pm

I think fundamentally what I take from Bush’s comments is different from either Bush or Klein. As long as we are talking about “Bush” tax cuts versus the “Clinton” taxe rates, we are living in the past where positions have already been taken and calcified. If this is all there is and all there will be, its like being stuck in limbo, waiting out the punishment that drives us slowly insane, waiting for salvation delivered by events we have no contol over.

Andy April 12, 2012 at 8:24 am

Like many things in politics there is a substantial difference between political narrative and reality. The liberal narrative is that the Bush cuts were bad because they increased the deficit and they benefited the rich. In fact, I think “Bush tax cuts for the rich” was an often-used rhetorical line. Liberals never really mentioned the reductions at the lower end of income scale when talking about the Bush tax cuts. Ezra Klein has, I think, been a lot more honest about this than most liberals.

The reality is that the Bush tax cuts benefited pretty much everyone. Upper-middle income families with children like me benefited more than most. When I researched my own tax situation last year and did some posts over at my neglected blog, I found the child tax credit alone cut my income tax by 1/3 – combined with the rate reductions, I estimate that my federal income tax is about 1/2 of what it otherwise would be before the Bush tax cuts – For the past few years it’s come in at about 3-4% of my gross income. That’s with the standard deduction since I don’t itemize.

Klein being an exception, this is the kind narrative-reality disconnect that really annoys me about the liberal arguments. Not surprising, really, that’s all standard partisan tactics.

Andy April 12, 2012 at 8:26 am

And before someone jumps all over me for attacking liberals, I’ll just mention that the GoP has their own narrative-reality disconnects that annoy me.

steve April 12, 2012 at 9:16 am

@Andy- I think you are correct about the political class. Among the economics writers, I think it is generally acknowledged that everyone received some benefit, but the wealthy benefitted more since there were also cuts in dividends and capital gains taxes. IOW, among those I read, Klein is not an exception.

FTR, I think there is still room to broaden things by eliminating tax expenditures. The Tea Party and Norquist will try to spike this, but a few people like Coburn have spoken out so I think there is some room.

Steve

Andy April 12, 2012 at 10:12 am

steve,

It depends on how you define “benefited more.” Usually the chosen metric is self-serving to whatever narrative the arguer is trying to advance.

Andy April 12, 2012 at 10:19 am

BTW, I tend to prefer comparing percentages when figuring out who benefited more. If you use absolute dollars then almost any tax cut will benefit the rich more because high incomes will get a lot of dollars from even low-percentage tax cuts. That’s just the way the math works.

steve April 12, 2012 at 10:42 am

@Andy- I also like percentages, which is why I made it a point to include the capital gains and dividend cuts. Those belong almost exclusively to the wealthy. My only caveat would be that if we are talking about this in reference to budgets, you need to look at absolute numbers also. (Interesting that the article you cite avoids giving actual numbers.)

Steve

Andy April 12, 2012 at 11:08 am

steve,

I’ll have to look up the exact figures, but as I recall if the Bush tax cuts expired completely we’d see about $4 trillion in additional revenue over the next 10 years. If the cuts expired only for those making over $200k in income then that would generate about $700 billion over 10 years. About 3% of tax filers make over 200k a year, and $700 billion is about 18% of expected revenue. That’s yet another way to look at it.

steve April 12, 2012 at 2:11 pm
Dave Schuler April 12, 2012 at 2:17 pm

The Chicago City Colleges are a disaster. No redeeming features. Education kabuki. Anything would help.

Currently, I’m making book on whether Mayor Emanuel’s body is found in an alley somewhere or the presidents of the Chicago public employees’ unions just stop returning his phone calls and replace him next time around.

I’m more interested in how he fares on the contract negotiations with the teachers than I am in his plans for the future.

jan April 12, 2012 at 2:55 pm

Andy,

“The reality is that the Bush tax cuts benefited pretty much everyone.”

I wish we could engrave that statement in stone. For, all to often, as Andy already stated, these tax cuts are heralded as benefiting only those awful rich people. It’s become a nauseating statement, one that is so bogus and biased, and yet one that is substantially swallowed and believed by the uninformed masses.

Such inflammatory (false) rhetoric, though, adds nicely to the script progressive democrats have tediously been writing. They want class warfare, hence let’s get behind a movement called “99% versus 1%” Let’s pin wall street, greed, big business on the republicans, even though, Wall Street, big business contributed heavily to Obama and the dems. The dems say let’s spin not paying your fair share on our opponent, while we have a slug of dems (even our Secretary of the Treasury, Geithner ) who were caught with their pants down not paying their stipulated share, let alone ‘fair’ share!

It’s hypocrisy and stew of lies that the dems are stirring and giving out as slop to the people. In the meantime, our problems continue to pile up, along with the manure of idiotic, pandering, ideologically driven solutions that are being put forth by this administration, who wants another term to set everything into cement!

sam April 12, 2012 at 3:35 pm

“The reality is that the Bush tax cuts benefited pretty much everyone.”

There’s benefiting, then there’s benefiting. How beneficial was it to launch two wars and cut taxes?

PD Shaw April 12, 2012 at 6:58 pm

sam, as someone who benefitted from the Bush tax cuts, you have absolutely no standing to ask that kind of question, none at all, sir! Now, Andy’s kids or the next generation certainly does.

I can only speak for my kids; they are in the other room playing the WII. I believe they think that the adults are taking care of all the tough choices. Suckers.

Andy April 12, 2012 at 10:30 pm

PD Shaw,

I can only speak for my kids; they are in the other room playing the WII. I believe they think that the adults are taking care of all the tough choices. Suckers.

Hehe. You know, sometimes I wonder if I shouldn’t send my kids to Central America to train with John Connor.

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