Do higher taxes kill the economy?

Apparently not.

Taxes in both Denmark and Sweden are considerably higher than they are in the US. Economist Lane Kenworthy has taken an extensive look at factors such as GDP growth over decades, the World Economic Forum's "Competitiveness Index," rates of employment, household income growth, income distribution and government debt and found that Denmark and Sweden perform at least as well if not better by all relevant economic measures. They also have greater life expectancy and greater "life satisfaction."

Most surprisingly, both countries are judged by the Heritage Foundation-Wall Street Journal index to have a level of "economic freedom" essentially the same as the United States (Denmark actually scores better on that one.)  Not surprisingly, both Denmark and Sweden have much lower levels of government debt as percentage of GDP  than we currently have in the United States.

"Taxophobia" appears to be just that at the level of economic argument related to jobs and growth - a fear that can't be explained by rational measure or empirical evidence.  As we all know, there are lots of reasons not to like higher taxes, but the usual arguments about "job-killing" taxes - especially on high earners - put forward as "sound economics" don't add up in the real world.

Check out Kenworthy's piece here - it debunks a lot of "conventional wisdom" about taxation, job growth and productivity.

GOP Budget Czar Paul Ryan has trouble telling the truth

Jared Bernstein, former chief economic aide to VP Joe Biden, comments on Congressman Paul Ryan's assertion that ”Our plan is to give seniors the power to deny business to inefficient providers...their plan [Affordable Care Act] is to give government the power to deny care to seniors”:

"What's up with this guy?"

The ACA does nothing of the sort.  It was structured precisely to ensure that the fundamental guarantee of Medicare remained in place.   This link, from Austin Frakt, provides the details.  The punchline is that IPAB—the Independent Payment Advisory Board created by ACA to control cost growth—is explicitly not permitted to “…ration health care, raise costs to beneficiaries, restrict benefits, or modify eligibility criteria.”

So Ryan is wrong.  Full stop.

But there’s more.  Understanding this difference provides a useful insight into how health care reform under the ACA differs from Ryan’s approach.  ACA gets under the hood of the health care delivery system to attempt to control health-care cost growth.  Ryan simply shifts cost growth from the government to seniors.

Once more with feeling: The GOP's "Ryan Plan" RAISES total health care spending for seniors

Peter Orszag, former White House budget director:

Under (the Ryan/GOP budget) proposal, starting in 2022, the government would issue new Medicare beneficiaries a payment that they could use to purchase private insurance. These payments would increase in line with the consumer price index but not with faster-rising health costs. The slower increase in payments would generate large savings (and less risk) for the federal government; indeed, this would be the single most important driver of savings from the Ryan budget plan as a whole.

As the government paid relatively less for Medicare, beneficiaries would bear an increasing share of the cost of their care. It is no great accomplishment, however, merely to shift health expenditures from the federal government to consumers, without doing anything to decrease them in total.

The CBO’s analysis of the Ryan plan confirms that federal expenditures would be reduced, by a lot. By 2030, payments for a typical beneficiary would be more than 20 percent lower than current projections, according to the report, and the beneficiary’s personal costs would increase.

So far, nothing unexpected. On the critical metric of whether the Ryan plan would reduce total health-care costs, though, the CBO conclusion is shocking: The plan would not only fail to decrease health-care costs per beneficiary, it would increase them –- by an astonishingly large amount that grows over time. By 2030, health spending on the typical beneficiary would be more than 40 percent higher under the Ryan plan than under existing Medicare, according to the CBO report.

Medicare and the future of reality-based politics

Musing on blogger Mark Kleiman's justifiably snarky response to the GOP's epic failure to hold Jack Kemp's uber-conservative congressional district in last night's special election - a contest which was essentially a referendum on GOP budget czar Paul Ryan's plan to kill Medicare - UC Berkeley econ prof Brad DeLong goes beyond the easy temptation of triumphalism to consider the broader scope and longer range implications for our toxic, stupid politics:

The Ryan fiscal plan was cruel, stupid, and counterproductive: you do not try to improve health care by destroying Medicare and adopting the RyanCare plan of turning insuring the elderly over to private insurance companies whose first act is to hire more administrators and pay them $250 billion a year to try to screen the Medicare patients who will be expensive to treat out of their policy pool. And the claim that eliminating Medicare and replacing it with RyanCare for the elderly was essentially the same thing as FEHBP (medical insurance) for members of congress is a lie of extraordinary magnitude and cynicism.

And we should not be worrying right now about the cost of Medicare in the 2020s and 2030s. Sufficient unto the day is the evil thereof. And the 9% unemployment of this day is indeed evil. Government right now should be focusing on creating jobs now, not on potential deficits a generation hence--especially as no congress can bind its successors.

But given that we are worrying about the 2020s and 2030s right now, it is a fact that there is a large long-run gap starting about a decade and growing between the 20%-plus of GDP that congress on its current institutional trajectory will tax and the missions that congress has promised the American people that the federal government will assume. And the political lesson of the past two years is now that you win elections by denouncing the other party's plans to control Medicare spending in the long run--whether those plans are smart like the Affordable Care Act or profoundly stupid like the replacement of Medicare by RyanCare for the aged--sitting back, and waiting for the voters to reward you.

What goes into a budget deficit?

Economic Policy Institute, Rebecca Theiss.

The GOP in Wonderland (Updated)

Jacob Weisberg at Slate asks the rude question, "Are Republicans Losing Their Grip on Reality?":

Prepping for the GOP primaries?

Moments like this point to a growing asymmetry in our politics. One party, the Democrats, suffers from the usual range of institutional blind spots, historical foibles, and constituency-driven evasions. The other, the Republicans, has moved to a mental Shangri-La, where unwanted problems (climate change, the need to pay the costs of running the government) can be wished away, prejudice trumps fact (Obama might just be Kenyan-born or a Muslim), expertise is evidence of error, and reality itself comes to be regarded as some kind of elitist plot.

Like the White Queen in her youth, the contemporary Republican politician must be capable of believing as many as six impossible things before breakfast. Foremost among these is the claim that it is possible to balance the federal budget without raising taxes. Most Republican politicians are intelligent enough to understand that with federal revenues at 14.4 percent of GDP and expenditures at 25.3 percent, it is, in fact, impossible to close the fiscal gap with spending cuts alone. But GOP candidates acknowledge this reality at their peril. Grover Norquist, the right-wing lobbyist and former collaborator of Jack Abramoff's, has appointed himself chief enforcer of the party's anti-tax catechism. If Republican candidates won't sign his no-new-taxes pledge, Norquist and fellow inquisitors at the Club for Growth threaten them with excommunication, social death, and the punishment of being "primaried" by a well-funded conservative challenger.

Clinging to the "strong dollar"

Now that she's no longer part of the Official Beltway gaggle, former White House economic advisor Christina Romer offers some straight talk on the "strong dollar" dogmatics:

"Won't you be my Teddy Bear?"

In November 2008, I was sharing a cab in Chicago with Larry Summers, the former Treasury secretary and a fellow economic adviser to the president-elect. To help prepare me for the interviews and the hearings to come, Larry graciously asked me questions and critiqued my answers.

When he asked about the exchange rate for the dollar, I began: “The exchange rate is a price much like any other price, and is determined by market forces.”

“Wrong!” Larry boomed. “The exchange rate is the purview of the Treasury. The United States is in favor of a strong dollar.”

For the record, my initial answer was much more reasonable. Our exchange rate is just a price — the price of the dollar in terms of other currencies. It is not controlled by anyone. And a high price for the dollar, which is what we mean by a strong dollar, is not always desirable.

Gas and energy prices too high? Well, they're actually a lot higher than you think

David Leonhardt at the New York Times quotes Michael Greenstone and Adam Looney, economists at The Hamilton Project on the costs of American energy policy. They argue in a new study:

… our energy choices are based on the visible costs that appear on utility bills and at the gas pump. This system masks the social costs arising from those energy choices, including shorter lives, higher health care expenses, a changing climate, and weakened national security.

 Leonhardt further comments:

Mr. Greenstone and Mr. Looney estimate that a coal plant must spend 3.2 cents to produce a kilowatt hour of electricity (and consumers then pay slightly more than this). This price appears to be a bargain, the economists write, but the true costs (of our carbon energy) — once health costs, military costs and the like are taken into account — are more than twice as high: 8.8 cents per kilowatt hour.

Real costs of current energy consumption must be factored into any strategy for funding research and creating viable markets for green energy.  When people complain about things like gas prices at the pump, they're not even close to understanding the actual costs involved in our energy markets.

From "deficits don't matter" to "defaults don't matter"

Conservative David Frum on the state of his party:

We’ve evolved in the space of a decade from “deficits don’t matter” to “defaults don’t matter.”

It seems flabbergasting that a conservative party could arrive at this destination.

Yet the new mood exemplifies the trend we have seen over the past three decades, whereby one after another the “rules of the game” have been discarded...

And now even the debts and obligations of the United States become a tool of politics.

Everybody seems to assume that the rules will be reasserted before the game gets too dangerous. Maybe. Let’s hope. But one year’s outrageous innovation has a bad habit of becoming next year’s new normal.

The graph that gives the lie to GOP arguments about the economic impact of tax increases vs. tax cuts

It's no secret that job growth and GDP growth were strong in the years after President Clinton increased taxes to curb deficits and get the government on sounder fiscal footing,  and that George W. Bush presided over a remarkably weak economy after making tax cuts the centerpiece of his economic program.  But that doesn't stop Republicans from spinning fantastical tales of the inevitable and terrible consequences of even modest tax increases to curb long-term deficits.

The truth is that tax cuts are ideology - rather than pragmatic policy - in GOP circles and have the aura of creationism for religious fundamentalists.  I don't really care what religious fundamentalists believe happened millions, or in their view thousands, of years ago - as long as they don't try to sell it as "science" in the schools.  But for contemporary "conservatives" posing as "deficit hawks" to make arguments about tax cuts that are based solely on a belief system, rather than what we know - at least in terms of co-relation - about our economy and fiscal trajectory over the past 20 years is a signal of just how un-serious they are about fiscal sanity and balancing budgets. 

An irrational, counter-factual article of faith - rooted in the disastrous "Starve the Beast" anti-government ideology - drives one of our political parties.  And driven by that dogma, they're willing to drive the country off a cliff.

Via Ezra Klein, Wonkbook.

Jobs? Who cares?

Although polling shows the public is much more concerned about unemployment than deficits, the mainstream press has dutifully fallen into line with the GOP's Beltway-driven deficit-hysterics agenda in their coverage of the issues.

From Derek Thompson at The Atlantic:

Articles mentioning unemployment have plummeted nearly 70 percent since last summer, while articles mentioning the deficit have doubled over the same time, according to a National Journal report.

Is this pernicious Beltway loopism? Maybe. But more likely it's the inevitable result of an election that punished stimulus-happy Democrats and opened the doors wide for Republicans who promised to focus with maniacal intensity on the deficit. The 2010 election reshaped Congress, the Congress reshaped the jobs-and-deficit debate, and press coverage shifted to the deficit.

Meanwhile, remember how we have 9 percent unemployment? It's true. We have 9 percent unemployment, according to the most conservative definition of unemployment, and tens of millions of Americans are stuck on the outside of the job market looking in.

 Here's the chart, showing press coverage tracking the concerns of Washington over those of Main Street:

Poor Paul Ryan

Quote of the day: 

Remember, as far as the political world is concerned, Paul Ryan is the best Republicans have to offer. He’s not some random back-bencher; he’s the GOP’s go-to guy on fiscal issues.

And yet, Ryan’s agenda is basically an arithmetic-challenged fraud, and he apparently has no idea what the “the drivers of our debt” are.

 Read Steve Benen's piece on the latest fantastical assertions from Mr. Ryan HERE.

The best economists money can buy

Illustration from Paul Krugman's "How Did Economists Get It So Wrong?"

According to Nancy Folbre, an economics professor at U Mass-Amherst writing for The New York Times "Economix" blog, her profession is being gamed by right-wing money men who are buying influence within universities to validate their political agenda:

If you don’t like what economics professors like me are saying, go hire your own. Of course, if they’re on your payroll, no one will be surprised if they agree with you, so it’s best to hire them indirectly, through a tied donation to a university.

Frustrated that so few students are reading your favorite book about the virtues of free enterprise? Offer highly respected universities money to make it required reading.
As Catherine Rampell pointed out in Economix last week, conservative foundations founded by Charles Koch and John Allison have actively pursued such strategies.

Kenyan Socialist President to GOP "Fiscal Conservatives" on the dangers of not raising the debt limit

What would Reagan do?

“The full consequences of a default – or even the serious prospect of default – by the United States are impossible to predict and awesome to contemplate. Denigration of the full faith and credit of the United States would have substantial effects on the domestic financial markets and the value of the dollar.”

Oh wait a minute. That was Ronald Reagan telling Congress what was at stake back in 1983.

Via Steve Benen/Washington Monthly.

Sing it again Woody: "Some people rob you with a six-gun..."

"Some rob you with a fountain pen!"


Shahien Nasiripour at Huffington Post:

Woody Guthrie sings at McSorley's, NYC

 

"Federal Audits Accuse Five Biggest Mortgage Firms Of Defrauding Taxpayers"

 

Read the whole thing, HERE.

Tax cut kool-aid

Our favorite conservative economist, Bruce Bartlett, explains the fraud that is GOP fiscal policy and suggests it's starting to unravel:

The flavor of GOP fiscal policies.

Republicans have a problem. The American people are concerned about the budget deficit and know enough basic arithmetic to understand that it can result from higher spending or lower revenues. Republicans, however, insist that taxes must not be increased by a single penny; indeed, they argue that the government doesn’t even have a deficit problem, just a spending problem. Therefore, the only deficit reduction measures they will consider in the Republican-controlled House of Representatives are spending cuts. So certain are Republicans that tax cuts have no impact on the deficit that they included another $3 trillion worth in the budget they passed on April 15.

Democrats all know that the Republican position is ridiculous, that the Bush tax cuts have added some $2 trillion to the national debt and constitute the largest component of projected deficits going forward. These facts are documented in recent reports from the Congressional Budget Office, Pew Charitable Trusts, and the Center on Budget and Policy Priorities. They show that simply allowing all the Bush tax cuts to expire on schedule next year would be sufficient, by itself, to stabilize the debt-to-GDP ratio.

Unfortunately, Democrats have been oddly reluctant to explain the truth about the deficit. They seem paralyzed by fear that they will be attacked by Republicans for being tax increasers. Consequently, the Republican mantra that spending must be slashed, even if it means effectively abolishing Medicare, and any tax increase, no matter how small, will destroy the economy is just about the only budget option voters ever hear.

Big Spender

The hypocrisy of the GOP on deficit issues is manifest - most especially given their "Starve the Beast" tax-cut ideology over 30 years that deliberately underfunded government in order to create the kind of "deficit crisis" that they are currently using in their arsenal of shameless demagogy to kill government programs.  What is often less apparent is their big-spending hypocrisy.

Newt and the Mistress Missus

Current Presidential aspirant Newt Gingrich - who has unleashed the "big spender" attack on President Obama (actually one of his least obnoxious assertions about the President, but let's leave the pure nutso stuff like "Kenyan Socialist" out of this, if only to control my blood pressure) - is a case in point. Think Progress has the goods on this disingenuous character, whose combination of grotesque pretensions, egomania and lack of self-awareness rival perhaps only Donald Trump's in the GOP's "Presidential" over-stuffed Clown Car of wannabe candidates:

(A)s Speaker of the House of Representatives in the 1990′s, he himself was one of the most avid big spenders in the entire country, using government cash to enrich his district and lift it up to being one of the wealthiest in the country.
During his tenure in Congress, Gingrich represented large portions of Cobb County, Georgia. Cobb was a mostly-white district and largely suburban — completely different from the crude stereotypes Gingrich and others used to blast the welfare state, which were generally portrayed as minority-heavy urban environments. At the same time Gingrich was working with President Bill Clinton to cut back on spending for programs for the poorest Americans, Gingrich made Cobb one of the most subsidized districts in the entire country.
A 1996 article from New York Magazine notes this:

[Gingrich] represents Cobb County, a prosperous jurisdiction that ranks third among suburban counties in federal dollars returned per resident. According to the Atlanta Journal-Constitution, the federal government spent $4.4 billion in Cobb County in 1994, some $10,000 per resident, or nearly twice as much per capita as it spent in New York City.

"How raising the retirement age screws the poor"

Kevin Drum at Mother Jones tells it like it is, HERE.

House Advantage: The Sure Thing

From the New York Times, an animated explanation of how banks use securities lending to make a profit, while their customers cover the losses.

Krugman and Klein on the ugly politics of the debt ceiling

Paul Krugman explains at his NYTs blog just what the fight over the debt ceiling means, in direct effects but more importantly in political terms, which mostly signal just how extremist the allegedly "conservative" faction in our governing system has become and how the most basic measures to ensure stability are nothing but partisan politics for the GOP:

The direct effects of hitting the ceiling would be bad enough — sharp cutbacks in spending, which would undermine essential services, not to mention derail the economy. It’s not clear to me whether there would be some wiggle room through the accumulation of arrears — say, not actually paying workers and contractors but promising to make it up when sanity returns. But it would be ugly indeed.

What might make it even worse would be indirect effects, of two kinds.

First, US government debt plays a special role in the financial system: T-bills are the universal safe asset, the ultimate collateral. That’s why, during moments of financial stress, the interest rate on T-bills has actually gone negative. Make that safe asset suddenly unsafe, and it might cause vast disruption.

Second — and I don’t think this is getting enough attention — failure to raise the debt limit could act as a terrible signal about the US political system.

When you look at the US fiscal position in terms of what we’re capable of as a nation, it’s not a big problem. Never mind those big numbers you hear about implicit liabilities; we have a big economy, too. So modest tax increases and reasonable efforts to limit health care costs could bring our long-run finances into line.

But all this depends on our having the political will and cohesion to do what’s necessary. What if it turns out that we’re a banana republic, with crazy extremists having so much blocking power that we can’t get our house in order?