Fiscal Policy Dysfunction and Fallacy

It’s hard to take anything Republicans say seriously any more given that their arguments are not data-, fact- or theory-driven.  There’s a lot of discussion by the media that seems to project this idea that our spending is out-of-control that embraces complete untruths spread by Republicans.  Just because something is said consistently by one party doesn’t mean it’s correct or just another point of view.  There needs to be some adults in the media these days that point out that just because the republicans say the sky is green doesn’t make that a theory, a fact, or even a remote possibility.  It just takes a few charts and well-placed questions.  Like why are you worried about “out-of-control spending” when … then show these two graphs.  Data shows just the opposite of Republican talking points.

Much can be said of this fiscal “cliff” hooplah.  Most of it has to do with the degree of economic illiteracy omnipresent in the TV commentariat and the Republican office holder. Spend some time with economists and you’ll see data rejecting Republican ideological claims over and over again.

As Jed Graham points out:

From fiscal 2009 to fiscal 2012, the deficit shrank 3.1 percentage points, from 10.1% to 7.0% of GDP.  That’s just a bit faster than the 3.0 percentage point deficit improvement from 1995 to ’98, but at that point, the economy had everything going for it.

Other occasions when the federal deficit contracted by much more than 1 percentage point a year have coincided with recession. Some examples include 1937, 1960 and 1969.

In short, we do not face a serious problem of growing government deficits.  Rather the problem is one of too fast a reduction in the deficit in light of our slowing economy.

As to the challenge of the fiscal cliff—here we have to recognize, as Josh Bivens and Andrew Fieldhouse explain, that:

the budget impact and the economic impact are not necessarily the same. Some policies that are expensive in budgetary terms have only modest economic impacts (for example, the 2001 and 2003 tax cuts aimed at high-income households are costly but do not have much economic impact). Conversely, other policies with small budgetary costs have big economic impacts (for example, extended unemployment insurance benefits).

In other words, we should indeed allow the temporary tax rate deductions for the wealthy to expire, on both income and capital gains taxes.  These deductions cost us dearly on the budget side without adding much on the economic side.  As shown here and here, the evidence is strong that the only thing produced by lowering taxes on the wealthy is greater income inequality.

Letting existing tax rates rise for individuals making over $200,000 and families making over $250,000 a year, raising the top income tax bracket for both couples and singles that make more than $388,350, and limiting tax deductions will generate close to $1.5 trillion dollars over ten years  …

Yet, poor delusional Republican policy makers continue to run around screaming about the sky falling down.  Poor John Boehner seems simply out of touch with reality.  Cross check this statement with the data I provided above.

Boehner said the reason negotiations are going so poorly is that Obama administration officials – in particular, Treasury Secretary Tim Geithner – aren’t taking Republicans seriously. Boehner said he was shocked at Geithner’s proposal to Republicans last week.

“I was flabbergasted. I looked at him and I said, ‘You can’t be serious.’ I’ve just never seen anything like it,” Boehner said.

Geithner has said his plan included cuts to Medicare and additional stimulus spending, but also an expiration of Bush-era tax cuts to those making over $250,000 a year. Furthermore, the proposal included the closing of some loopholes and new limits on deductions, as well as an increase in the estate tax rate and taxes on capital gains and dividends.

Boehner acknowledged that President Barack Obama won the election on a platform that in part was based on increasing taxes for those making over $250,000. This is a major sticking point in negotiations, and Boehner said the president must compromise with the GOP.

“They won the election, (but) they must have forgotten that Republicans continue to hold the majority in the House. But the president’s idea of a negotiation is, ‘Roll over and do what I ask,'” Boehner said.

While Boehner admitted that going over the fiscal cliff would be detrimental to the economy, he said out-of-control spending is mortgaging the future of the next generation and must be reined in. Accordingly, the speaker said going over that cliff is a distinct possibility.

“I’m determined to solve our debt problem. We have a serious debt problem and it is going to be dealt with,” Boehner said.

NSD = non security discretionary

So, should any one with even an inkling of knowledge on the economy and finance take anything the Republicans seriously? Well, my answer is no. Not unless you’re only agenda is too see the ultrarich get richer and the economy fall apart as no one else has any money to spend. Boehner’s appearance on Dancing Dave’s Disco Party today was so pathetic that Senator McCaskill nearly threw a pity party for him.

Sen. Claire McCaskill (D-MO) said that she feels “almost sorry” for House Speaker John Boehner during an appearance on NBC’s “Meet the Press” Sunday, explaining that Boehner is in a tough spot because of the far-right wing of the Republican Party.

“I feel almost sorry for John Boehner,” McCaskill said. “There is incredible pressure on him from a base of his party that is unreasonable about this. And he’s gotta decide, is his speakership more important, or is the country more important. And in some ways, he has got to deal with this base of the Republican Party, who Grover Norquist represents.”

Meanwhile, outgoing Treasury Secretary Tim Geithner got to play the mean adult in the media room.

In an interview with CNN’s Candy Crowley on “State of the Union,” Geithner insisted that any compromise on the plan he presented to congressional Republicans on Thursday, which includes $1.6 trillion dollars in tax revenue, cuts to Medicare, and another $50 billion in stimulus spending, must contain an expiration of the Bush tax cuts for income over $250,000.

“There’s not going to be an agreement without rates going up,” Geithner said in the interview, which aired Sunday. “If they are going to force higher rates on virtually all Americans because they’re unwilling to let tax rates go up on 2 percent of Americans, then, I mean that’s the choice they’re going to have to make.”

While he maintains the administration will refuse any deal without the tax hikes, Geithner was optimistic about the negotiations, showing room for compromise as well.

“It’s a very good plan and we think it’s a good basis for these conversations,” he said. “What we did is put forward a very comprehensive, very carefully designed mix of savings and tax rates to help us put us back on a path to stabilizing our debt, fixing our debt and living within our means.”

The fiscal cliff, which begins in January if Congress and the administration fail to come to an agreement over a number of spending issues, includes automatic reductions in defense and non-defense spending, the end of the payroll tax holiday, and the expiration of extended unemployment benefits.

Paul Krugman points out that Boehner is only “serious” about getting at the budget when it hurts regular people.

In particular, the Obama administration’s call for higher revenue through increased taxes on high incomes — which actually goes considerably beyond just letting the Bush tax cuts for the top end expire — gets treated with an unmistakable sneer in much political discussion, as if it were a trivial thing, more about staking out a populist position than it is about getting real on red ink.

On the other hand, the idea of raising the age of Medicare eligibility gets very respectful treatment — now that’s serious.

So I thought I’d look at the dollars and cents — and even I am somewhat shocked. Those tax hikes would raise $1.6 trillion over the next decade; according to the CBO, raising the Medicare age would save $113 billion in federal funds over the next decade.

So, the non-serious proposal would reduce the deficit 14 times as much as the serious proposal.

I guess we have to understand the definition of serious: a proposal is only serious if it punishes the poor and the middle class.

The newest Republican emanation of Snowflake Snookie says it’s not serious.  Why is this woman getting so much media attention? WTF does she bring to the table?

Sen. Kelly Ayotte (R-N.H.) said Sunday she was “disappointed” with President Obama’s proposal to avoid the “fiscal cliff” at the end of the year.

“We want to solve this and I think the Speaker earnestly wants to solve it. I was disappointed by the president’s initial proposal here,” she said on CNN’s “State of the Union.”

On Thursday, Treasury Secretary Timothy Geithner presented lawmakers with the administration’s initial offer, which included $1.6 trillion in tax increases, $50 billion in economic stimulus spending and $400 billion in spending cuts. It would also give the president the power to raise the debt ceiling in the future without congressional approval.

Republican leaders in Congress have rejected the proposal, with Speaker Boehner (R-Ohio) calling it “not serious.”

Ayotte is yet another attorney whose claim to fame is suing Planned Parenthood because the parental notification law passed by New Hampshire was found unconstitutional.  My guess is the right loves her because she’s willing to do the old white dude’s dirty work fighting women’s rights.  She also refused to prosecute mortgage fraud cases in her role as attorney general.   Ayotte is a climate change denier and opposes marriage equality.  She’s a real piece of work in a suited skirt and I really wish the press would stop making her look reasonable because she’s not reasonable on any policy issue.  She’s basically Paul Ryan in a skirt. They’re both ideologues that let dogma rule their thought processes.  I doubt either of them can do calculus let alone handle a real economic or financial model.

I feel like I keep writing a lot of the same things, but here goes.  There’s no “cliff”.  There’s no “budget crisis”.  There’s only the increased risk of falling back into a recession should these things not be resolved at all.  Frankly, I’m glad to see the Obama administration play a little poker for a change.  The Republicans should be allowed to twist themselves into knots as long as possible.  The economy is improving and this situation will not create a jolt at all.  The only thing that might happen is stock market correction at the beginning of the year and the talk of another debt downgrade.  Considering that the world still wants our debt, I’m not even worried about that much any more.

This is really ridiculous.  The Republican Party and the media need to grow up and learn something about how our economy works.  It’s ridiculous to see policy and policy discussions held hostage to this much stupidity.  Nearly every student that comes out of Macroeconomics 101 knows that rich people don’t spend as much of their income as poor and middle class.  These days the rich invest and hide their money all over the world.  Study-after-study shows that increasing the tax rates on the rich won’t hurt the economy. That’s not true of money taken from the poor, working and middle class.  Yet, today we heard this from Boehner:

On Fox News Sunday, John Boehner said it doesn’t matter where new revenue comes from, but he ruled out raising taxing on the rich, which leaves the poor and middle class to foot the bill.

Here is a transcript of the exchange between Chris Wallace and John Boehner on Fox News Sunday,

CHIRS WALLACE: You talked about the fact that the President won and you came out with a concession the day after the election and they point out that the president campaigned on raising tax rates, you know, and it was the big issue, between him and Romney, and, they say, just as he had to cave, after your victory, in the 2010 midterms, now, it is your turn to cave on tax rates.

JOHN BOEHNER: Listen, what is this difference where the money comes from? We put $800 billion worth of revenue, which is what he is asking for, out of eliminating the top two tax rates. But, here’s the problem, Chris, when you go and increase tax rates, you make it more difficult for our economy to grow, after that income, the small business income, it is going to get taxed at a higher rate and as a result we’re gonna see slower economic growth, we can’t cut our way out of this problem, nor can we grow our way out of the problem, we have to have a balanced approach and what the President wants to do will slow or economy at a time when he says he wants the economy to grow and create jobs.

What Boehner was implying here was the Romney/Ryan tax plan. There aren’t enough loopholes to be closed in order to generate the revenue need, and if taxes aren’t going to be raised on the wealthy, who is going to pick up the tab? Some House Republicans are suggesting that we adopt Ryan’s plan of putting a cap on deductions, which would absolutely destroy the incentive for charitable giving.

Why do they keep clinging to the same stuff that’s never worked and that voters rejected in the election?  Are they insane?