Is it responsible government spending? GOP tax plan gives billions back to billionaires, adds trillions to the deficit

From today’s New York Times:

A Republican requirement that Congress consider the full cost of major legislation threatened to derail the party’s $1.5 trillion tax rewrite last week. So lawmakers went on the offensive to discredit the agency performing the analysis.

In 2015, Republicans changed the budget rules in Congress so that official scorekeepers would be required to analyze the potential economic impact of major legislation when determining how it would affect federal revenues.

But on Thursday, hours before they were set to vote on the largest tax cut Congress has considered in years, Senate Republicans opened an assault on that scorekeeper, the Joint Committee on Taxation, and its analysis, which showed the Senate plan would not, as lawmakers contended, pay for itself but would add $1 trillion to the federal budget deficit.

Public statements and messaging documents obtained by The New York Times show a concerted push by Republican lawmakers to discredit a nonpartisan agency they had long praised. Party leaders circulated two pages of “response points” that declared “the substance, timing and growth assumptions of J.C.T.’s ‘dynamic’ score are suspect.” Among their arguments was that the joint committee was using “consistently wrong” growth models to assess the effect the tax cuts would have on hiring, wages and investment.

The Republican response points go after revenue analyses by the committee and by the Congressional Budget Office, which scores other legislation, saying their findings “can be off to the tune of more than $1.5 trillion over ten years.”

The swift backlash helped defuse concerns about the deficit impact long enough for the bill to pass by a vote of 51 to 49. Some deficit hawks in the Senate caucus were sufficiently concerned about the report on Thursday night to delay the tax vote by a day, but the only Republican lawmaker to vote no was Senator Bob Corker of Tennessee, whose last-minute efforts to cut the size of the package or otherwise offset the deficit impact were unsuccessful.

Instead, Senate Republicans questioned the timing of the analysis’ release on Thursday, and a spokeswoman for the Senate Finance Committee released a statement saying the findings are “curious and deserve further scrutiny.”

That sentiment was repeated over and over, before and after the vote. “We think they lowballed it,” Senator John Cornyn of Texas, the majority whip, told reporters on Thursday. On Sunday, Senator Tim Scott of South Carolina said on CNN that “there’s no doubt that the J.C.T. has been consistently underestimating the activity in our economy.”

In the final hours before and after the bill passed, party leaders insisted that the tax plan would produce enough economic growth to pay for themselves with additional tax revenue from growing businesses and higher-paid workers. “I’m totally confident this is a revenue-neutral bill,” Senator Mitch McConnell of Kentucky, the majority leader, told reporters early Saturday morning after the vote. “Actually a revenue producer.”

Yet there was no data to support those claims, despite promises by the Trump administration that such an analysis would be forthcoming. The Treasury, whose secretary, Steven Mnuchin, has said repeatedly that his department was working on an analysis to show how the tax cuts would not add to the deficit, has not produced any studies that back up those claims. Last week, the Treasury’s inspector general said it was opening an inquiry into the department’s analysis of the tax plan.

The attack on the joint committee and its analysis is a change from the praise Republicans have long heaped on the body, which is staffed with economists and other career bureaucrats who analyze legislation in depth.

“The people who prepare our cost estimates are the best in the business,” Republicans on the House Budget Committee said on a page that has since been removed from their website, “and they’ve been working on this issue for years.”

The critique is the latest example of Republican lawmakers muddying the waters on empirical research in an effort to boost their policy agendas. During the debate over repealing and replacing the Affordable Care Act, lawmakers lashed out preemptively at the Congressional Budget Office over how many people would lose health insurance.

Read the entire article here.

Risky GOP tax cuts won’t trickle down, may lead to economic disaster in future

From today’s Politico News:

Republicans are on the cusp of passing the biggest corporate tax cut in American history, betting it will ignite an economic boom that creates better jobs and fatter paychecks for middle-class Americans.

That boom may never trickle down.

Some economists and corporate executives are already warning that simply lowering tax bills won’t necessarily cause companies to hire more people and pay them better. Instead, they could just wind up returning the extra cash to shareholders.

That could leave President Donald Trump and congressional Republicans celebrating a short-term legislative win that hurts them in the long run, with bigger deficits and little to show for it. And an already deeply unpopular bill — one that includes immediate hikes on some individual taxpayers — could become a serious political headache in 2020 and beyond.

“Frankly, I think they are bonkers,” David Mendels, former chief executive officer of software firm Brightcove, said of the GOP banking on a lower corporate rate to generate bigger worker paychecks. “It really doesn’t work that way. No CEO sits there and says, ‘When my tax rate goes down, I’m going to hire more people and pay them more.’”

Tax legislation cleared a key procedural hurdle in the Senate on Wednesday ahead of a formal vote as early as Thursday. House and Senate lawmakers will need to convene in coming weeks to hash out a compromise between their two bills.

Even some Republicans seem deeply unconvinced by predictions from members of the Trump administration and more aggressive budget forecasters that slashing the top corporate rate from 35 percent to 20 percent will generate enough economic growth to offset the additional $1.5 trillion in debt the Senate tax plan envisions over the next decade.

Read the entire article here.

Hidden tax on expensive health care coverage may hurt public workers

Under the Affordable Care Act (ACA) many states that see the wisdom of compliance are setting up health insurances exchanges, but under a little known provision called the “Cadillac Tax,” public unions in particular may be punished for winning their members generous plans with little flexibility for changing them.

The tax was inserted into the ACA at the last minute with the encouragement of many economists who argued that generous plans made consumers insensitive to the spiraling costs of health care. Plans with greater benefits and coverage gained popularity among government employees, police officers, firefighters and teachers unions, but effectively insulated the individually insured from absorbing the skyrocketing costs of coverage.

The tax will affect public unions employees adversely because their plans, which are covered by collective bargaining measures, are more difficult to change without incurring substantial losses. As a result workers will be penalized by the ACA for having good health care coverage, a result that was not intended according to many economists.

“I think it was misguided all along,” said former labor secretary Robert Reich. He complained that the tax amounted to “a blunt instrument that could too easily become a bargaining chip for cutting back benefits of workers. Apparently, that’s what it’s become.”

According to the tax measure, any plan with a cost above a certain threshold in 2018, $10,200 annually for individual plans and $27,500 for family plans, will be taxed at 40 percent of their costs in excess of the limit. Although some cutoffs exist for retirees and some workers in high-risk professions such as police officers, the tax will hurt a number of public union employees.

Many see a disadvantage here that runs contrary to the spirit of ACA to make health insurance more accessible by making it more affordable. Public employee unions from Boston to Orange County are now trying to find ways of cutting health care benefits to avoid the tax charge set to take place in 2018. However, some economists contend that reining in the costs of health care is what the ACA is primarily designed to do.

“This is intended to shift compensation away from excessively generous health insurance toward wages,” said Jonathan Gruber, an economist at MIT and Obama health care policy advisor.

Obama proposes lower corporate tax rates, but tax reform remains elusive

There is a concerted bipartisan effort to pass tax reform legislation among centrist Democrats and Republicans alike. However, the deep animosity between the radicalized House Republicans and the Obama Administration is going to make agreement about any kind of substantial reform hard to achieve as they enter yet another round of budget battles. There was no victor in the last round of budget bickering and only losers, as the so-called “sequestration” led to across-the-board spending cuts and potentially hampered efforts at economic recovery.

This week President Obama announced a “grand bargain” of sorts at an Amazon distribution center in Chattanooga, TN. In an effort to jump start a serious political conversation about tax reform generally the President made public his proposal for streamlining corporate taxes in America and creating jobs through education, training, and public works projects.

“If folks in Washington really want a ‘grand bargain,’ how about a grand bargain for middle-class jobs? If we’re going to give businesses a better deal, we’re going to give workers a better deal, too.”

The President outlined a similar proposal for tax reform in early 2012 during the presidential election. His idea is to cut the corporate tax rate from 35 to 28 percent, with a slightly lower for manufacturing firms in an effort to retain and expand those kinds of jobs. The proposed measure is supposed to be “revenue-neutral” so that it neither adds to nor subtracts from the deficit. There would be a one-time revenue boost, however, that would create enough savings to invest in jobs, something the Republicans have blocked time and again.

The national debate that ensued has also drawn attention to Sen. Max Baucus (D-MT), head of the Senate Finance Committee, and his House counterpart Rep. Dave Camp (R-MI) on the Ways and Means Committee. The two have been quietly working for months on substantial bipartisan tax reform aimed at overhauling and simplifying the nation’s antiquated tax code. Like all earlier attempts at reform their proposal suffers from being well-liked as an ideal theory but subject to the nitpicking and haggling of realpolitik by those who want to preserve parts of a system that benefits them. In short, everyone likes the idea of tax reform but no one will agree to the unforeseen outcomes of the details that might threaten their pocketbooks.

Now that the nation’s attention has been drawn to it, the partisan resistance by the Republicans to make any compromises has been emboldened. They have painted the President’s plans to reduce both corporate and middle income taxes as “tax increases” that compromise economic recovery, even though his proposal calls on reducing taxes for most Americans and small businesses. In ungovernable climate like this, the prospects of substantial tax reform remain dimmer than ever.

U.S. economy contracts slightly

The U.S. economy contracted by a fraction of a percent in the final quarter of last year, catching investors off guard. According to a Commerce Department report released yesterday GDP contracted by .01 percent at the end of 2012, the weakest economic report since the second quarter of 2009. The report cites declining military spending and exports as some of the many reasons for decline. In addition, the political impasse in Washington over the “fiscal cliff” was blamed for frustrating investment.

Some information in the report was cited to dispel concerns about a return to recession. For example, investment in residential housing jumped 15.3 percent, and equipment and software purchases by businesses rose 12.4 percent. However, the 22.2 percent drop in military spending is the single largest drop in 40 years represents a significant amount of federal spending, and that decline alone helped push the last quarter into negative growth. Along with a decline in the consumer confidence index this month  news of negative growth sent stocks down this morning, though the market rallied later.

With unemployment remaining at 7.8 percent and forecasts for growth reigning back estimates for the first quarter of 2013, Congress and President Obama will have to achieve a more fair process that leads to more stable budgeting. The so-called “fiscal cliff” cannot be resolved unless Republicans compromise on a sensible tax plan and Democrats stand their ground on further austerity cuts. Although a balance has to be struck between taxes and spending, the report clearly shows that declines in government spending directly contribute to slow growth. This is because spending cuts are more likely than not to undermine effective demand further and frustrate solid growth.

Since Congress will not do its job, the “fiscal cliff” will do it for them

The failure of Congress to make substantial economic reform is nowhere more visible than in the present hysteria regarding the “fiscal cliff” and its consequences for the federal budget and American economy.

House Speaker John Boehner (R-OH) and Republicans have painted themselves into an awkward corner. They are unwilling to raise taxes on anyone, anywhere thanks to Grover Norquists’s anti-tax pledge and Tea Party extremism, but automatic rate increases and spending cuts are set to kick in once the Bush tax cut extension expires on the first of the New Year. This unwillingness to bend is an ideological straight-jacket that may lead them to break their pledge, all without casting a single vote.

The failure to reach a compromise with the more moderate Senate and President Obama means that Republicans are effectively going to raise taxes on all Americans including its most vulnerable citizens. What does this mean in financial terms?

• The poorest Americans making less than $20,000 a year would  have to pay more to the IRS. The average increase would be $590—a significant sum for low-income earners.
• Those earning more than $40,000 a year would also be significantly affected with tax hikes averaging about $1200.
• Those earning between $40,000 and $64,000 annually would see an average increase of nearly $2,000.
• Those earning $108,000 or more also face an increase of nearly $13,000.

Not only will rates increase—immediately effecting payroll taxes and decreasing the daily earnings of American workers, potentially undermining effective demand and triggering another recession—automatic spending cuts will set in, leading to reductions in basic social services that are also essential for the most vulnerable Americans. Unfortunately, we live in a time of political extremism with an opposition party that has stated it wants to “shrink” the federal government. (Since metaphors are all the rage in politics these days, it is important to point out that “shrink” means “wreck” here.)

The metaphor of the the “fiscal cliff” has been thrown out haphazardly— scaring investors, dragging down markets, and creating unwarranted fear. The damage of going over the cliff is unknown in terms of the long-term financial viability of the federal government paying its debt obligations, but the real damage is to average American workers who will take home less income, shoulder more than their fair share in tax revenue, and pay more out-of-pocket expenses for everything ranging from food to health care.

The statutory tax increases and spending cuts basically do what Congress is supposed to do in the first place, however. The inability of Republicans to compromise on the budget has led to a legislative impasse that the “fiscal cliff” resolves in extreme terms. In short, the automatic hikes and cuts does the job of politicians for them, but the form it takes will hurt real American workers and initiate a new wave of political cynicism about government in this country.

Blame it on Obama? Don’t forget Republicans to blame for this mess

Tonight is the third and final presidential debate before the election next month. The primary focus of this debate in Boca Raton, FL will be foreign policy, but most commentators agree that the economy remains the number one concern on voters’ minds.

Former Gov. Mitt Romney will try to do two things in tonight’s debate:  capitalize on irrational anti-Obama discontent over the economy, and then displace it on the President’s record on foreign policy. Most experts agree that the Obama Administration has been deft and pragmatic on the international stage in a time of tumultuous change in the Middle East and a contracting global economy. Nevertheless, his detractors-cum-international-relations-experts grasp at straws. For example, they blame the President for the actions of Libyan terrorists in the death of Ambassador Chris Stevens. They also claim he is at fault for the widespread discontent in the Muslim world over the same things they are angry about, including diminished economic opportunities and a growing sense that the “system” is out of control. That is a lot of responsibility for someone with so little control over the ways of the world.

Such misplaced blame is a little like blaming God for bad luck. Why do bad things happen to good people? Their reaction is much like the first wave of Job’s reaction to his own suffering:  blame God.  Yet, the answer is more simple if not difficult to acknowledge openly. Instead of being honest about their responsibility for facilitating the present economic mess, or even being realistic about its scope and the time it will take to clean it up, Republicans such as Romney and Rep. Paul Ryan prefer instead to be guided by their anger, even their xenophobic and irrational fears that Barack Hussein Obama is not an authentic American. They place everything that is wrong both home and abroad squarely on his shoulders, rather than seeing the situation for what it is—the harvest reaped by their own policies of economic deregulation, expensive pre-emptive wars, and stupid tax cuts that the country could not afford in the first place. Job, too, was blind before he could see.

The cultivation of these irrational impulses by Fox News, the Republican establishment, and wealthy billionaires who are spending record amounts of their personal money to influence elections through Super PACs and commercial lies is revealing. Times are tough, so blame it on Obama.

If you have lost your job because Wall Street traders, investment bankers, and business executives over the last decade made bad decisions on unacceptably risky calculations with no accountability for their actions, blame it on Obama.

If you cannot find a job because American corporations no longer make real products requiring good paying jobs, while sitting on record mountains of cash that inflate their bottom lines to prop up the short-term, short-sighted expectations of greedy investors, blame it on Obama.

If you think the rising cost of health care is crippling small businesses, but prefer to do nothing about it rather than risk taking any steps along the road to reform, blame Obama.

Never mind that to blame Obama for pursuing health care reform, you have to ignore that former Gov. Romney is the original architect of “Obamacare” in Massachusetts. The truth of the Affordable Care Act is that it uses market principles to ensure that competition among private insurers brings down the cost of insuring all individuals who otherwise could not afford it and whose health care costs would be absorbed by those of us who can afford it—through higher premiums and spiraling emergency room costs. In short, you have to believe falsely in the rhetoric that the ACA is a government takeover of health care, and ignore the fact that it simply incentivizes private insurance and requires all individuals to be responsible for their own health care.

Gov. Romney has done nothing but run a competitive campaign in an easy political climate. It’s an easy thing to blame one man on the world’s problems. That pretty much sums up the Republican policy for turning American around:  get rid of the sitting Democratic president at all cost. But let’s not forget how we got into this mess in the first place. Let’s not forget that America is in a time of crisis because policy choices were made in the past, and they were poor choices. Reversing the consequences of those choices is not something that can be done overnight, let alone in four years. Blaming the President won’t change the past, even if we try to forget that it is the past that is prologue.

If “some” Americans think we cannot afford four more years of Obama, they should consider that the reason America cannot afford much of anything right now is due primarily to those poor policy choices. Demanding that we return power to the party that not only made those choices but want to make them all over again, is not a solution to America’s problems—it is a suicide pact we “other” Americans are wisely unwilling to go along with.

July jobs report confirms weak pace of jobless economic “recovery”

The Labor Department released July’s employment figures today and once again there is little good news. According to the report the economy added 163,000 jobs last month even though the unemployment rate ratcheted up slightly to 8.3 percent. The number of additional jobs is mediocre by any other name, but the figure is double the jobs added in June and exceeded Wall Street’s doom-and-gloom forecast. This tarnished silver-lining was enough to provide the Obama administration with some spin traction by claiming that the “pace” of job growth is picking up.

Alan B. Krueger, the chairman of President Obama’s Council of Economic Advisers, said that Obama’s jobs plan would help those economic sectors that are struggling the most during this jobless recession, namely, public sector employees and construction workers.

“If you look at today’s jobs report, where we saw declines were construction and government education jobs,” said Krueger. “The main components of the Jobs Act would target exactly those two areas, by investing more in infrastructure and helping local governments keep teachers and first responders on the payrolls. I think it’s the kind of medicine that’s well targeted to the continuing areas of weakness in the job market.”

The devil is in the details, of course, and today’s report also provided Republicans with ammunition for their nauseatingly familiar mantra:  less government, less regulation, and less taxes means more investment by the private sector. Mitt Romney, the Republican presidential nominee, rehearsed the same tired lyrics Republicans have been singing for decades, laying the blame for America’s economic woes at the feet of the man who inherited the mess three years ago.

“This is an extraordinary record of failure. The president’s policies have not worked because he thinks government makes America work. He’s wrong,” Romney bleated.

Never mind that Obama has spent his first term cleaning up the mess left in the wake of Republican economic policy during the two terms that they controlled both the White House and Congress. Never mind the surpluses left by Clinton that Bush squandered. Never mind that the largest expansion of government spending since the New Deal was brought on by two wars and an expansion of Medicare. Never mind that the Republicans irrational fear of taxes has a created a climate in which it is impossible to govern because revenues are hamstrung by unaffordable tax cuts they want to keep extending into infinity. No, never mind the facts.

Admittedly, Obama’s economic policy has been less than admirable. Under Treasury Secretary Tim Geithner, many of the same Wall Street-favoring features of the Bush years have continued:  bail outs for irresponsible (indeed, criminal) investment banks, failure to regulate volatile markets like derivatives where trading smoke-and-mirrors continues with no accountability, failure to regulate investment bank shenanigans, and an ineffective response to Republican rhetorical nonsense on taxes.

Nevertheless, it is doubtful that an economy as large and complex (and corrupt!) as America’s can be turned around on a dime, let alone a single term, so Romney’s exhortations ring as hollow as the Republican economic fantasy that markets can do everything if we just leave powerful private actors to do as they please.

Romney proposes tax increase on middle class despite election rhetoric

A recent Tax Policy Center analysis shows that the the kind of revenue-neutral tax reform Romney is advocating is nothing but a wolf in sheep’s clothing. The rhetoric sounds good but the numbers reveal the long-standing Republican lie that it’s the party of lower taxes for the wealthy. Romney’s tax proposal is strongly regressive rather than progressive, and by cutting the rates for the wealthiest Americans broadens the tax burden for the middle class.

Check out their graph of the numbers that don’t lie:

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Here are some eye-opening excerpts from the Tax Policy Center, a non-partisan think tank:

“Our major conclusion is that a revenue-neutral individual income tax change that incorporates the features Governor Romney has proposed – including reducing marginal tax rates substantially, eliminating the individual alternative minimum tax (AMT) and maintaining all tax breaks for saving and investment – would provide large tax cuts to high-income households, and increase the tax burdens on middle- and/or lower-income taxpayers. This is true even when we bias our assumptions about which and whose tax expenditures are reduced to make the resulting tax system as progressive as possible. For instance, even when we assume that tax breaks – like the charitable deduction, mortgage interest deduction, and the exclusion for health insurance – are completely eliminated for higher-income households first, and only then reduced as necessary for other households to achieve overall revenue-neutrality– the net effect of the plan would be a tax cut for high-income households coupled with a tax increase for middle-income households.”

“In addition, we also assess whether these results hold if we assume that revenue reductions are partially offset by higher economic growth. Although reasonable models would show that these tax changes would have little effect on growth, we show that even with implausibly large growth effects, revenue neutrality would still require large reductions in tax expenditures and would likely result in a net tax increase for lower- and middle-income households and tax cuts for high- income households.”

As   said in Slate’s online reporting of Romeny’s tax lies:  “Raising taxes on the rich and middle class alike in order to afford spending on social insurance, education, and infrastructure is one thing. Raising taxes on the middle class in order to afford tax cuts for the rich is another.” I could not have said it better myself.

“Supercommittee” comes up short

After weeks of intense and bitter negotiation, the so-called “Supercommittee,” the special Congressional Committee charged by President Obama to find a bipartisan plan for reducing the budget deficit, has failed to reach a compromise. Last week Democratic members of the committee were hopeful that one Republican would agree to support a tentative bipartisan package that includes agreements on tax rates, spending cuts, and changes to entitlement programs such as Social Security and Medicare.

Democrats blame Republicans for refusing to compromise on either tax rates or tax increases, while Republicans blames Democrats for not proposing serious cuts that bring federal spending into line with their ideological vision of smaller government. Democrats claim that Speaker of the House Jim Boehner (R-OH) killed the hard efforts of the panel on Thursday by offering legislation to increase new revenue by $3 billion in new revenue, which would be devastating to entitlement programs millions of Americans rely on.

Both parties are stuck on the question of tax reform because Democrats rightly believe that the wealthy have benefited too much from the climate of deregulation and corporate malfeasance, and as a result should pay their fair share in a system they exploit and profit from. Republicans are sticking to their long-time (and patently false) position that taxes frustrate economic growth and spur entitlement spending. In short, Democrats believe in the Grand Compromise between democracy and capitalism first initiated by President Franklin Roosevelt’s New Deal, while Republicans believe in every man (literally) for himself.

The failure of the committee to reach a compromise agreement is troubling for the anemic economy, and signals that the bipartisan rhetoric of both Democrats and Republicans cannot be trusted. Yet the elephant in the room is that Republicans care little about a healthy, functioning government and want to substitute private decision-making for democratic procedure. Economists of all political persuasions are in agreement on this point:  there can be no serious deficit-cutting proposal that does not both cut entitlement spending and raises taxes. The gap is too large and growing larger daily, so President Obama must find a way to tap into the political energy unleashed by the Occupy Wall Street movement, and demand that Republicans give up their fantasy of a tax-free world. It’s high time everyone paid their fair share, including Republicans and their rich and powerful benefactors.