What Republicans ought to bargain for
Greg Mankiw at Harvard has a really smart post, pointed out by Brooks, on what Republicans could be bargaining for if they really wanted to engage in the deficit commission.
Mankiw, who was chairman of President Bush's Council of Economic Advisers, acknowledges that tax increases would have to be part of the deal -- a view shared by almost every budget analyst in the world but denied by Republican leaders with flat-earth fervor.
But Mankiw then outlines what conservatives should demand in exchange if they were willing to compromise on taxes. And it's a solid list of ideas:
- Substantial cuts in spending. Ensure that the commission is as much about shrinking government as raising revenue. My personal favorite would be to raise the age of eligibility for Social Security and Medicare. Do it gradually but substantially. Then index it to life expectancy, as it should have been from the beginning.
- Increased use of Pigovian taxes. Candidate Obama pledged 100 percent auctions under any cap-and-trade bill, but President Obama caved on this issue. He should renew his pledge as part of the fiscal fix. A simpler carbon tax is even better.
- Use of consumption taxes rather than income taxes. A VAT is, as I have said, the best of a bunch of bad alternatives. Conservatives hate the VAT, more for political than economic reasons. They should be willing to swallow a VAT as long as they get enough other things from the deal.
- Cuts in the top personal income and corporate tax rates. Make sure the VAT is big enough to fund reductions in the most distortionary taxes around. Put the top individual and corporate tax rate at, say, 25 percent.
- Permanent elimination of the estate tax. It is gone right now, but most people I know are not quite ready to die. Conservatives hate the estate tax even more than they hate the idea of the VAT. If the elimination of the estate tax was coupled with the addition of the VAT, the entire deal might be more palatable to them.
As a comparative liberal, I don't like all those ideas. But I like a lot of them, and I could buy the whole deal if it was part of a serious package. Auctioning off 100 percent of emission allowances under a cap-and trade program would discourage greenhouse emissions, increase incentives for alternative fuels AND help stabilize the budget. Shifting to a consumption tax like the VAT -- as my friend Bruce Bartlett has long championed -- would encourage savings. make it easier to eliminate special tax breaks and allow for lower overall tax rates.
Those are good things. But what Mankiw's point really highlights is how much is being lost by the Republican refusal to engage. Not only are they wasting precious time and contributing to the fiscal problem. They are squandering the opportunity to inject good conservative ideas that Democrats might either reject or ignore if left to themselves.
I can see why conservatives
I can see why conservatives should jump at the deal... it cuts taxes on the rich and increases them on the poor and middle class. But why would liberals sign on?
For example, why is agreeing to the VAT a concession to liberals? It is highly regressive.
Sensible liberals can see the point in increasing eligibility requirements for social security and Medicare, but there's no way slashing income and estate taxes are part of a return to fiscal discipline.
If conservatives need this much sweetner to agree to a balanced budget, then they should abandon all claims to fiscal conservatism.
"They are squandering the
"They are squandering the opportunity to inject good conservative ideas that Democrats might either reject or ignore if left to themselves."
What facts can you point to in the last decade that would support the conclusion that the Republican party believes in or cares about "good conservative ideas."
On the other hand, consider this question: what evidence can you point to from the last decade that indicates that the Republican party believes in and cares about ideas that lower the effective tax rate of very wealthy people.
The implicit assumptions of your post suggest that you've bought the rich man's koolaid and swallowed it with pleasure. That's fine for the NYT, but do we really need shills for the aristocracy here?
Not that you care
But here's some actual data on effective federal tax rates by income group.
The notion that the tax rates of the very wealthy have been lowered more than any other group is demonstrably false. It is true that the tax rates on everyone have gone down but they have gone down most at the bottom of the income distribution rather than the top.
I hate to interrupt a good rant with some facts but sometimes it's fun.
http://www.cbo.gov/publications/collections/tax/2009/effective_rates.pdf
Secondarily, means testing is a much better solution for conservatives than raising eligibility. Eligibility is a cleaver. It applies to all people regardless of need. Means testing is both more efficient (no person excluded via means testing would be eligible for other Federal assistance which would not be true if you just raised the age) and it is also more fair in the sense that you are not giving money to people with no demonstrated need.
Change in total effective
Change in total effective federal tax rate, by income group, 1979 to 2006:
Wealthiest 1%: -5.8 percentage points
Wealthiest 10%: -2.8 percentage points
Middle quintile: -4.4 percentage points
Poorest quintile: -3.7 percentage points
Average: -1.1 percentage points.
The great middle class does OK; the poor get some benefit from the earned income tax credit (the federal tax burden of the poorest quintile actually rose under Reagan-Bush I). The ultra rich make out like (excuse the expression) bandits; the upper middle class, not so much -- which is basically what you would expect of a revenue structure that sees fit to tax Bill Gates at the same top rate as a reasonably successful orthodontist (to borrow Kevin Phillip's description).
Seems like a reasonably accurate picture of GOP fiscal priorities.
Engage with whom?
what Mankiw's point really highlights is how much is being lost by the Republican refusal to engage.
Engage with whom? With all the Democrats who have shown their willingness to engage by saying they're open to those "solid ideas" such as increasing the qualifying age for Medicare, etc.
Who are those Democrats?
The only things that the Democrats have done on the budget deficit so far are: strive mightily to create a new entitlement (that allegedly was going to be 40% paid for with cuts to Medicare, cough, ahem) ... vote for "the biggest act of corporate welfare in history", in Orszag's words, in the House plan to give all the revenue from carbon offset permits to big business -- hundreds of billions of dollars that should have been applied to deficit-closing ... and now run $266 billion of "temporary stimulus" spending into the permanent budget baseline, exempt from paygo.
Wow, that's some real credible deficit fighting.
So where is there any discussion of the Democrats' "refusal to engage" on the budget deficit problem?
Seriously, who are the Democrats who are agreeing to engage on the spending side of the equation? Which with spending projected to rise forever to over 40+% of GDP and beyond, is the dominating side of the problem? A few names, please.
If there aren't any that anybody can name, why is it only Republicans deemed not engaging?
If I were a Republican (happily, I'm not) then before agreeing to participate in that Commission I ask Obama, Pelosi and Reid to say out loud in public -- before AARP, Krugman, the whole Democratic left -- whether spending cuts to entitlements and their other favorite programs will be "on the table" to match any tax increases.
If they don't respond with a clear "Yes" -- but with a coughing fit, or with every obfuscation imaginable to avoid giving one, to cover their own version of flat-earth denialism -- then the whole thing is exposed as a ill-faith partisan sham (much as Stan originally described such commissions to be).
Now remember, the Democrats won the last election big time -- they do still hold the White House and dominating majorities in both houses of Congress (though they seem to disbelieve it themselves) -- so it actually is their job to produce a responsible budget all by themselves. With winning control of the government that responsibility comes.
Really, what sort of "governing" is it for them to whine that a minority opposition refuses to engage?
Mankiw also wrote:
A reasonable position is, perhaps, that the commission should not succeed. After all, it is the president's responsibility to put out a budget. The one he just released is, as I explained in my recent Times column, not sustainable. He just passed the buck to the fiscal commission.
Perhaps conservatives should not allow him to do that but, instead, should try to force him to put out a sustainable budget on his own. After all, isn't that Peter Orszag's job?