Sunday, July 31, 2011

The Debt Impasse - A Modest Proposal

I want to apologize, gentle reader, for using the clichéd title originally (and brilliantly) coined by Jonathan Swift for his rational solution to an Irish famine. If only the Republican Party could read it without missing the irony, and lauding it as a damned sensible idea. One which they would no doubt think fine to impose on the millions of Americans unemployed by their laissez-faire approach to Wall Street regulation.

No, I am not making an ironic proposal. I am perfectly serious, and only wish that the current Administration had the political skills to recognize that this concept (1) would, merely by being introduced in Congress, substantially increase the President’s prospects for re-election; (2) would also make it likely that we Democrats would increase our Senate majority and take back the House in 2012, and (3) when and if enacted - even if only by a Democratic Congress in 2013 - go a long way toward ending the carnage inflicted on American families by the Bush II Administration, and by the current President’s asthenia in dealing with Republican opposition.

The current annual deficit is somewhere around $1.6 trillion, which is about 11% of GDP. Unlike Republicans who parrot absolutes, we Democrats know that, in the long run, those numbers need to come down. The question is, how to get there? The GOP’s balanced budget amendment proposals would be so disastrous, that any person seriously proposing it obviously lacks the wrenches in his or her intellectual toolbox to pursue a learned profession.

The win-win solution, for America and for Democrats, is a fairly unsophisticated tweak of the basic individual income tax rates. In Tax Year 2008, the most recent year for which final statistics are currently available, taxpayers in the so-called 35% bracket paid an actual tax rate of only 28.9%. This is because 35% is the “marginal” tax rate - these top taxpayers still pay the same rates as you and I on their income at the same level. In other words, Mr. Billionaire pays the same rate on his first $50,000 of income as the worker who only makes that much in total.

More important for our purposes is how un-progressive (“regressive,” to use the term used by economists and tax lawyers) the Bush II tax cuts have made the system. Those tax cuts were, of course, heavily weighted toward the very wealthiest taxpayers. In 2000, under Clinton, a married couple filing jointly paid at least 36% on everything over $161,450 and 39.6% on everything over $288,350. In 2008, the same couple paid only 33% above $200,000 and 35% on everything over $377,500.

What I propose we do is this - and the numbers aren’t carved in granite; some fine tuning would not ruin the concept - tax the top 6.4% of taxpayers at their marginal rate on all their income, and boost that marginal rate by a mere 3%. Keep in mind, in 2008, that would have been married joint filers with an income of over $200,000 a year. If a couple were making $199,000 a year, I wouldn’t raise their taxes a penny. How big a bite would that take out of your big, ugly, trillion-dollar deficit? Fasten your seat belts.

About $520,000,000,000 - over half a trillion a year. And the current crop of leaders is haggling over a package (I refer to the Obama-GOP “compromise” reported as of 7:00 p.m. CDT on July 31) that reduces the deficit by just $2 trillion - over a decade.

(You could do the same thing with corporate income tax rates, giving some smaller, mom and pop corporations a break, but the individual rates are where the real economic, and political, effects are to be seen. Also, by reducing the huge breaks fat cats get on corporate dividends and capital gains, which are almost exclusively enjoyed by these top tier earners, you could get even more.)

But wait, my modest proposal gets better. In the same bill, I would add a proposal to divert, say, $200 billion of this annual tax equity improvement, not to the deficit - but to a tax cut going exclusively to the 93.6% of Americans making under $200,000 per couple. Of course, I would weight it more heavily toward the lower tax brackets in that group. This would be, in effect, a $200 billion-a-year economic stimulus package. And it would be much more effective than the bank handouts of Bush II and Obama I. When that money is in the hands of people making $500,000 a year or more, they park it in a hedge fund or mutual fund, many of which do not create jobs in the United States. People living from paycheck to paycheck are always deferring necessary purchases, and when they get more cash, they run out and make them. That creates jobs in the United States. The resulting tax equity improvement would still reduce the deficit by more than the current leading prospect, and without cutting any benefit programs, and even without cutting defense spending! To get this done, I would not be averse to some very careful trimming of spending, just so the talking heads on “Meet the Press” didn’t cluck too loudly about no spending cuts - but I bloody sure wouldn’t have made my proposal the Republican fantasy that Democratic “leaders” are currently embracing.

Now for the politics. (I do enjoy writing about politics more than economics, but the economics was a necessary foundation for what follows.) Imagine this: beginning in the spring of 2012, Democratic TV spots, Democratic canvassers working door to door, and Democratic spokespersons in local news stories, all start reminding that 93.6% of voters that the Democrats were responsible for their tax cut - or, since the GOP in this Congress would have probably killed it, who was responsible for them not getting their tax cut. “MO BROOKS KEPT YOU FROM GETTING A TAX CUT!” “MARTHA ROBY BLOCKED YOUR TAX DECREASE!” Just imagine the possibilities. It’s even possible to correlate Census income data with the Alabama Democratic Party’s new VoteBuilder program (I have seen the future of that, and I like it) to target the vast majority of the households in that 93.6% with individual, specific, concrete persuasion: “YOU, AND EVERYONE ON YOUR BLOCK, WOULD BE PAYING LOWER TAXES IF ROBERT ADERHOLT AND THE REPUBLICANS HADN’T VOTED ‘NO’.” If the Republicans tried to sell this as a “tax hike” (which they would), “WHEN JEFF SESSIONS SAYS THE DEMOCRATIC BILL WOULD HAVE RAISED YOUR TAXES, HE’S LYING. YOU, AND EVERYONE ON YOUR BLOCK, WOULD BE PAYING LESS, NOT MORE!” It has to be carefully explained, but it would work. Imagine the chromatic effect on the current Speaker.

Sadly, most of what I have been writing is a sand table exercise. The opportunity to paint the GOP into a corner with Grover Norquist and the Teabaggers was lost weeks, if not months, ago. For that, I blame the myopic lack of political skills, and political leadership, of the Obama Administration. As Maureen Dowd put it so well in The New York Times today:

Democratic lawmakers worry that the Tea Party freshmen have already “neutered” the president, as one told me. They fret that Obama is an inept negotiator. They worry that he should have been out in the country selling a concrete plan, rather than once more kowtowing to Republicans and, as with the stimulus plan, health care and Libya, leading from behind.

Of course, any single Democratic member of the House could have introduced a bill embodying my proposal, and any Senator could have introduced a substitute doing so. They have to share a little of the blame. It’s hard to do the kind of groundwork we need to win the 2012 and 2014 elections when our leaders aren’t giving us the right talking points. Or worse, letting the GOP define the talking points. Sometimes, the right thing is also the politically smartest thing. These are things worth remembering when voting in primaries in the future.

Meanwhile, as a quasi-Republican debt ceiling bill slouches toward Washington to be born, at least as far as the top of the Party is concerned,

The best lack all conviction, while the worst
Are full of passionate intensity.

Maybe we’re eating our children after all.


  1. Like it is, these spending cuts may kill the recovery. Unemployment goes back up. Obama loses in 2012. If it happens, he earned it.