Our House Burned Down, So Let's Worry About Our Electric Bill

Pundits love framing discussion about the deficit in the same terms as household budgets. And while I don't find that framing very useful and at times purposefully obtuse, here's my stab at it.

About four-and-a-half years ago your family's house was on fire. Your neighborhood fire department took the necessary steps to contain and eventually put out the fire. But your house suffered severe damages that were in need of repair. So you borrowed some money to make minimal repairs and got the house back to the point that you could sort of live in it again.

But it still needs a lot of work, including repairing a leaky roof. You have some debt, but it's manageable debt. In fact, the bank at the corner is still willing to lend you a lot of money and will do so at practically 0% interest because you are such a sure bet to repay it. So would you borrow some more money to finish fixing up the house now?  Or...would you spend 2-3 years singularly focused on reducing your electric bill and food expenses, and cutting junior's weekend art and music expenses, in hopes of slightly improving your debt holdings over the next 20 years?

And you'd be doing this because you are worried about how much debt you will have 15-20 years from now, even though the biggest driver of your debt happens to be your mortgage and education costs - neither of which are addressed in any of your household budget plans.

That in a nutshell is what has happened with the financial crisis/Great Recession and the ensuing fiscal debate that has been taking place in Washington the past 3 years. Our house was on fire (financial meltdown, over-leveraged household debt) and the fire is out and we still have a lot of work to do (economic growth, high unemployment). But we're focusing on debt instead and ignoring the biggest drivers of debt (health care costs, particularly Medicare).

This week both Paul Ryan and Senate Democrats both plan to release balanced budget plans, as if balancing the budget is an end unto itself. If balancing the budget in 10-20 years would lead to huge economic growth and job creation, it'd make more sense. But almost every economist predicts that any attempt at drastic spending reductions now would hurt economic growth and probably send us back into recession.

Here was Ben Bernanke a few weeks ago explaining Economics 101 to everyone else in Washington:

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Why do 47% of Americans Pay No Income Tax?

 .....And what matters about Mitt Romney's revealing statement.

Last year conservative pundit Ramesh Ponnuru destroyed the argument of the "freeloader myth." And while I ultimately disagree with Ponnuru's conclusion (that the point of conservatism is to make sure nobody's taxes ever get raised), the rest of his column is on point. Ponnuru painstakingly takes us through the tax code to explain why poor, elderly, and many middle class families pay no net federal income taxes. And he has background on the history of the policies that created this situation.

I really didn't want to have to step through the tax code again, since doing my own taxes is brutal enough, let alone projecting a fake person's taxes, so I'll let Ponnuru tell you:

According to the Tax Policy Center, provisions of the tax code that exempt subsistence levels of income from income taxes — the standard deduction, personal exemption, and dependent exemption — are the reason for about half of the tax filers who owe no income tax. Another large group of filers pays no income tax because its members are elderly and benefit from such features of the code as the non-taxation of some Social Security benefits. The tax credit for children and the earned-income tax credit, an effort to boost the pay of low-income workers, wipe out income-tax liability for other taxpayers. Those credits are “refundable,” meaning that beneficiaries can get money on top of paying no income tax. Other provisions of the code account for the rest of the 47 percent: education credits, the non-taxation of welfare payments, itemized deductions, and so on.

Also as Ezra Klein noted in a blog post last night, of the roughly 47% who pay no net federal income taxes, over 45% of those can be easily explained.

(Source: The Tax Policy Center)

1) 28.3% of the country are middle income folks who pay no net federal income taxes due to a series of tax credits and deductions: Personal Exemption, Dependent Exemption, The Child Tax Credit, the Home Mortgage Interest Deduction, and depending on how far their income has dropped, the Earned Income Tax Credit and other deductions for things like Student Loan Interest. But of course people still pay regressive payroll taxes along with local and state taxes. And of course everyone pays the flat sales and sin taxes that help fund state and local government services.

2) 10.3% of the country are elderly and end up paying no net federal income taxes due to the tax laws that exempt some social security benefits from taxation.

3) 6.9% are poor people with incomes under $20,000. Or as the Republicans call them, "the lucky ones." Again, they take advantage of many of the tax credits and deductions described previously. It's just that their incomes are so low, it results in them paying no net federal income taxes.

4) Less than 1% are the rest - most likely the ultra-rich with complicated tax shelters and some other tax cheats.

Romney has spent the last month or so defending his vague tax plan against valid charges that in order for it to be deficit-neutral, then taxes on the lower and middle income people will go up and/or many lower and middle income deductions will be reduced or eliminated. It's going to be a lot harder for him to make a convincing case that he does not intend to raise taxes on the lower and middle incomes after his revealing comments from this week. His statements show a person who is disdainful to those who are suffering and barely getting by.

And moreover, he and his rich brethren view tax avoidance as a proud moment of individual accomplishment. "I pay all the taxes I'm required to pay and not $1 more" is Romney's standard defense of his tax rate. Yet when lower and middle income people take advantage of similar benefits in the tax code, he treats them as freeloaders. Project much?

For a multi-hundred-millionaire paying, at most, a 13% tax rate in his only tax return we're privy to, his conclusion apparently is that the major unfairness in the tax code isn't that people like him are paying too little, but that middle class people have too many tax deductions and the poor and elderly are extremely fortunate to have insufficient taxable income.

The question is was this just another Romney pander to the economic conservatives in the GOP base or does he really believe it? If it's the former, then it shows a real lack of courage on his part and a questionable cynical strategy at best. And frankly it shows a lack of competence on the campaign trail that is puzzling for someone whose main selling point is executive success. If it's the latter it reveals a person who, in spite of his CEO background, has completely misdiagnosed the real problems in the country during the last decade. Voters should reject him for it either way.

Ezra Klein Demolishes Romney's 47% Argument

 (source: Mother Jones)

A video surfaced today, first broken by David Corn of Mother Jones with Mitt Romney talking about 47% of the country (the number who roughly pay no income tax) with the edited comments in the image above.

And well, I'll just re-post Ezra Klein's twitter timeline from earlier today.

1. Here’s the policy two-step behind Romney’s remarks.
— Ezra Klein (@ezraklein) September 17, 2012

2. Rs have spent years cutting income taxes and increasing things like the Child tax Credit. This means fewer people pay income taxes.
— Ezra Klein (@ezraklein) September 17, 2012

3. So whenever you hear a stat like "47% don't pay income taxes," remember: Reagan and Bush helped build that.
— Ezra Klein (@ezraklein) September 17, 2012

4. These tax cuts for the poor were partly in order to make further tax cuts for the rich political palatable.
— Ezra Klein (@ezraklein) September 17, 2012

5. But now that fewer people pay income taxes as a result of GOP policies, they’re being called lazy and dependent.
— Ezra Klein (@ezraklein) September 17, 2012

6. And thus the GOP's tax cuts are being used to make a case that the rich are overtaxed and that the less-rich are becoming dependent
— Ezra Klein (@ezraklein) September 17, 2012

7. Which thus leads to a policy agenda of tax cuts for the rich and cuts to social services for the non-rich.
— Ezra Klein (@ezraklein) September 17, 2012

Step 1: Cut income taxes. Step 2: Not enough people are paying income taxes! Step 3: Cut income taxes. washingtonpost.com/blogs/ezra-kle…
— Ezra Klein (@ezraklein) September 17, 2012

And then after Romney gave a statement, Klein responded with another series of tweets:

1. What I like least about Romney's comments is the idea that the working poor don't "take responsibility for their lives
— Ezra Klein (@ezraklein) September 17, 2012

2. The thing about not having that much money is you have to take responsibility for things the rich take for granted.
— Ezra Klein (@ezraklein) September 17, 2012

3. That's the thing about being rich: it buys you services and ease. You get to focus on what you want to focus on.
— Ezra Klein (@ezraklein) September 17, 2012

4. The problem for the poor, often, is they don't have time or energy to focus on the things that make you rich.
— Ezra Klein (@ezraklein) September 17, 2012

5. Romney was able to sell his dad's stock to pay for school. He didn't have to work to support his sisters at age 17.
— Ezra Klein (@ezraklein) September 17, 2012

6. And good for him! That's the dream. But to look at the working poor and say they don't take responsibility? It's backwards.
— Ezra Klein (@ezraklein) September 17, 2012

7. And that matters, as if Romney is president, his understanding of what stands between the poor and prosperity will inform national policy
— Ezra Klein (@ezraklein) September 17, 2012

GO'P Lies

No, the coming military sequester cuts and "fiscal cliff" are not Obama's fault

McConnell, Boehner, and Cantor: "How can we get you to understand what a horrible no-good deal we forced everyone to make us take last year?!"

It became obvious during the Debt Ceiling negotiations last summer that the the Republican leaders were incapable of negotiating in good faith. Time after time, a grand bargain was supposedly in reach, only to see Speaker John Boehner or House Majority Leader Eric Cantor walk out near the end of that round of the process. During these negotiations, at various times the Republicans turned down deals with a ratio as high as 8 to 1 spending cuts to tax revenue increases.

Finally a deal was reached at the last minute: $1 trillion in spending cuts over 10 years, and an establishment of a Super Committee with a deadline of December to reduce the deficit by $1.2 trillion or more over the next 10 years. The Super Committee had the flexibility to use a combination of tax revenue increases and spending cuts to reach this $1.2 trillion, and if they couldn't reach a deal automatic spending cuts would kick in starting in 2013, reducing military budget and domestic spending budget by roughly equal amounts (roughly $600B each) over the next 10 years.

But once again, the GOP showing their lack of seriousness about the deficit, offered three of deals they knew were unacceptable. The first offer was $2.2 trillion in spending cuts with no tax revenue increases, which was rejected. The second offer included $1.5 trillion in spending cuts and $300B in tax revenue increases. That part seems pretty good, but then the Republicans on the Super Committee also included a poison-pill extension of the Bush tax cuts and a lowering of the top marginal income tax rate. The Democrats predictably balked. The final offer was even worse: $640B in spending cuts and $3B in tax revenue increases, a ratio of 213 to 1 spending cuts to tax revenue increases. And it would barely meet half of the agreed-to deficit reduction figure.

Just like during the summer, no compromise could be made on a balanced deal that also contained significant tax revenue increases, so the automatic spending cut triggers were set to take place in 2013.

This underscores a point Jonathan Chait has made time and time again and he made it again yesterday:

What the defense sequester drama actually shows, for the jillionth time over the last twenty years, is that Republicans don’t actually care about reducing the budget deficit. If you care about reducing the deficit, you want to keep in place these triggers in order to force some kind of agreement. But Republicans want to disarm the defense trigger, and also of course the expiring tax cuts, which are the other trigger, leaving no pressure mechanism to force a deficit agreement. They’re happy to use the pretext of the deficit to pass something that cuts upper-bracket tax rates and social spending (especially for the poor and non-elderly), but there’s no plausible way to read their actual legislative position as anti-deficit.

This reinforces once again that the Republican party cares deeply about only one domestic policy: ensuring taxes remain low for rich people. All of these other issues, especially the whining about the budget deficit and spending that takes place whenever a Democrat occupies the Oval Office, is a ruse and merely a means to achieve the ultimate end of lowering taxes for the rich.

Anyway, in the last week or so the GOP new line of attack blames President Obama for the spending cuts that are scheduled to take place to the military in early 2013, as part of this deal. Here were Mr. Boehner's new talking points earlier in the week:

"Let's remember why we have the sequester. We have it for one reason: because the President of the United States didn't want to deal with the debt limit again before the presidential election. Because the president didn't want to be inconvenienced, he came up with the sequester," he said.

Well, actually, Mr. Boehner, you have the sequester because one party would not accept any fair amount of revenue increases as part of a balanced deal to reduce the defict. These spending cuts do seem to have some real teeth and will likely result in some job losses and possible overall macroeconomic harm. But that's more of a general argument against any significant spending cuts during a time of poor economic growth, than it is an argument against these cuts specifically. Cutting safety net programs would present a similar drag on the economy. 

Keynesians would have preferred a clean debit limit increase in the winter of 2011, followed by more spending to stimulate the economy. Or if anything a balanced deal that has a significant amount of upfront stimulus spending, coupled with future deficit reduction measures, all budgeted over a 10-year window.

So in review, the GOP held the country hostage last summer for months over the Debt Ceiling increase, making an unprecedented demand for a significant deficit reduction plan as a prerequisite for any deal to raise the debt limit. Then they negotiated a deal to raise the debt limit in exchange for an unspecified future plan to reduce the deficit. Then when no agreement could be reached on this future plan, automatic across-the-board spending cuts became the law.

Last summer we were reminded how bad things were when the leaders representing one of the two major parties no longer had the power nor the courage to negotiate budget deals without first consulting the Tea Party, Grover Norquist, and Rush Limbaugh. And things are even worse when the same party leaders now seem unwilling to follow through on deals they voted into law.


How can you run a government effectively when one of the two major parties can no longer be taken seriously when it comes to following through on agreements they passed into law? The GOP were exposed as fiscal frauds when it comes to the deficit years ago. Now they are being exposed as frauds in general. And this is just yet another example of them living up to the "worst Congress in history" label given to them recently by Ezra Klein.