The NYT’s attempt to fix the budget

November 14, 2010
rent-vs-buy calculator, David Leonhardt has helped create another interactive tool, this one called "You Fix the Budget". He writes:

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In the wake of his excellent rent-vs-buy calculator, David Leonhardt has helped create another interactive tool, this one called “You Fix the Budget“. He writes:

The New York Times has conducted its own analysis of the federal budget, but with a different final product. Rather than making recommendations, we are laying out a menu of major options, so that readers can come up with their own plan. We have received help along the way from the deficit panel, from Congressional and White House aides and from liberal, conservative and centrist budget analysts.

It’s a good idea in theory, and I even played the game myself, solving the deficit with a mixture of 69% tax increases and 31% spending cuts. Still, I’m not a huge fan of the way it’s been executed in practice of the way that the NYT makes it both too easy and too difficult to “win” the game.

The too-easy part comes on the spending-cut side. The goal is to reduce the 2030 shortfall by $1.355 trillion, and the NYT includes an option under “health care” which simply says “cap Medicare growth starting in 2013″. By clicking on this box, which “would cap the Medicare growth at GDP growth plus 1 percentage point, starting in 2013″, you at a stroke get $562 billion of savings.

You can win the game without clicking on that box — I managed to do it — but of course the game becomes much harder if you deny yourself that easy and fanciful trick. But it is fanciful: there’s simply no credible way to enact that kind of hard cap on Medicare expenditures, in a world where the over-65 population is growing fast as the Baby Boomers retire, where that generation is also living longer than ever, and where end-of-life healthcare is becoming increasingly expensive across the board.

The too-hard part comes on the tax-hike side, where the options are far too limited. For instance, you have two choices when it comes to taxes on capital gains and dividends, both of which cap that tax at 20%. Can’t I opt to raise that tax to the same level as the income tax? Even the deficit commission does that.

Similarly, for the payroll tax, the most you can do is raise the ceiling so that it covers the same 90% of all income that it covered at inception; you can’t raise it any further than that, or abolish the ceiling entirely.

And on the mortgage-interest deduction, there’s no option for abolishing it, as I would love to do; instead all you can do is swap it out for some lower-cost credit.

Most importantly, the options for new taxes are extremely constrained. The carbon tax is relatively modest, raising $40 billion in 2015; I’d like to see something significantly larger — ideally a cap-and-trade system with credits which were fungible with Europe’s system — which would raise more money and include significant rebates for people in the bottom half of the income distribution.

The bank tax is also a good idea, but again it doesn’t go far enough, since it hits only the largest banks: why not add the option of a Tobin tax, too, which would raise revenue from financial transactions no matter who was engaging in them.

I’d also love to see the option of a wealth tax, which could raise a lot of money from those most able to afford it.

Finally, although I’m a fan of a consumption tax, I don’t like the NYT’s sole option on that front — a 5% national sales tax which applies to everybody equally. I’d much rather see something much more progressive: look at each taxpayer’s annual income, subtract their annual savings, and the difference is their annual consumption. Allow everybody say $50,000 of consumption per year tax-free, and then start taxing consumption over that point, with the tax rate rising as consumption grows. If you spend over $250,000 a year, your marginal consumption could be taxed quite highly.

In general, the NYT options on both the spending-cut and the tax-hike side tend to hit the poor and the middle classes more drastically than the rich; what’s missing here is the option to implement something much more progressive, in both senses of the word. It’s a missed opportunity, and a shame.


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