Gregg Easterbrook

The fight over whether to let tax cuts enacted under George W. Bush expire at the end of 2010 is being waged in terms of political sloganeering — “taxes are an outrage” versus “the rich must pay.”

Here’s the uncomfortable point few want to face: even if the rich do get hit with a federal income tax increase, the middle class must bear much of the cost of fixing America’s budget-deficit mess. Taxes should rise, not just for the rich, but for most Americans.

The current fiscal year federal deficit is running at $1.4 trillion; the outlook is for year after year of very high deficits, and this is before the Baby Boomers retire. Adjusting to today’s dollars, the United States has incurred more debt in the last decade then during the entire combined previous 211 years of the republic’s existence. Unless economic growth rises to about five percent per year and stays there for some time — which is possible, but not likely — tax increases and benefit cuts are the only ways to address record debt.

We’d all like to think that soaking the rich solves the problem, but it doesn’t. Bush’s tax cuts, due to expire on December 31, cut the federal income tax top rate to 36 percent from 40 percent. Suppose the top rate is allowed to return to 40 percent, as your columnist thinks it should. Other things being equal, that would raise federal revenues about $65 billion per annum. While we’re at it, let’s shave 10 percent off the $549 billion fiscal 2011 defense budget request, saving another $55 billion.

Now we’ve taken the only steps that are politically palatable — taxed the rich, cut the Pentagon. That reduces the deficit for fiscal 2011 by about $120 billion, of a projected $1.1 trillion deficit. The deficit would still be about a trillion dollars – just five years ago, this would have been considered an unthinkable level of debt.

POINTS THAT DIDN’T QUITE MAKE THE COLUMN:

1. The main column does not note that some federal taxes will rise in 2011 regardless of what happens with the Bush cuts. President Barack Obama’s health care bill raises Medicare taxes to 3.8 percent from 2.9 percent for many filers, and imposes Medicare taxes on capital gains, dividends and interest income earned by the top three percent or so of households. Thus taxes are on well-to-do are already headed up.

If, as expected, Congress increases the capital gains tax to 20 percent from 15 percent beginning in 2011, tacking on a 3.8 percent Medicare levy means the effective capital gains tax rate will rise to 23.8 percent for individuals earning $200,000 or more, or couples earning $250,000 or more. This higher taxation on the well-off is strictly to pay for new subsidized health care — none of the added revenue will offset the national debt. In effect, it’s an income transfer program, and perhaps justified to increase social equality. Will those who receive the new subsidized health coverage, paid for by others, show gratitude or merely complain that they didn’t get even more?

2. The main column uses simplified numbers for the sake of argument — anytime tax law changes, there can be unintended consequences on economic behavior.

TOP SECRET:

The Washington Post has done a great job with its series showing that in the wake of 9/11, hundreds of private companies and nearly 854,000 people have gone to work in classified areas. Are they doing a great job? Maybe. There hasn’t been another 9/11. Are they trampling civil liberties? Maybe.

From years of observing Washington, my worry is that the new security bureaucracies are just like other bureaucracies — featherbedded with five people for each one who’s needed, groaning under the weight of senior managers who do little but fight over the signing of memos, dedicating 75 percent of daily time and effort to the staff’s own comforts and sinecure.

But we’re not allowed to question them because everything they do is secret! Set aside that federal agencies long have stamped TOP SECRET on newspaper articles or commercial airline itineraries. Federal personnel love the word “secret,” and all its variations, because it makes them seem more important.

Tech stocks drove off the cliff in 2000. Real estate went poof in 2007. Financial stocks melted down in 2008. So what’s the next bubble to burst? Short selling.

As we look back on three major market busts in a single decade, we have begun to idolize the shorts. Michael Lewis’ book, “The Big Short,” does exactly that. The New York Times just did so as well, lauding a shorts fund manager named Hugh Hendry, who says he wishes he could “short Obama.”

Practically everyone involved in capital markets now admires David Einhorn, who, in early 2008, warned that Lehman Brothers was dangerously leveraged. He was excoriated for saying so, and got the last laugh when his short-sales of the firm became lucrative.

President Barack Obama is being praised for proposing new air quality regulations to reduce smog and acid rain. Obama’s proposal is a good idea — and strikingly similar to air quality regulations that were proposed in 2002 by George W. Bush, then fought with white fury by Democrats and environmentalists.

The reforms Obama suggests today could have begun eight years ago, were it not for intense opposition from the very people now backing the idea. And therein lies a tale of Washington dysfunction.

In 2002, Bush offered legislation to amend the Clean Air Act of 1970 to reduce smog and acid rain emissions by about two-thirds, while regulating airborne mercury emissions for the first time. You’d think this would have drawn applause from Democrats and environmental lobbies: instead their reaction was angry condemnation. Supposedly the bill was not strict enough because new standards would not go into force for several years, with the final, strongest rules not taking over until 2018. Way too long to wait!

POINTS THAT DIDN’T QUITE MAKE THE COLUMN:

* In 2001, the FDA warned pregnant women not to eat Great Lakes fish because airborne mercury settles on the Great Lakes. Since then, according to daytime talk shows and to some environmentalists, airborne mercury from U.S. power plants has been an incredible menace. Mercury emissions from power plants should be regulated. But perspective is missing from the debate.

United States power plants account for around 3 percent of new mercury being emitted to the environment. In 2002, and again in 2005, George W. Bush proposed to reduce U.S. power plant emissions of mercury by 70 percent — which would have reduced the U.S. power plant share of environmental mercury to around 2 percent. Environmentalists and editorialists said the proposed Bush cut was far too little, that a 90 percent cut was needed. But because American power plants are such a small slice of the problem to begin with, reducing their mercury emissions 90 percent would have cut the U.S. power plant share of environmental mercury to around 1.5 percent — barely different from what Bush proposed.

So because of a fight about whether a problem should be reduced to 2 percent or 1.5 percent, nothing at all was done. Environmentalists didn’t discuss how small the power-plant contribution is to mercury exposure, because that would undercut scare-tactics fundraising.

In Afghanistan and Iraq, United States forces are trying to fight a shadowy enemy that does not wear uniforms, while being told to protect corrupt governments. But here is the really disturbing parallel between the current conflicts and Vietnam: Washington is drawing out the troop presence in Afghanistan and Iraq long after any justification has expired, in order to postpone that moment when it must be admitted we did not succeed.

America won’t fail in Afghanistan or Iraq — but won’t succeed, either. Lives are being sacrificed so that American leaders can continue pretending otherwise.

A terrible price

Lack of success is different from failure. The United States military wins nearly every battle, and in Afghanistan and Iraq, most U.S. soldiers and aircrew have behaved in exemplary fashion. But the United States has not known success — we have not stopped Afghanistan and Iraq from being horrible places. Inconclusive outcomes, neither success nor failure, seem likely now. American leaders seem incapable of facing the prospect that a vast expense of blood and treasure has been directed toward an inconclusive outcome.

OTHER TIMELY POINTS FROM THE LOGIC COP:

Russian Spies

It’s not clear in what sense the “Russian spies” were spies, since they are not charged with espionage and, according to this Washington Post report, were specifically instructed by their government to avoid classified material. They’re been charged with failing to declare employment by a foreign power, which essentially means they were unregistered lobbyists.

What were the “spies” up to? According to the Post, their task was to ingratiate themselves with wealthy or influential Americans, then find out what these people were talking about. Going to such trouble to discover the kind of information printed on websites that can be read for free from any laptop in the world suggests Moscow actually believes that secret councils of the wealthy in New York City and Washington are pulling the strings on U.S. life. As for the “spies,” it has long been the case that most of the information reported home in breathless cables by intelligence operatives simply comes from local newspapers. Those who live in luxury abroad as “agents” have long hoped their home governments won’t catch on.

Tesla Motors

Tesla Motors, the first American automaker IPO since Ford Motors, 54 years ago. Tesla, which makes high-performance battery-powered cars, is being celebrated as some kind of testament to the entrepreneurial spirit. What a crock. This company is heavily subsidized, and builds a plaything for the rich.

Even people who don’t like guns ought to be happy about this week’s Supreme Court ruling that the Second Amendment – the “keep and bear arms” clause of the Constitution – binds state and local governments, in addition to the federal government. Way too much time and energy has been wasted arguing about the Second Amendment: it’s obvious the Framers expected private ownership of guns.

While the decision makes clear there exists an individual right to possess firearms, the decision also makes clear that firearm ownership may be regulated. That is every bit as important as settling the argument regarding the breadth of the Second Amendment. In fact, this week’s Supreme Court decision could be the best thing that ever happened to gun regulation – and I say that as someone who’s owned guns.

Thanks, Supreme Court, for making clear that gun ownership can be regulated. There is now no doubt an individual right of firearm possession exists, and also no doubt government may regulate that right.  So let’s fix the regulation of guns — by focusing regulation on dangerous firearms.