James Pethokoukis

Politics and policy from inside Washington

Ryan & Christie, the GOP’s Dynamic Duo

Sep 13, 2010 12:45 UTC

Meet Paul Ryan and Chris Christie, the GOP’s dynamic and dangerous duo. One is the author of “A Roadmap for America’s Future,” a bold blueprint that shows policymakers how they can shrink entitlement spending while also growing the economy. The other is the Garden State’s chief executive and YouTube sensation who’s implementing his own roadmap in a blue state drowning in red ink. Both are fighting back hard against the idea that government spending can’t be cut and thus taxes must be raised in order restore America’s long-term fiscal solvency.

Now this is the worst sort of heresy to the liberal economic intelligentsia — and mainstream media — who all pretty much belong to the cult of Adolph Wagner, a German economist who died in 1917. Wagner’s Law basically says that as a nation gets wealthier, its citizens demand more social services and bigger government. As a result, it’s far easier for government to raise taxes than cut spending. Not surprisingly, Wagnerians are enthusiastic supporters of layering a value-added tax onto the current U.S. income tax system.

Peter Orszag, the just-departed White House budget chief, is an obvious Wagnerian. He told CNN over the weekend that America cannot afford the Bush tax cuts of 2001 and 2003. None of them. Not the ones for the rich (and entrepreneurs and investors). Not the ones for the middle class. They all have to go, every last smidge of them. “We, unfortunately, can’t afford the tax cuts over the medium and long term,” Orszag said on CNN’s “Fareed Zakaria GPS” program. “We face too large a deficit out in 2015, 2018, 2020.”

Really? Really? Now let’s say all the tax cuts were permanently extended — Orszag’s nightmare scenario. According to Orszag’s old pals at the Congressional Budget Office, federal tax revenue would be 18.6 percent of GDP in 2020, 19.2 percent in 2035, 19.8 percent in 2050 and 22 percent in 2080. In other words, even with all the tax cuts extended, government revenue would still rise well above its historical average of roughly 18 percent since World War Two.

Instead, it’s historically unprecedented government spending that’s behind the projected debt explosion. As the CBO itself puts it:

As a result, revenues would grow only slightly faster than the economy, equaling 22 percent of GDP by 2080. Slowly growing revenues combined with sharply rising expenditures would create an explosive fiscal situation. Under the spending and revenue policies incorporated in this scenario, federal debt would surpass 100 percent of GDP in 2023 and exceed 200 percent of GDP by the late 2030s.

And although the Wagnerians think they are marching along with History, they somehow seem to have missed a generation of growing American skepticism about the size and scope of government, beginning with the Reagan Revolution in the 1980s. More recently, there’s been widespread revulsion at the Obama spending orgy and his monstrous deficits, evidenced by tea parties and polls today and perhaps by vote totals in November.

And the political personification of this revolt: Ryan and Christie. But for the Wagner cultists, these heretics just don’t compute. How can they be America’s fastest-rising political stars by preaching such a different truth — a message of smaller government fully in line with America’s deep values of self-reliance, private enterprise and entrepreneurism? For the Wagnerians, however, Ryan and Christie are like a nasty computer virus that threatens to overwrite America’s liberal operating system.

But the two rebels are putting the lie to such dogma. They are lighting a different way forward, one to a more fiscally sustainable and prosperous U.S. economic future.


I find it funny how those who obviously LOATHE Republicans, and for the most part conservative America, never think that the majority of the mainstream media is not obviously seen as biased towards the Democrat and the agenda of the left. I guess that’s why they are doing so well these days.
First point : BOTH PARTIES ARE HISTORICALLY AT FAULT!!! So get off your high horses. Unfortunately every huge entitlement program we have has been initiated by one party, and that would be the Democrats, and THAT is what this article is discussing. The difference is conservatives are advocating a serious change, and the left is advocating more of the same.
What we have here is just a stark contrast of opinions on the best way to get this nation back on track financially.
YOU believe that the more people make, the more government should take in order to fund a massive amount of entitlements to give to other people. That, simply defined, is what the writer was talking about with Wagner’s theory. You all seem to believe this because somewhere along the road you have convinced yourselves that successful people are bad people who live like Scrooge McDuck, and sleep on pillows of money. You also seem to hold some silly notion that poor people exist because rich people have sucked up all the money before other people have gotten a chance to get their shot at it. If the creation of wealth creates poor people, then you also have to believe that the destruction of wealth would make less poor people.
WE (conservatives) believe in the same things the founders believed in, and what the country used to stand for. We believe it is the responsibility of the INDIVIDUAL to pursue their own ambitions to better their lives. Not to have an over powering government distribute the opportunity. Government cannot distribute the “American Dream”, it can only be earned through hard work, risk, and sacrifice! We do not HATE successful people. We do not believe in class warfare, pitting one group against another. We do not believe in a “class system” to keep people in their place. We believe that every person who was born, or legally immigrated to this country, has the same level of opportunity to succeed, and they have the same level of opportunity to be useless bump on a log. It’s their own decision. The only thing that REALLY stands in the way of person’s success is the intrusive overbearing weight of a huge government.

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7 things you need to know about Austan Goolsbee as CEA chair

Sep 10, 2010 18:31 UTC

Here is what I know, or what I think I know, about President Obama’s pick of Austan Goolsbee to be the new head of his Council of Economic Advisers:

1.  Don’t expect him to recommend any big tax cuts. Goolsbee is extremely skeptical of supply-side tax arguments, calling the Laffer Curve a “fleeting figment of economic imagination.” Indeed, he may have influenced Obama himself, who in his 2008 book, “The Audacity of Hope,” says he doesn’t buy the theory that the Reagan tax cuts changed investment or labor incentives. He does, however, think it would not be a bad idea to lower corporate tax rates if there were also fewer credits and deductions.

2. Unions won’t like the pick. Recall that during the 2008 campaign, Goolsbee was rumored to have whispered to Canadian officials that Candidate Obama had no intention of reopening the North American Free Trade Agreement.  In fact, Goolsbee will likely be another pro-trade voice in the administration. He was also against the Chrysler bailout, to the displeasure of the UAW.

3. He thinks “creative destruction” is generally good for America. As he wrote in 2007:

Perhaps the greater amount of uncertainty and churn in the world economy in the 1990s is the new norm. Perhaps the 21st century will continually favor those who adjust best to changes.  … ‘But that is, of course, the paradox of the American position. We hate experiencing major adjustments and industry transformations that force people to look for new jobs. That experience has made many skeptical about the future of the United States in the world economy. Yet the evidence seems to show that for all our dissatisfaction, we are the most flexible economy around and may be best poised to take advantage of the coming changes on a global scale precisely because we are so good at adjusting.

4.  Wall Street probably isn’t a fan, either. When Goolsbee won the 2009 “DC’s Funniest Celebrity” contest, he got a big laugh when he called the big banks “ingrateful bastards” who “bankrupted your gradma.”

5. His promotion is one more reason for Larry Summers to leave at year end. The  famed Goolsbee wit may be lost on Summers, the director of National Economic Council. The two notoriously clashed over whether to bail out Chrysler (Summers pro, Goolsbee con), with Summers eventually trying to block Goolsbee’s access to the president — as he also did with Goolsbee’s now-predecessor, Christina Romer.

6. His selection could be a sign of Obama moving to the center in 2011. Resignations are allowing Obama to gradually reshape his economic team. In addition to Goolsbee, he will have a new budget chief in deficit hawk Jack Lew, assuming U.S. Senate confirmation. If Obama plans on spending the rest of his term seeking deals with a likely more heavily Republican Congress, these two picks make a good start.

7. He will say at least one thing that will make Robert Gibbs wince. During Goolsbee’s famous comedy bit, he joked that the White House took its ideas from the “old textbooks, Karl Marx and Trotsky.” Or maybe Goolsbee’s old research will accomplish the trick, such as this paper which says R&D tax credits, like the one Obama wants to permanently extend, mostly just raises the wages of scientists.

Me: All that being said, the personable Goolsbee is about the best pick Obama could have made from the job given the center-left pool of potential candidates.

Ideology helps make Obama stubborn on taxes

Sep 8, 2010 22:01 UTC

President Barack Obama’s just-departed budget chief, Peter Orszag, thinks all the Bush-era tax cuts should be temporarily extended to bolster the weak U.S. economy. So does Mark Zandi, the go-to private economist of congressional Democrats. But Obama still vows to let high-end rates go higher again ASAP. His thinking is as much politics as economics.

The White House position, reiterated by the president in a speech on Wednesday in Ohio, is that while the 2001 and 2003 tax cuts for the middle class should be permanently extended, the ones for rich taxpayers, a group that includes some small businesses, should expire at year-end. Even a two-year extension of the upper-end tax cuts, as now advocated by House Republican leader John Boehner, is too much for Obama’s team.

Administration officials argue that the extra tax revenue, expected to reduce America’s deficit by $80 billion over two years, will help persuade markets of the country’s fiscal rectitude. But that’s hardly enough to win over even a fence-sitter. Obama’s budget would still add $2.3 trillion to the national debt over 2011 and 2012. That also assumes higher taxes would have no adverse impact on already sluggish economic growth, an assumption that neither Orszag nor Zandi seems willing to make.

But Obama’s motivations go beyond economics. Insisting that the wealthy should pay more in tax is, as midterm elections approach, a handy rhetorical way to tar Republicans who want to preserve the tax cuts as representatives of the rich. The tactic also pleases a demoralized liberal base.

Obama also has never been a big believer in the power of tax cuts. In his book “The Audacity of Hope” he argued that the high tax rates in effect when Ronald Reagan took office in 1981 — the top marginal rate was 70 percent — had little impact on incentives to work and invest.  And during his presidential campaign, Obama blamed the Bush tax cuts for worsening income inequality. Keeping all of them in place, even temporarily, might personally be a bridge too far.

Even so, he might have to consider crossing it. Republicans for once seem ready to deal. So, too, do many Democrats. Failure to reach any agreement would mean all the tax cuts expire — and almost everyone seems to agree the economy can ill afford that.

Goldman Sachs on Stimulus 2.0

Sep 8, 2010 13:58 UTC

The Goldman Sachs econ team gives a rousing “meh” to the new Obama economic plan:

The White House has announced three new measures to stimulate growth: 100% up-front depreciation of capital investments; a permanent and slightly expanded research and experimentation (R&E) tax credit; and $50bn in infrastructure spending. While potentially helpful, we do not expect these proposals to have a large effect on growth for three reasons:

(1) we are skeptical that temporary expensing of capital investments will alter corporate behavior, particularly in 2010 or early 2011; (2) the expanded R&E tax credit, while positive, is too small to have much effect on growth; and (3) additional infrastructure spending, which could have a more significant growth effect, seems the least likely to become law. To the extent that these proposals become law and do have an effect on growth, we would expect the effect to be concentrated later in 2011.

GOP to Obama: Freeze taxes for two years

Sep 8, 2010 13:49 UTC

The Republican reply to the POTUS tax plan:

Speaking ahead of an economic address set for later in the day by President Barack Obama, Boehner also proposed that the U.S. government cut spending for next year to 2008 levels — before federal corporate bailouts and Obama’s $814 billion economic stimulus plan.

Boehner’s call for a freeze on tax rates amounts to a compromise with Obama in advance of November 2 congressional elections, which are expected to result in big Republican gains in the Democratic-controlled House and Senate.

Boehner made his pitch for the two-year freeze on all rates in an appearance on ABC’s “Good Morning America,” just hours before Obama was to speak in the lawmaker’s home state of Ohio.

Me: This would be a cagey compromise, one I am in favor of. Keep rates where they are for two years and during that time push hard for sweeping, pro-growth  tax reform

Obama’s offensive may not charm business or GOP

Sep 7, 2010 22:09 UTC

President Barack Obama’s economic offensive may not charm business or Republicans. The president’s plans to spend $50 billion on roads and railways and grant businesses $300 billion of investment tax credits have merit. But they don’t look enough to sway a disillusioned corporate America already wondering about the fate of $4 trillion in soon-to-expire tax cuts from the Bush years. And the GOP is in no rush to pass a second stimulus before looming midterm elections.

In a less toxic atmosphere, Obama’s ideas would have stronger legs. A national infrastructure bank has long been a favorite of liberal policy wonks and White House advisers. Republicans have been quick to deride the idea as more of the $814 billion stimulus from last year they already consider ineffective. If the bank was structured to reduce taxpayer risk — key elements would include political independence and a focus on revenue-producing projects — the GOP might well go along.

Corporate tax breaks should be an even easier sell. Obama wants companies to be able to deduct 100 percent of the cost of capital investments made in 2010 and 2011 — a tax break worth some $200 billion over two years. Republicans and their corporate contributors have been pushing such an idea as an alternative to more government spending. And while both would prefer a broader tax cut, permanently extending an R&D tax credit, at a cost of $100 billion over 10 years, is a reasonable substitute.

But politics probably will get in the way. Republicans aren’t likely to vote for more spending on infrastructure when doing so would mitigate their criticism of the original stimulus bill, a pillar of their campaign to retake Congress. Nor are they likely to embrace temporary business tax cuts that would be offset by permanent tax increases, such as higher investment and income taxes. Even Democrats may hesitate because of the potentially modest impact on economic growth and employment.

Executives unhappy with the administration have been tossed a bone. They may appreciate the gesture. But it also will be easily lost in an accumulation of bad will from past policy and the uncertain fate of bigger proposals — the Bush tax cuts, the deficit commission and the elections — that could ultimately mean so much more.

Here it comes … higher taxes on middle class

Sep 7, 2010 12:38 UTC

An NY Times op-ed by just-departed WH budget chief Peter Orszag is getting lots of play because he advocates temporarily extending all the Bush tax cuts. After that, though, he wants all of them to expire. This is the part that really got my attention:

More troubling, middle-class and lower-class families would be saddled with higher taxes. That’s a legitimate concern, but also a largely unavoidable one if we are to tackle the medium-term fiscal problem.

Me: Again,  Orszag accepts that Americans are undertaxed, which is left-center dogma.  Of course, the real problem is not that tax revenues will be dramatically lower long term, it is that spending will be dramatically higher.

The 9.6 percent unemployment rate and the 2010 midterms

Sep 3, 2010 15:26 UTC

Today’s dismal unemployment report fully locks in the autumn political narrative:

1) Democrats will a) say the job numbers show a slowly recovering economy back from the brink, b) ask for voter patience, c) blame Bush and d) charge Republicans want to kill Social Security.

2) The GOP will say the report shows Obamanomics has failed,  surely (again) highlighting the infamous Romer-Bernstein unemployment prediction.

3) President Obama also seems unlikely to propose any new ideas that would be economic gamechangers. (The WH pushed back hard on media reports that it is considering a $300 billion payroll tax cut.)

4) More likely is a smattering of smaller ideas that Democrats can use to depict Republicans as obstructionists.

5) I would also guess nothing gets done on the expiring Bush tax cuts until at least after the election.


Yes it is true that US came out of recession and unemployment rate is coming down, but the rate is still slow. Barack Obama is thinking of new ideas to work upon to come out of this disastrous situation of unemployment rate. Sooner or later it’ll be possible to come out of it. From the last 4-5 months stock market is fluctuating and the rate of interest is also low.

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Obama pulled two ways on stimulus 2.0

Sep 2, 2010 20:20 UTC

Departing White House economic adviser Christina Romer says last year’s $814 billion stimulus package fell short. That may suggest those arguing for more fiscal action are gaining ground with the administration. But short of a renewed economic slump, electoral politics are working against more stimulus.

Not that Romer thinks all the spending and tax credits — originally calculated at $787 billion — didn’t work more or less as expected. She believes the U.S. economy would be in far worse shape today without them. But in her valedictory on Wednesday, Romer said the economic team failed to anticipate the violence of the recession. So despite the stimulus, the output gap and unemployment rate are far worse today than they expected in early 2009. But even with those original, overly rosy assumptions, Romer’s analysis back then suggested the stimulus plan should be bigger, around $1.2 trillion.

Her view was countered by rival adviser Lawrence Summers — he didn’t want President Barack Obama to even see that pricier option — and White House chief of staff Rahm Emanuel, who both thought the plan should be smaller for economic and political reasons. They won that debate. But Romer still thinks additional government action — more spending and more tax cuts — is needed. And given that the White House seems to be mulling fresh stimulus options, the president may now be inclined to agree with her.

Romer’s speech will surely give hope to liberal critics such as newspaper columnist and economist Paul Krugman who have been hectoring Team Obama to do more. And if Democrats suffer historic losses in the November midterms, her remarks may be a cornerstone of the case to replace Summers and perhaps even Treasury Secretary Timothy Geithner. The heightened expectation of changes in the administration’s economic team is illustrated by the speed with which a now-dispelled rumor about New York City Mayor Michael Bloomberg replacing Geithner spread through Wall Street and Washington this week.

But even a dramatic personnel shuffle won’t change the reality that the White House will almost surely face a far more hostile Congress in 2011. Angry liberals will want more spending, emboldened conservatives more tax cuts. Fashioning a politically viable compromise that makes economic sense and won’t alarm bond vigilantes will be a huge challenge. Romer should be relieved that it will be someone else’s.

And the Senate isn’t looking so hot, either …

Sep 2, 2010 19:29 UTC

The respected Cook Political Report:

The macro political landscape strongly favors Republicans and it is not likely that it will change much between now and November. As a result, a look at the 37 Senate races on the ballot shows some deterioration for Democrats in some of the 19 seats they are defending, while Republicans’ prospects have stayed the same or improved slightly in their most competitive seats. As such, it is now likely that Republicans will score a net gain of between seven and nine seats. While there is a plausible argument for how Republicans could net the 10 seats they need to win the majority, it remains an unlikely scenario today.

Right, Intrade gives a 45 percent chance of the GOP either taking the Senate (30 percent) or neither party controlling (15 percent).