James Pethokoukis

Politics and policy from inside Washington

Beyond tax cuts

Nov 22, 2010 17:43 UTC

Nick Schulz says Republicans need a broader policy portfolio than lower taxes and less spending:

Too often discussions of growth are overly abstract or narrow.  They tend to focus on a few policy prescriptions such as tax cuts or trade or education. These are important. But the discussion about growth is strangely detached from the particular and unique characteristics of the United States. Any serious growth strategy should acknowledge and leverage America’s attributes and advantages.

Nick then goes on to praise Joel Kotkin and his “continental strategy” for growth, which — best I can tell — centers around more infrastructure spending. But what is the free market way of approaching this so it does not turn into a supersized version of Boston’s Big Dig — build and privatize?

COMMENT

Roll the tax rates back to what they were in 1999, end the wars in Iraq and Afghanistan and trim the defense budget and you have a balanced budget or even a surplus. Keep in mind that the economy created better than 20 million jobs when the tax rates were at these level.

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Should Republicans refuse any tax increases?

Nov 22, 2010 17:40 UTC

Steve Moore and Richard Vedder think raising tax revenue in exchange for spending cuts is a mug’s game (via WSJ):

In the late 1980s, one of us, Richard Vedder, and Lowell Gallaway of Ohio University co-authored a often-cited research paper for the congressional Joint Economic Committee (known as the $1.58 study) that found that every new dollar of new taxes led to more than one dollar of new spending by Congress. Subsequent revisions of the study over the next decade found similar results.

We’ve updated the research. Using standard statistical analyses that introduce variables to control for business-cycle fluctuations, wars and inflation, we found that over the entire post World War II era through 2009 each dollar of new tax revenue was associated with $1.17 of new spending. Politicians spend the money as fast as it comes in—and a little bit more.

We also looked at different time periods (e.g., 1947-2009 vs. 1959-2009), different financial data (fiscal year federal budget data, as well as calendar year National Income and Product Account data from the Bureau of Economic Analysis), different lag structures (e.g., relating taxes one year to spending change the following year to allow for the time it takes bureaucracies to spend money), different control variables, etc. The alternative models produce different estimates of the tax-spend relationship—between $1.05 and $1.81. But no matter how we configured the data and no matter what variables we examined, higher tax collections never resulted in less spending.

Well, certainly the budget can be brought into balance without tax increases. Americans for Tax Reform does it over the short term (5-7 years) by pretty much freezing spending (at 2008 levels) for everything but Medicare and Social Security. So, too, Rep. Paul Ryan with his Roadmap for America’s Future. But what about the politics? Does this assume no compromise with Democrats? If compromise is needed, what do the Rs offer? Defense cuts? But perhaps the solution is to offer a more pro-growth tax system with restructured entitlements. More revenue from more growth + less social insurance spending.

COMMENT

I (and I think many others) have no problems with tax breaks for small business because they really do drive jobs in America. What really rubs a lot of people the wrong way is tax breaks for multi-national mega-corps that have no interest in supporting America or growing in America – to them the grass is greener in emerging markets like BRIC countries and they want to put their profits to work there. Maybe some kind of tax-credit for healthcare on new employees (and partial for existing employees) could be worked out?… that would help stem the big complaint I hear from small businesses.

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Chris Christie’s presidential campaign speech

Nov 22, 2010 16:51 UTC

Just substitute “America” for “New Jersey” and replace “North Carolina,”  ”Florida” and “Virginia” with “China” and it works pretty well (via New York Magazine):

It was another day in October, another town hall, this time at a South Brunswick firehouse. For 90 minutes, anticipation had been building for a display of rhetorical fireworks. But the meeting’s last question came from a 10-year-old girl who was inviting the governor to speak at her school, and the Christie staffers seemed resigned to leaving the town hall without a moment in the bag. But then Christie did something unexpected. He created another type of moment.

He launched into a reverie about wanting to give the girl the same “great New Jersey life” he and others have had. “As I look out in the crowd, I think most of us have lived a little life, and we probably lived it here,” he said in a voice that was softer than his usual bellow. “And we’re still here, which means we love this place, because there’s no good financial reason for us to be staying. New Jersey is an actor, a player in our lives. And I want this to be that place for her.” Christie told of how he was able to raise his family in New Jersey not far from where he grew up, so his parents could be involved in the lives of his four children, and how he worried that opportunity might not be available to others in the future “because they simply will not be able to afford it. They’ll be forced to make the choice to go someplace else, where it’s easier to find a job, where it’s less expensive to live, where they’re going to build a new life that’ll be apart from us.” He continued, “I don’t want our generation to be the one that has to hear about the great North Carolina life that our children and grandchildren have, the great Florida life they have, the great Virginia life they have, and have to wonder, If we had done the tough things we needed to do, could they have stayed here.”

As Christie spoke, the firehouse fell completely quiet, save for the hum of the ventilation system. A silver-haired woman a few seats down from me dabbed at her eyes. “And so we’ve got a choice to make,” Christie said. “We can bury our heads in the sand, we can surround ourselves with the creature comforts that life in New Jersey has provided to us … or at this moment in our history, we can say, ‘To hell with that, it’s hard, I’m going to have to sacrifice something,’ but I want this state to be a place where my kids and grandkids can grow up and have the great life that I had.”

Replacing Larry Summers …

Nov 22, 2010 16:07 UTC

From the White House’s perspective, the ideal replacement for Larry Summers as chief economic brain would be a female chief executive who could reach out to Republicans and the business community without irking liberals. Buzz about the candidacy of Roger Altman, the founder of investment bank Evercore, shows how difficult it may be for President Barack Obama to land that dream candidate.

The only thing more challenging than filling that job spec might be finding another Summers. He’s a brilliant academic and former Treasury Secretary who handled emerging market crises in the 1990s. As director of Obama’s National Economic Council, he’s been less a dispassionate coordinator of policymaking than the president’s maximum economist during a time of extreme financial tumult.

But Obama doesn’t necessarily need a Summers sequel at the halfway point of his presidency. With Republicans flooding Capitol Hill, the final two years of his term likely won’t see many big policy initiatives. Frankly, Obama needs a political symbol that shows Corporate America’s leaders he views them as more than just background staging for photo ops.

Ideally, he’d find that figure outside of Wall Street, which many in his liberal base blame for the economic crisis. Also, given that the Treasury Secretary and chair of the Council of Economic Advisers are now both men, adding a high-profile female to the economic team might be preferable. And just in case the Republicans want to play ball, a reputation as a deficit hawk would be a great kicker.

Two potential choices, and former CEOs, Anne Mulcahy of Xerox and Ann Fudge of Young & Rubicam, either passed or were dropped from the initial shortlist. Fudge seemed a natural – not least because her work on Obama’s debt panel has impressed Republicans. Remaining short-listers have also major drawbacks. Former NEC chair Laura Tyson has no business experience other than serving on the board of Morgan Stanley. Jared Bernstein, the chief economic adviser to Vice President Biden, comes from a union-backed think tank. Moreover, many CEOs privately profess concern about the unglamorous nature of the staff job.

So, by comparison, Altman makes some sense. Although from Wall Street, he’s built a successful mid-sized firm, met a payroll, successfully created wealth and served in President Bill Clinton’s Treasury. He’s also expressed concern about Obama’s relationship with business, most recently in a Wall Street Journal op-ed that read like a NEC job application. Altman may offer one other plus: He’d probably take the gig.

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