James Pethokoukis

Politics and policy from inside Washington

A terrible day for tax hikers

Jun 23, 2011 19:34 UTC

Was it just a week or so ago when the GOP’s 30-year commitment to lower taxes was supposedly in shambles? That sure didn’t seem to be the case today:

1) Eric Cantor bolted from debt ceiling talks with VP Joe Biden, saying the tax issue was an obstacle and that Obama and Boehner needed to hash things out directly. Now three sources tell me that Cantor and Boehner are against any net tax revenue increases, whether from higher tax rates or the elimination of tax subsidies.

2) Mitt Romney signs the tax pledge of Americans for Tax Reform, as he did when he ran 2008.

Of course, the weird thing is that Romney just declined to sign a pro-life pledge. But in any event, it is good to see him take a hard line against taxes and for Schumpeterian, pro-growth economics.

3) At a House Budget hearing today, the director of the Congressional Budget Office said the following: ”Higher marginal tax rates do reduce economic activity.”  This is  a point yesterday’s CBO report made repeatedly.

Debt ceiling talk hit impasse! Markets freak! Investors panic!

Jun 23, 2011 18:22 UTC

First, a summary of today’s galaxy-shattering news from my beloved colleagues at REUTERS:

U.S. budget talks hit an impasse on Thursday after a both Republicans walked out, throwing doubt on Washington’s ability to reach a deal that would allow America to continue borrowing and avoid a debt default. Representative Eric Cantor, the No. 2 Republican in the House of Representatives, said participants had identified trillions of dollars in potential spending cuts but were deadlocked over tax increases that Democrats want. ”Regardless of the progress that has been made, the tax issue must be resolved before discussions can continue,” he said in a statement. Republican Senator Jon Kyl also left the talks, an aide said. House Speaker John Boehner said Democrats must abandon any tax increases for negotiations to continue. ”These conversations could continue if they take the tax hikes out of the conversation,” Boehner said. He added tax increases could never pass the Republican-controlled House in any event.

TPM adds this color:

A Senior Democratic aide suggested to TPM earlier that Cantor “threw Boehner under the bus” by calling on him to leap into talks, keeping his own hands clean of any tax increases unpopular with the GOP base. Pushing back on the notion, a senior GOP aide told TPM in an e-mail that the “White House has secretly been negotiating with Senior Republicans behind the Democrat Leaders backs, so it is understandable they don’t understand the dynamic at play.”

Will Republicans crack and agree to the elimination of some tax breaks in order to raise revenue? I sure hope not. There is certainly no economic reason to raise taxes. The U.S. economy is not optimized for growth. If we want more revenue, growth the pie. Or cut more spending. Or, preferably, both.  And certainly there is no way Rs should accept higher taxes for anything less than structural healthcare reform that moves the system to a form that is more patient-centric and market friendly.


CBO: Obama’s new budget plan no plan at all

Jun 23, 2011 17:39 UTC

At a House Budget Committee hearing today, Chairman Paul Ryan and Congressional Budget Office Director Doug Elmendorf had this exchange:

Ryan: “We got your re-analysis of the President’s budget. I won’t go back into that. But the President gave a speech on April 13th where he outlined a new budget framework that claims $4 trillion in deficit reduction over 12 years. Have you estimated the budget impact of this framework?”

Elmendorf: “No, Mr. Chairman. We don’t estimate speeches. We need much more specificity than was provided in that speech for us to do our analysis.”

Bingo. As I wrote back in April, when President Obama made his big budget speech, it wasn’t at all clear from where his numbers were coming — nor in what direction they were heading. A “fact sheet” on his “Framework for Shared Prosperity and Shared Fiscal Responsibility” gave a few more specifics, but little or no context to make real sense of them. Even for seasoned budget experts, it was a puzzlement. At the time, I predicted it would never get submitted to the CBO, and so far I have been proven correct. The whole mess now seems like nothing more than a political ploy to make Obama seem like a debt hawk. We also know now that Treasury Secretary Tim Geithner had to push the White House to do even that.

And if the White House ever did submit his plan/speech, Team Obama probably would not like what the CBO had to say about it. The bipartisan Committee for a Responsible Federal Budget did their best to shed some light on the plan/speech:

The President’s Framework falls short of both the Fiscal Commission recommendations and those from the House Budget Committee, both of which would reduce the deficit by over $4 trillion and reduce the debt to below 69 percent of GDP by the end of the 10-year period. … Measured against CBO assumptions, it does not appear that the $2.5 trillion of deficit reduction in the President’s Framework would be sufficient to reduce the deficit to 2.5 percent of GDP in 2015 or 2 percent in 2020, as claimed. Using reasonable phase-in assumptions, we estimate that unless the debt failsafe is employed (as it would be in this circumstance), deficits would remain at or above 3 percent of GDP throughout the decade. As a result, debt would continue to slowly increase as a share of the economy, reaching 77 percent of GDP by 2021.

You know who does have a comprehensive budget plan out there, one that is actually scored by the CBO and even uses the CBO’s gloomy economic numbers? Paul Ryan. The one actual plan Obama does have does nothing to “bend the curve” of rising federal debt as this chart shows: