Economic Populist: Capping Bush Tax Cuts fixes over half of fiscal problem

Burning the Midnight Oil for Economic Populism

Among the many things entirely lost in the mainstream media coverage of the "fiscal cliff" are the nature and magnitude of the country's fiscal challenge. The magnitude is why it is not a crisis, and the nature is why we would be better off "just doing nothing" ~ letting the whole Bush tax cuts expire and scrapping the zombie spending cuts ~ is better than the vast majority of "fixes" floating around in the mainstream media.


What is the Nature and Magnitude of the Country's Fiscal Challenge

What matters in debt is the size of the debt as a percentage of the Federal budget. Luckily the Center on Budget and Policy Priorities has run the numbers: under the status quo, the share is projected to rise from roughly 72.5 to roughly 82.5% over the coming decade. That is a challenge, but that magnitude of increase in the debt share is no crisis.

And the share will be dropping over the five years ahead, so the challenge is not an urgent challenge. Its something that allows us to pursue policies that require over a full Presidential term to yield fruit. Not only is the challenge not a crisis, neither is it urgent.

How Much Will Be Left After Capping The Bush Tax Cuts

The proposed Bush Tax Cut cap will yield about $1T in deficit reduction, so that's $1T to go, right?

Wrong: cutting $2T can be accomplished by a mix of $1.72T of tax revenues and spending cuts, because cutting the debt ratio will reduce the interest burden, and save $260b in interest payments.


Who has already contributed?

We have already had several years of austerity budgeting, with discretionary, non-defense spending cut by $1.5T.

A truly "balanced approach" of 1:1, that cut 1/3 of that from non-defense spending and 2/3 from defense spending, and matched that dollar for dollar with tax increases, would see $1.365b added in revenue, and $1.365b cut from spending, $0.455b from non-defense and the $0.91T from defense.

Achieving balance would involve the Bush Tax Cut cap, $365b in other tax revenue over the coming ten years ~ converting the biggest income tax deductions into tax credits at the tax rate of middle income taxpayers would likely accomplish that ~ $910b in defense cuts ...

... and $1.05T in increases in non-defense discretionary spending.

You will, of course, hear none of this in the corporate mess media.


But what if we can't do that?

If we can't get anything done except canceling the stupid thing Congress promised to do as a threat in case they didn't get anything done ... and the entire Bush Tax cuts expire ...

... obviously the Republicans will cave on letting the capped Bush Tax cuts get extended rather than getting nothing passed.

If they don't, and we just go back to the Clinton tax rates, that would mean there is even less that would need to be done to get to fiscal balance, so even less need to cut spending.

If they do cave, debt will still be on a track to decline as a share of GDP over the next four or five years, and we might want to do something about spending cuts in 2017.

But its no crisis either way.


Message from Marley:

Anyway, if people try to tell you that it will be a massive economic disaster if we do not urgently "do something, anything about the debt!!!" ...

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The rest of the "problem" is solved --

Cassiodorus's picture

by saying there's not a problem.  They could print some more money, and pay off all of the debtholders. 

 

If the politicians want to collect some taxes to pay for government, they would need a robust economy, and there's no way they're going to get that without more deficit spending.  Instead, they've decided to go with austerity.

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At one time it was true that if ...

BruceMcF's picture

... the federal government wanted higher tax revenue, it would need a stronger economy.

However, given all the tax breaks given to tax revenues that have nil or negligible impact on aggregate demand, there are presently ample opportunities to increase tax revenues without any appreciable fiscal drag resulting. Just reverse tax breaks that when they were granted did not result in any appreciable fiscal stimulus: the Bush tax cuts on the top two brackets, the elimination of the top bracket on capital gains, the carried interest tax dodge among others.

And of course, if $910b in "defense" cuts over the coming decade were to be focused on closing overseas bases, the net impact of $910b in those "defense" cuts and $910b increase in domestic non-defense discretionary spending would be stimulative.

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Hardly logical

shaharazade's picture

and so ideological in an economic sense as well as a global sense. I mean come on how is this even a  plausible way to run your household budget they drag up and lecture you about.. Austerity  what the hell! What a strange starchy concept. Hey I am austere so that means I'm serious and this needs to be done. 

Nazis we're austere, stark, dark, very serious cruel people, with a world wide vision, a NWO without a trace of humanity a total, disrespect for life . They convinced a whole nation of people that  global supremacy was the way forward. Today's fascism isn't wearing the nationalistic face, like it did then but  doesn't teh evil always portray itself  as inevitable and the best way forward for humanity. Dark ages over and over.

The debt oh my god the debt. Whose debt is this?. it's the debt of this failed theology of free markets of mass destruction. Scary thing is the people who run the world and create  the debt, the bundlers and sellers  Such a shell game that it constantly amazes me people anywhere are able to convince people that this is debt is  their's to pay.  There is the factor that these people who own the place do have some nasty ass ways (not to mention heavily as awesomely armed ) to deal with any insurgents who dare to question the inevitable free market globalized 'way forward'. A robust real peoples economy  is the last thing they want. They make their money off debt and human misery.

.

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Yes, they do indeed talk crazy even for the ...

BruceMcF's picture

... "household budget" myth that they use ~ "We've for a budget pinch, so I'm going to opt out of working overtime" ~ and they also do that at the state level, where the household budget analogy actually does apply. The first things that Walker in Wisconsin and Kasich in Ohio did was push through various tax cuts to the wealthy, and then "zOMG, we have a fiscal crisis, we have to bust Unions!!!".

The real debt crisis, and the real debt of this failed theology of free markets of mass destruction, is the private debt burden, which is over TWO TIMES GDP. Now, if just under 75% to just under 85% in a decade is a running around like chickens with our heads cut off crisis, why is 200%+ right now, "move along, move along, nothing to see here"?

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Thanks for the conversation, both of ya's

geomoo's picture

No matter how depressing the reality, it is infinitely better to hear it said out loud than to pretend the emperor is clothed.

Sharazade, I repeat--I think you should make these comments into a blog, perhaps your daily blog.  They are amazingly thorough and hard-hitting.

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Thanks for this, Bruce

geomoo's picture

It is so grounded and convincing, I was thinking I would send it around.  Then as I read, I thought through my smart liberal friends and guessed who would take the time to follow the not-so-complicated numbers.  I fear the number is small, and my friends is a selection for success as compared with the general population.  It seems to me that one of the problems is that there's not much thinking going on anymore, no one has the patience or attention span to study, so most people are reaching their conclusions through ideology, through making current predictions on the basis of similarity of current circumstances with circumstances past (post-emotion).  Btw, this includes us liberals.  I can certainly see it in myself.  This is a cultural thing.

Anyway, I will send it to people.  See if I can make them drink.

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I agree with this geomoo

shaharazade's picture

'I thought through my smart liberal friends and guessed who would take
the time to follow the not-so-complicated numbers.  I fear the number is
small, and my friends is a selection for success as compared with the
general population'

And even though it's partly attention span and patience I also think people are inundated with data these days from all sides of any issue. It's really not that hard to grasp what austerity and an economy that is this inequitable is a fail were living with the fail..  Numbers and data are important and do not lie, but they are also the voodoo behind every marketers pitch, be they pols, scientific 'truths' or sellers of a product.  I think people even smart ones are  weary and sick of endless data used to get them all worked up about the oppositions stupidity and especially these cooked up  fiscal cliffs of mass deception.

We make our living off numbers, stats and data and still my eyes glaze over at charts and tables. When I see government numbers like unemployment and this latest budget deficit hysteria my bs meter kicks in. It is a also a matter of what is driving the data, the intent of those that are using math to bolster their ideology . Rove's math comes to mind. I like Nate Silver as I like his methodology and he has common sense in his reading of data.  I really do believe that people are aware that  this economy is not working for anyone other then the 1% and that moving numbers around like a shell game and calling it 'shared sacrifice' or austerity is just going to make it worse. Voodoo economics as they used to call it.

I worked in the Gaps marketing department in the 80's  and we would have monthly meetings where our numbers person would explain the marketing data. It was deadly boring and we all squirmed, a whole room full of smart liberal people who's patience was tried..  We  had to sit through an hour of charts and numbers to inform us that it was better to put the punk clothes at the back of the stores as the mothers did not like seeing them in the front and the kids could find them at the back.

 So now after this outburst about data  I will go back and read Bruce's excellent  post and not glaze over. 

       

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