Topic: Government and Politics

Obama’s Tax Promises

President-elect Obama has made a slew of tax promises. Some of them are tax increases, some of them are tax cuts, and many of them are actually spending increases. Let’s try to sort them out.

Here I classify tax changes in comparison with the taxes that Americans are paying this year. I am mainly working from this excellent Urban/Brookings study.

Note that many of Obama’s proposed tax breaks are “refundable,” meaning that much of the effect is to increase federal spending, not to cut taxes. Refundable tax breaks involve cash hand-outs to many people who do not pay any federal income taxes. 

With that in mind, here are Obama’s main proposals to change the tax system from its 2008 structure:

Tax Increases

  • Raise the top two personal income tax rates from 33 and 35% to 36 and 39.6%, respectively.
  • Restore the income phase-outs for personal exemptions and itemized deductions, further increasing effective tax rates at the top end.
  • Raise the top capital gains tax rate from 15 to 20%. 
  • Raise the top dividends tax rate from 15 to 20%.
  • Increase taxes on oil and gas companies.
  • Increase taxes on U.S. multinational companies.

Combined Spending Increases / Tax Cuts

  • Making Work Pay. A refundable tax credit of up to $500 for low-income workers.
  • Mortgage Credit. A refundable tax credit of up to $800 for nonitemizers who own homes.
  • Saver’s Credit. A refundable tax credit of up to $500 per family for retirement saving.
  • American Opportunity Credit. A refundable tax credit of up to $4,000 for education expenses.
  • EITC Expansion. Expand the refundable earned income tax credit.
  • Child Care Credit. Turn the current child care credit into a refundable credit.

The Urban/Brookings analysis (pages 22 and 25) found that more than half of the dollar impact of these six tax code changes will be to increase federal spending, not to cut taxes. That’s $648 billion more in federal spending over the next ten years. In addition, Obama is proposing a new refundable tax credit for buying health insurance. 

Tax Cuts

  • Exempt people age 65 and over from federal income tax if they earn less than $50,000.
  • Minor business incentives. These promises were so small and undefined that the Urban/Brookings study didn’t even score them.

Conclusions

As you can see, it was genius of Obama to successfully run for the White House as tax cutter, given that most of his proposed tax code changes are tax or spending increases. Part of the problem is that the media keeps calling Obama’s proposals “middle-class tax cuts,” as on the front of the Washington Post today.

For the economy, for tax code complexity, and for the America ideal of equal treatment under law, Obama’s tax proposals would be a disaster. With Obama’s tax and spending proposals, government as Santa Claus has reached new heights.

For other posts on Obama’s tax plans, see:

http://www.cato-at-liberty.org/2008/06/13/obama-tax-proposals/

http://www.cato-at-liberty.org/2008/09/17/obama-tax-cutter-or-tax-hiker/

Obama’s Touch Cured Me of Scrofula

Arjun Appadurai (of “Magic Ballot” fame) has replied to my recent post. I think it’s at least worth clearing up a few misconceptions:

I assume Mr. Kuznicki is sympathetic to the mission of the Cato Institute, whose name can be traced back to Cato the Younger, implacable foe of Julius Caesar. Alas, he sounds a lot more like Cato the Elder, also known as Cato the Censor, famed for his rigid moralizing, his ascetical approach to public spending, and his brutal approach to war against the enemies of Rome.

I don’t care for moralizing, and still less for war, but I’m guilty as charged when it comes to asceticism in public spending.

I believe that the government should live within its means, and that whenever possible, workers and investors should keep what they earn. Call me a penny-pincher, but I think that terming a $700 billion bank bailout “magic,” as Mr. Appadurai did, is the single weakest justification I’ve ever heard for any government project, ever. And I’ve heard some doozies before.

Calling acts of government “magic” gives our political leaders way more credit than they deserve. Our leaders may be intelligent, or charismatic, or honest, or judicious. But even the best of them are not magic. To tell the truth, I hadn’t thought this a controversial idea.

Mr. Appadurai continues:

Mr. Kuznicki is keen to remind me that the United States is a Lockean republic, that Barack Obama is not a priest or magician, that the Presidency is just a job (presumably like employment at Kinko’s) and that Obama was elected and not crowned. Well, where do I begin? I do know these facts. My essay was an interpretation of what seemed to us (not to Mr. Obama) so special about this election.

But his essay was the first to use the word “crowned,” not mine.

This election certainly was special: We shattered a racial barrier, and I’m thrilled to see it gone. We repudiated neoconservatism, our ill-conceived foreign wars, and the big-spending Bush administration. So much the better. But none of this is magic, and we don’t need the vocabulary of mysticism to express it. (In fact, I believe I just did express it.)

Mr. Appadurai also gets the following wrong:

Mr. Kuznicki is the kind of “secular” libertarian to whom the entire world of non-secular feelings, sensations, experiences and actions makes no sense, indeed it makes him sick. Well, in that case, 90% of humanity makes him sick, and perhaps 80% of the American electorate, including those who believe in faith-based philanthropy, religious calls to dialogue between faiths, and I assume the entire family of words from grace and charisma to hope and redemption also makes him sick. I am afraid there is no easy cure for this ailment.

It’s a bit silly to think that because I won’t call Barack Obama “magic,” I must have some deep-seated problem with 80% of the American electorate. I’d think, rather, that Christians would be on my side: Obama is a man and a sinner like any other, and all magic – excuse me, all glory – belongs to God.

In fact, the only thing I object to here is magical or mystical thinking about the government. The government has to serve people of all religious faiths, and of none. It can’t play favorites, and it can’t be some strange mysticism unto itself. If it were, it would alienate much of the public, and make tyrants of the rest. That’s what I object to.

A government of, by, and for the people is a huge advance over the divine rule of kings, kings who in former ages claimed that they really were magical, and whose touch was said to cure scrofula. Our leaders are human like the rest of us, and they should be open to our criticism, just like the guy at Kinko’s if he ruins our copies. That’s the genius of America: having a government we’re not afraid to criticize.

America is also about celebrating individual virtues. These virtues, however, take a pounding from Mr. Appadurai:

…Mr. Kuznicki knows the answers already and is sure that what makes the world go around are: “reason, hard work, rectitude, compassion, courage, and thrift.” I assume that when things go wrong, it is due to a deficit of these things. Well, there’s his answer to global warming, the biggest financial meltdown in the world’s wealthiest economy, military failure in Iraq and Afghanistan for the world’s most sophisticated army, not to speak of Avian flu, sudden infant death and Katrina.

“[R]eason, hard work, rectitude, compassion, courage, and thrift” are virtues. Virtues aren’t “the” answer, but they’re the beginning of one, and it’s a weak theodicity that gives up on virtue when the going gets tough.

(Ask yourself: Can there be a solution to global warming or Avian flu – without reason? A solution to Iraq – without courage? A solution to the financial crisis without hard work and thrift? Well, yes, there can be such solutions, but we wouldn’t want to implement them.)

And you know, it’s funny. I’d imagined that liberals would really go for the “reason” line, having plausibly accused the Bush administration of waging “war on science.” But I suppose that for at least a few liberals, when their guy wins, “reason” is out the window, and “magic” is what it’s all about.

The $700 Billion Honeypot

The Washington Post reports:

[There is] an army of accountants, financial advisers, asset managers, lobbyists and others descending on Washington as part of the government’s attempts to rescue the economy and bail out industries.

Big consulting firms like PriceWaterhouseCoopers and Ernst & Young have booked extended-stay apartments and blocks of hotel rooms. Out-of-town financial experts are scouting for office space, expecting to lease it for several months as they help do work for Treasury and others.

Commercial real estate brokerage companies have pulled lawyers and salesmen who usually put together deals on downtown offices to work out loans and foreclose on properties. Some have dubbed themselves the “TARP team” after the Treasury’s Troubled Asset Relief Program created to sort through assets.

“Everything from the policies, the regulations, to the money and the contracts to do the work will be emanating out of Washington, so people want to be here,” [lawyer Larry] Wolk said. “Wall Street has moved to K Street.”

National crises often provide a stimulus to the Washington economy….

“Firms see this as a potential gold mine,” said Anirban Basu, an economist and chief executive of Sage Policy Group in Baltimore. For Washington, “that has to translate into business sales, high-powered restaurant meals, business suit purchases, and travel and luxury hotel stays. We often talk about D.C. being different economically than the rest of the country and this is perfectly true. I don’t see much evidence of a slowdown here.”

As I wrote two years ago, “When you spread food out on a picnic table, you can expect ants. When you put $3 trillion on the table, you can expect special interests, lobbyists and pork-barrel politicians.”

‘After’ the Imperial Presidency?

Jonathan Mahler has a smart, informative feature on executive power in this week’s New York Times Magazine. I object only to the title, “After the Imperial Presidency.” As Mahler’s piece makes clear, the title could have used a question mark, at the very least.

Mahler writes:

Come January, the current administration will pass on to its successor a vast infrastructure for electronic surveillance, secret sites for detention and interrogation and a sheaf of legal opinions empowering the executive to do whatever he feels necessary to protect the country. The new administration will also be the beneficiary of Congress’s recent history of complacency, which amounts to a tacit acceptance of the Bush administration’s expansive views of executive authority. For that matter, thanks to the recent economic bailout, Bush’s successor will inherit control over much of the banking industry. “The next president will enter office as the most powerful president who has ever sat in the White House,” Jack Balkin, a constitutional law professor at Yale and an influential legal blogger, told me a few weeks ago.

Some prominent commentators — Jack Goldsmith and Jeffrey Rosen among them — have noted the “irony” that an administration monomaniacally committed to the growth of presidential power has allegedly weakened the presidency with its unilateralism and contempt of Congress. Given the powers the office retains and continues to accrue, that’s an irony that’s hard to savor. As Mahler notes, “it’s worth keeping in mind that in the final year of Bush’s presidency — while facing a Democratic Congress and historically low approval ratings — he was able to push through a federal bailout bill that vested almost complete control over the economy in the Treasury secretary (who reports to the president), not to mention a major rewriting of the 1978 Foreign Intelligence Surveillance Act that will make it easier for the White House to spy on American citizens.”

Indeed, Mahler documents how political realities— and in Obama’s case, perhaps, the prospect of actually taking power — led both candidates to move away from their early criticisms of Bush-style “deciderism,” and flip flop on torture (McCain) and wiretapping (McCain and Obama).

In explaining the post-9/11 growth of executive power, Mahler properly focuses on the twin problems of congressional cowardice and poisonous partisanship. In the Bush years, all too many congressional Republicans put party unity over institutional responsibility. That’s a common vice under unified government, which may be why Mahler hardly sounds optimistic when he quotes Senator Levin: “When I asked Levin what needs to happen for Congress to take back the rest of the ground that it ceded to the executive branch during the Bush years, he replied predictably, ‘We need a Democrat in the White House.’”

For further reasons to doubt that the Imperial Presidency is behind us, check here and here.

How Many Psychiatrists Does It Take to Change the GOP?

Just one, but the GOP has to want to change.

There’s an interesting difference between the post-election opeds written by House Minority Leader John Boehner (R-OH) and Rep. Jeff Flake (R-AZ) in the Washington Post

Flake admits the GOP has made mistakes:

I suggest that we return to first principles. At the top of that list has to be a recommitment to limited government. After eight years of profligate spending and soaring deficits, voters can be forgiven for not knowing that limited government has long been the first article of faith for Republicans.

Boehner writes of the same principles and that the GOP has a lot of work to do, but betrays no awareness that the GOP may have done anything wrong over the past eight years.

I guess this may take a while.

P.S. - A suggestion for Mr. Boehner: drop the talking point that the GOP will “offer health-care reforms that empower patients and doctors.”  Physicians have many legitimate gripes, but government has already done too much to empower doctors at the expense of patients.  Just focus on empowering patients.

The Ballad of Ron Paul

The Onion offers a lyrical farewell to the Ron Paul campaign (via Brian Doherty):

WASHINGTON—After piling the last of his Campaign for Liberty signs in the back of a beat-up Ford truck Thursday, Rep. Ron Paul (R-TX) once again abandoned his candidacy for president and rode on out toward the low western sun, but not before vowing to come back to Washington “when [the country] is ready.” “When the river swirls and the wind blows, and when uncontrollable inflation forces us to revert to the gold standard, and the Federal Reserve bank is exposed as the unconstitutional, neofascist cabal it really is, you’ll see me coming over that hill,” said Paul, leaving a dusty cowboy hat and a stack of “no” votes on his seat in the House of Representatives. “But don’t you fret, America. If you ever feel like your government is getting too big or too intrusive, just give a little whistle, and there I’ll be. I’ll be there quicker’n you can spit.” Although no one has seen or heard from the Texas congressman since Thursday, sources report the Ron Paul for President campaign has gained an additional $2.3 million in contributions since his disappearance.

Hearing the echoes of Tom Joad in that “final speech,” and noticing that in fact Ron Paul has been all over the airwaves as practically the only congressional critic of the bailout and the policies that led to it, I got to musing about another working-class icon, Joe Hill:

I dreamed I saw Ron Paul last night,
Still running on TV.
Says I “But Ron, you lost ‘em all”
“I’ll never quit” said he,
“I’ll never quit” said he.

“The Money Power beat you, Ron,
they beat you, Ron” says I.
“Takes more than Fox to beat ideas,”
Says Ron “I didn’t quit”
Says Ron “I didn’t quit.”

“In South Carolina, Ron,” says I,
“You stood up to the war.
Then Rudy knocked you back again.”
Says Ron, “But I was right.”
Says Ron, “But I was right.”

From Baghdad back to Main Street,
In every funeral hall
Where grieving moms inter their sons,
it’s there you find Ron Paul,
it’s there you find Ron Paul!

And taking on the Fed Reserve
and smiling with his eyes,
Says Ron, “The bailout cannot work,
It’s time to privatize.
It’s time to privatize.”

From Texas up to Washington,
in every lecture hall,
Where working men defend their gold,
it’s there you find Ron Paul,
it’s there you find Ron Paul!

I dreamed I saw Ron Paul last night,
Still running on TV.
Says I “But Ron, you lost ‘em all.”
“I’ll never quit” says he,
“I’ll never quit” says he.

Obama’s Pledge to Cut Wasteful Spending

President-elect Obama has talked the talk about cutting wasteful federal spending. Now we will see whether he can walk the walk. You can review his budget reform promises here.

Some notable pledges:

  • Eliminate “ineffective government programs.”
  • Expand and improve www.usaspending.gov.
  • Expose corporate welfare.
  • Ensure that all ”non-emergency” bills passed by Congress are posted on the web for five days before he signs them. 
  • Eliminate “waste and inefficiency” in government through a new investigative “SWAT team” that reports directly to the president.
  • Enforce tougher new standards on the Office of Management and Budget’s current “PART” program, which grades program effectiveness.
  • “Enforc[e] standards when programs continually fail” by ”cutting program budgets or eliminating programs entirely” or other reforms.
  • “Eliminate wasteful redundancy” in government.
  • “Eliminate government programs that are not performing” by means of a “line-by-line” budget review.
  • Slash earmarks to the 1994 level.

Senator Obama has been a partner of Senator Coburn’s in various budget transparency reform efforts. Now Coburn’s office tells me that they will hold the new president’s feet to the fire on his promises in this campaign document.

One suspects that the sort of “waste” Senator Obama is thinking about cutting here is small potatoes compared to the large cuts that really need to be made in the $3 trillion budget. But it will be interesting to see how hard Obama pushes even these modest reforms through the increasingly liberal Congress.