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Chuck Grassley's odd accounting

I highlighted this exchange in Wonkbook, but yesterday's back-and-forth between Timothy Geithner and Chuck Grassley was really weird. Geithner was appearing before the Finance Committee to explain the administration's plan for recouping the TARP money by imposing a 10-year tax on large banks. This isn't their innovation: The law itself actually says the administration needs a plan "that recoups from the financial industry an amount equal to the shortfall in order to ensure that the Troubled Asset Relief Program does not add to the deficit or national debt."

So what does Grassley say? "Any money raised from the TARP tax would have to be used to pay down the deficit. If a TARP tax is imposed and the money is simply spent, that doesn't repay taxpayers one cent for TARP losses. It's just more tax-and-spend big government, while taxpayers foot the bill for Washington's out-of-control spending."

I've read this a couple of times now and I'm not sure what it's supposed to say. If money that was going to be spent on Medicare was spent on TARP and the TARP tax puts it back into Medicare, then yes, taxpayers are being repaid. If the TARP tax goes directly to deficit reduction, that just means that other money from other sources that would have gone to deficit reduction will go to Medicare. If the level of total spending remains unchanged, then it doesn't matter which dollars go where.

Grassley is, I guess, trying to protect against Democrats trying to use TARP to fund new priorities, but that conversation has to be about whether we want to spend money on those new priorities. Imagine two worlds: one in which Congress passes a $50 billion jobs bill that the TARP tax funds, and one in which it passes a $50 billion jobs bill while the TARP tax is paying down the deficit. Those two worlds are, of course, the same. The issue is total government spending, not which dollars pay for which part of the government's spending.

By Ezra Klein  |  May 5, 2010; 10:06 AM ET
Categories:  Budget  
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"I've read this a couple of times now and I'm not sure what it's supposed to say."

Shhhhh. Ezra, you're not supposed to notice these things. Or, if you do, you're not supposed to say them out loud.

It's part of the unspoken pact we've made where we're supposed to treat everything these people say as sensible alternate opinions and not as complete nonsense. It's the same pact that says that people who have empowered the government to force you to show the police your papers can be considered "small government conservatives". And the same pact that says that people who told us oil drilling was safe will suffer no consequences whatsoever when they claim that they never told us that oil drilling was safe. And now you've broken it. Who knows what will happen next?

I don't know which is more dangerous to life as we know it: People like you or the CERN Supercollider. Only time will tell.

Posted by: slag | May 5, 2010 10:42 AM | Report abuse

"Tax, blah blah blah, Big Government, blah blah blah, Bailout, blah blah GOP!"

All Chuck has to do is say the key words that fire the Tea Baggers up, and it's a done deal. Doesn't matter if it makes sense or not.

Posted by: Beavker | May 5, 2010 11:12 AM | Report abuse

"It's just more tax-and-spend big government, while taxpayers foot the bill for Washington's out-of-control spending."

It's amazing that in three sentences, he's transformed a tax on the institutions who extorted billions from the American taxpayer into a governmental assault on the American taxpayer.

It's also a little ridiculous for a guy who voted in favor of the deficit financed Medicare drug bill, Iraq War, and Bush Tax cuts for the rich to suddenly say he won't take any action because he's worried about the deficit.

Chuck Grassley: When it's a Republican doing the spending, he's on board, to hell with the deficit! But when it's a Democrat demanding payback from a huge bank, he'll oppose it unless we earmark it for the deficit.

He's all about the deficit. Yep, a man of principle, that Grassley. Nope, he's not scoring cheap political points and protecting the banks, no siree!

Unbelievable. Fiscally, they remain the same Banana Republicans they've been for a decade.

Posted by: theorajones1 | May 5, 2010 11:22 AM | Report abuse

I came to make a snarky remark about how dissecting what Republicans say is a fool's errand, but @slag won the thread before it even started.

Posted by: BigTunaTim | May 5, 2010 11:22 AM | Report abuse

You're giving Grassley too much credit. He's just trying to protect banks from being required to pay anything back to the government. It's as simple as that.

Posted by: eleander | May 5, 2010 11:26 AM | Report abuse

all comments to date are true; still, what fascinates me the most is the skill of the professional politician in reaching for a set of practiced lines more or less applicable to anything.

Posted by: howard16 | May 5, 2010 11:27 AM | Report abuse

well then, the unified budget approach to ss and general spending shouldn't also matter. but most (public fisc)economists think it does. perhaps you're right in that revenues (or let's say projected deficits) don't have an impact on "total gov't spending." but i think this is highly naive, and if not, highly depressing.

Posted by: stantheman21 | May 5, 2010 12:26 PM | Report abuse

I'm really trying to find a way to interpret Grassley's statement as arguing that TARP should be deficit reducing rather than deficit neutral. I can't find anything to make that interpretation make sense though, so it sounds an awful lot like it's just nonsense, as Ezra says.

Posted by: MosBen | May 5, 2010 12:38 PM | Report abuse

The TARP tax money would most likely be stored in some sort of trust fund. Perhaps this is a variation on the old theme of "the Social Security Trust Fund is just a bunch of IOUs". Perhaps if we swapped the Treasuries in the assorted federal trust funds for all the gold in Fort Knox conservatives would stop worrying and be happy.

Posted by: kellgo | May 5, 2010 12:42 PM | Report abuse

the point is that there MIGHT be effects from desegregating funds from the public fisc (ie a true disaggregation might have some check on willingness to spend). while i doubt this is a large effect (especially given our willingness, if not need, to deficit spend), grassley's point might make a little sense here. like i said (and kellgo mentioned in jest), it's similiar to what many economists view about social security "trust fund" and spending effects, except this money would just be sunk into paying off debt instead of being separated via dividends to taxpayers...but similiar point i think...

while klein here argues that "that conversation has to be about whether we want to spend money on those new priorities," i think he misses the possibility that available funding impacts this conversation in a political/economic, if not accounting, sense...

Posted by: stantheman21 | May 5, 2010 2:00 PM | Report abuse

Ezra -

The dems are arguing "we got paid back from TARP so lets spend this extra cash for a jobs bill."

The R's are simply saying "That isn't EXTRA money, it should be used to pay back the debt incurred to borrow it." Stantheman nailed the whole point - "available funding impacts this conversation in a political/economic."

If his arguement is so dumb then why dont the dems just pay down the deficit with the TARP money and borrow new money for the jobs bill? (HINT HINT.... PAYGO)

You simply assume that everyone will spend a bunch of money so who cares where it comes from? Typical

Posted by: Holla26 | May 5, 2010 3:08 PM | Report abuse

Students of economics are aware of the word "fungible", meaning that money is money, it increases your aggregate assets and can be used to reduced aggregate liabilities.

Students of Government Accounting (and most congress members) look at funding sources as discrete pools. (The argument about turf-ism can be tabled for another day). But the way governments work, money is merely an authorization to receive revenue or to incur expenses (or even debt). And those authorizations are intentionally segregated.

In light of that, I don't believe what Grassley is proposing is too controversial. Governments (whether federal, state, local, city or municipal) specifically allocate property, payroll, excise, gasoline and hotel tax revenues to very specific expenditures.

What TARP repayments should be directed toward may seem mundane and "turf-ist", and arguments over it may seem overly bureacratic to the general public; but they actually play into the general checks and balances in our political system. This is very much along the lines of opposing "raiding" the Social Security trust-fund and supporting PAYGO rules.

I don't think it's a bad idea that in the face of discrete liabilities, government officials have to make the public case as to which of those liabilities will be met, and in what order.

Posted by: mabkhar | May 5, 2010 4:22 PM | Report abuse

I think Grassley is talking about paygo. Under statutory Paygo, for non-emergency spending, there must be a corresponding decrease in spending elsewhere, or a corresponding tax increase. He probably wants to make it impossible to use the revenue from the bank tax as an offset under Paygo.

So your second scenario is impossible, because the $50 billion jobs bill would need other offsets.

Posted by: JonShields1 | May 5, 2010 8:47 PM | Report abuse

I think Grassley is trying to prevent revenue from the bank tax to be used as offsets under Paygo.

Posted by: JonShields1 | May 5, 2010 8:52 PM | Report abuse

I don’t think Grassley understands what he said. Most of the time he just reads what one of his staffers has written and leaves it up to the other committee members to figure out for themselves what the heck he’s talking about. A lot like the discussion going on now, where, so far, no one contributing to this tête-à-tête is really sure what his point is. However, wouldn’t it be interesting to ask him about it tomorrow? I doubt he himself would remember what he said in the first place.

Posted by: shadowace99 | May 5, 2010 11:50 PM | Report abuse

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