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Vox populi on the deficit

For all the reasons the political science-types say, town halls don't offer a terrifically reliable guide to public opinion. But that's not to say they're of no benefit. The Peterson, MacArthur and Kellogg foundations partnered with AmericaSpeaks to hold 60 town meetings with 3,500 participants to let ordinary Americans weigh in on "our nation's fiscal future." The results will be presented to the president's deficit commission. And here, according to a press release, are the policies the people preferred:

1) Raise the limit on taxable earnings so it covers 90% of total earnings.

2) Reduce spending on health care and non-defense discretionary spending by at least 5%.

3) Raise tax rates on corporate income and those earning more than $1 million.

4) Raise the age for receiving full Social Security benefits to 69.

5) Reduce defense spending by 10% - 15%.

6) Create a carbon and securities-transaction tax.

I wouldn't exactly advise a politician to introduce this bill into Congress tomorrow. But this is consistent with polling data: Most of what you could do to reduce the deficit -- save cutting foreign aid and earmarks, neither of which would have much impact -- is unpopular. But the closer you get to taxing the rich and taxing corporations, the more popular the policy becomes. The flip side of that, however, is that the closer you get to taxing the rich, the more elites, who're rich, hate it, and say you're engaging in class warfare.

I'm reminded of Bruce Bartlett's point that conservatives will eventually embrace a value-added tax because the only other option will be a heavy raft of taxes on their wealthiest donors.

By Ezra Klein  |  June 29, 2010; 10:14 AM ET
 
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Comments

"The flip side of that, however, is that the closer you get to taxing the rich, the more elites, who're rich, hate it, and say you're engaging in class warfare."


The rich ought to ensure the tide that's lifted the large boats is lifting the small boats, lest the small boats raft together and start taking out the large boats.

Posted by: bsimon1 | June 29, 2010 10:41 AM | Report abuse

Either Ezra is tangled up in his left-wing fogginess of what the label "conservative" means, or he doesn't have a clue. He's written enough in other articles for me to conclude it's quite possibly the latter, but I'll give him some latitude and assume for a second it might be the former. So let me help, Ezra: real 'conservatives' will never support a VAT. Ever.

What conservatives WILL support is reducing entitlement spending, and reducing the size and scope of the legion of government agencies that waste hundreds of billions of dollars a year while demonizing Wall St CEO's.

Whenever liberals like Ezra can come to grasp the concept that the deficit is a two-sided equation, he'll better understand that conservatives support deficit reduction, and can do so without supporting increasing any across-the-board taxes. It's not just to protect the 'rich', who already pay an inordinant share of the tax base....VAT's would hit all people of all income categories, and effect lower and middle-class families. Conservatives understand this, and hence will never support it.

I tire of liberals/progressives continuing to trot out the old played-out 1930's tax-the-rich-to-the-hilt policies that failed miserably, and turned a recession into the Great Depression. "Conservative" does not equal "rich". And I could show you my checking account balance to prove it, Ezra!

Posted by: dbw1 | June 29, 2010 10:48 AM | Report abuse

"conservatives will eventually embrace a value-added tax because the only other option will be a heavy raft of taxes on their wealthiest donors"

Conservatives will not eventually embrace a VAT tax. Rank-and-file conservatives won't, because a VAT tax is the antithesis of conservatism. And conservative politicians won't, because their base, and all of conservative punditry, will turn against them. And rabidly so. Try floating a VAT tax as a good solution at the next Tea Party, and see how that goes over.

Taxing the rich seems to make more sense, especially if you start "taxing the rich" at astronomical incomes. Everyone who makes more than a million bucks, their taxes go up 2%, everyone who makes more than 5 million, their taxes go up 4%, etc.

Adding a gradient to the Social Security cap, so that people still continue to pay into it (but benefits are capped), but pay increasing less as a percentage seems like a solution to SS insolvency that's hard to argue against, especially if we return to a more mixed government--one or both houses being Republican, the presidency being Democratic, or vice-versa.

Increasing corporate taxes might be popular, but seems unwise. We already have some of the highest corporate taxes in the world. Rather, we should lower corporate taxes (especially on smaller corporations) and close loopholes so that corporations who do billions of dollars of business in America can get away with paying no corporate taxes here whatsoever.

Posted by: Kevin_Willis | June 29, 2010 10:48 AM | Report abuse

Trying to see things from the GOP perspective: if the GOP takes over congress this fall, will they be willing to make a grand bargain with Obama on long term deficit reduction (e.g. VAT, entitlement reform), or will they fear the ramifications of any compromise on their chances in 2012? If so, let's say they win the White House in 2012 - now they're stuck with the full political cost of any tough choices, and a Democratic opposition unwilling to help them. It's tough to see how the politics can align to get anything done.

Posted by: jduptonma | June 29, 2010 10:49 AM | Report abuse

So they CAN'T get away with paying no corporate taxes, I mean. I think businesses that do billions of dollars in business in America should be paying corporate taxes here.

And, of course, we should freeze spending growth (rather than cutting spending, per se). So many citizens have to manage to get by on less than they made the previous year, and sometimes much less. It isn't too much to ask that government programs get by on the same amount of money this year and perhaps next year that they got last year. People talk about cuts--I'd just like to see the government hold the line. For one year.

Posted by: Kevin_Willis | June 29, 2010 10:53 AM | Report abuse

Increasing the corporate income tax is a horrible idea. The Corporate income tax makes America less competitive in a very competitive world right now. That tax rate needs to be lowered, not increased.

I am a movement conservative who could be supportive of an increase in income taxes at the highest income tax bracket at a tax rate no higher than 42%(and/or creating another bracket at the highest end) given the deficit problems in the nation. However an increased corporate tax is completely self-defeating.

Posted by: lancediverson | June 29, 2010 11:43 AM | Report abuse

@dbw1 : Your analysis is totally 1 sided. Taxes as a % of income and tax rates in general are the lowest they have been for 50 years. Somehow during that time, we were able to build the interstate highway system, send astronauts to the moon, etc. without bankrupting the country. Yet somehow with greater burdens (2 wars, medicare d, etc.) the govt is supposed to get by with less and rebuild our crumbling infrastructure, invest in researching the technologies of the future, and continue to spend orders of magnitude more than any of our allies or potential adversaries and more than the next 10 countries COMBINED, with less tax money.

" tire of liberals/progressives continuing to trot out the old played-out 1930's tax-the-rich-to-the-hilt policies that failed miserably, and turned a recession into the Great Depression."

Your understanding of history is on par with your less than stellar understanding of economics. The depression had nothing to do with tax rates on the rich and much more to do with the explosion of wealth that the already wealthy got while spending power of the 98% of people went down, along with smoot-hawley (trade barriers), the speculative bubble in stocks popping, lax banking regulations that resulted in massive bank failures, and dust.

@KW: As you well know, freezing programs amounts to a cut if those programs have to service more people (like the people thrown out of work by the Bush recession). If we look at the total budget including defense spending and froze total spending but not individual programs so that the military can take the kind of hits that other programs have taken earlier, I might support it. Especially if tax loopholes for businesses that use shell companies to hide their profits were closed and that money was used to supplement aid to struggling people. I still think that short term stimulus spending is necessary to stimulate demand and keep the US from going into a deflationary spiral ala Japan.

Posted by: srw3 | June 29, 2010 11:47 AM | Report abuse

Sure raising taxes on the rich and corporation is a popular solution. People think get to keep their government spending but by and large aren't directly paying for it.

Marginal tax rates for corporations are already very high in the U.S.

Corporate taxes eat up ~39% (depending on state/local rates) of the marginal dollar (and then another 15% of the remainder will be eaten up when it finally gets to the shareholder). Is it surprising that corporations do as much as they can to avoid the tax, and to lobby Congress for loopholes?

Putting the corporate tax rate up to 45% or 50% could well reduce tax revenue.

Posted by: justin84 | June 29, 2010 12:01 PM | Report abuse

For those saying a VAT is against conservative thought, how do you explain this when the right has been pushing for years to replace the income tax with a VAT under the "FairTax" guise?

Posted by: jldarden | June 29, 2010 12:10 PM | Report abuse

@justin84: "Putting the corporate tax rate up to 45% or 50% could well reduce tax revenue."

Not to mention all the deadweight loss of more corporate accountants and attorneys trying to find ways to avoid paying those taxes.

Posted by: ab_13 | June 29, 2010 12:15 PM | Report abuse

A few more notes:

- The explosion of the deficit in Ireland doesn't undermine the Keynesian argument. It makes it much stronger. The only way to close the deficit is to have growth. Therefore, the real anti-deficit strategy is to promote economic activity, not deficit moralizing.

- The easier way to generate more revenue from corporate income taxes, but also make it able to be sold politically, would be to pair a rate reduction with wiping out the insane number of exemptions.

Posted by: jldarden | June 29, 2010 12:19 PM | Report abuse

Many support the Fair Tax, but that's and end point tax, not a VAT tax, which taxes everything at every step, and generally acts like throwing sand into the gears of an economy.

Fair Tax: "The tax would be levied once at the point of purchase on all new goods and services for personal consumption."

VAT: "Imposes a tax at every intermediate step of production, so the goods reach the final consumer with much of the tax already in the price, along with some extra overhead."

Posted by: Kevin_Willis | June 29, 2010 12:20 PM | Report abuse

There isn't any real differences between the two, except that the "FairTax" is easier to dodge.

Posted by: jldarden | June 29, 2010 12:26 PM | Report abuse

Srw3,

Smoot Hawley certainly contributed to the Depression. Marginal tax hikes in '32 probably shrank supply on the margin but I'd agree with you they weren't the primary or secondary driver.

As for bank regulation, the bank failures of the Great Depression were caused by government regulation - specifically state deposit insurance and unit banking laws.

Unit banking laws meant that banks couldn't have branches, so what today we would call a branch would have basically been an entire bank in 1929 in many states. These banks clearly were unable to diversify their loan portfolios and this vulnerability is why so many failed.

State deposit insurance was effectively a subsidy and encouraged tons of these small unit banks to sprout up. Canadian banks could branch, and none failed during the recession.

http://fraser.stlouisfed.org/docs/meltzer/whereg95.pdf

Also, just because the income distribution changed doesn't mean purchasing power changed.

It is the same total purchasing power if a boss makes $500,000 and his ten workers make $50,000 as if the boss made $750,000 and each worker made $25,000. Workers might not like it, but it's not as if the boss just puts the money into a box and forgets about it (and if he did, prices would fall which would then boost the purchasing power of the workers).

It's not as if regular workers were losing purchasing power in the 1920s - they just weren't getting rich as fast. For semi-skilled and skilled workers real average weekly wages grew from $29.16 in 1920 to $32.60 in 1929. For unskilled workers, it was $22.28 to $24.40. For women, it was $15.14 to $17.61.

http://eh.net/encyclopedia/article/Smiley.1920s.final

Posted by: justin84 | June 29, 2010 12:43 PM | Report abuse

Why would Republicans embrace any kind of tax? The healthcare bill pretty conclusively showed that you can simultaneously attack Democrats for cutting benefits AND spending too much.

I really don't see this framework changing much. The Republicans will just assert that our deficit is "really" due to waste or welfare. Or they'll come up with a Medicare restructuring plan that's either wholly inadequate or frankly lies about the magnitude of benefit cuts it'll cause (like Paul Ryan's plan). Or, even more likely, they'll just demand Magic Growth Inducing Tax Cuts.

Once the fig leaf's out there, cooperating with the Dems on a real deficit reduction plan that exchanges tax hikes for sustainable benefit cuts will just lead to a Tea Party beheading. It's really easy to make up alternative policy prescriptions when the media and your base will let you source them from fantasyland.

Posted by: NS12345 | June 29, 2010 12:56 PM | Report abuse

@NS12345: "Or, even more likely, they'll just demand Magic Growth Inducing Tax Cuts."

I'll support that candidate.

Posted by: Kevin_Willis | June 29, 2010 1:00 PM | Report abuse

Of course will, Kevin, because you prefer meaningless platitudes to actually addressing the problem.

Posted by: jldarden | June 29, 2010 1:15 PM | Report abuse

@jldarden: "because you prefer meaningless platitudes to actually addressing the problem."

The opposing side should come up with something that shows some evidence of actually addressing the problem, then we'll see.

Until then, that's not really the choice I'm making, because nobody is attempting to actually address the problem. Also, I believe that, all other things being equal, Magic Growth Inducing Tax Cuts are better than not having Magic Growth Inducing Tax Cuts.

Posted by: Kevin_Willis | June 29, 2010 1:32 PM | Report abuse

You're right. Obama is busy being GOP Lite to actually make the moves he knows are necessary.

Posted by: jldarden | June 29, 2010 1:47 PM | Report abuse

@Kevin_Willis:

So you'll be voting for all the Democrats who supported the stimulus package and against all the Republicans who opposed it, right?

Posted by: lol-lol | June 29, 2010 2:06 PM | Report abuse

"The explosion of the deficit in Ireland doesn't undermine the Keynesian argument. It makes it much stronger."

Does it really? I could have sworn the Keynesian argument is that rather than balance the budget in a sharp downturn, the government should run large deficits in order to offset private sector demand contraction.

If Ireland's example supports the Keynesian view, then how do we explain Spain? Spain's economy is in worse shape (in terms of employment) despite having embarked on stimulus spending of 4.5% of GDP per Dylan Matthews post?

"The only way to close the deficit is to have growth."

Or cut spending. Or raise taxes.

"Therefore, the real anti-deficit strategy is to promote economic activity, not deficit moralizing."

Increasing the deficit (which I presume what promoting economic activity means here) is not a strategy for cutting the deficit. This is basically the same as Republicans saying tax cuts pay for themselves. Neither tax cuts nor government spending pay for themselves.

Posted by: justin84 | June 29, 2010 5:39 PM | Report abuse

http://bestpossiblelife.wordpress.com/2010/06/27/america-speaks-let-the-true-message-be-heard/

If you broadened your blog reading, you'd know that several of the bloggers who attended pointed out the surveys were skewered (akin to push polls) and the numbers were actually much higher in the "no change" categories. The people who attended the Philadelphia gathering actually complained that they couldn't RAISE social spending, and instead cut more of the defense budget.

There was also overwhelming support for single-payer as a way to cut the deficit.

The attendees I spoke to in four other cities confirmed similar sentiments in the majority.

Go back and read the wording in the AmericaSpeaks press release carefully. Those preferences were the highest for those who actually did want cuts - and no, that wasn't the majority.

This, despite the fact that the Peterson-supplied background materials went out of their way to blame the pay-as-you-go Social Security program for the deficit.

In fact, if you saw the raw numbers, you'd know that despite the hard push by the Peterson Foundation to tilt the table, the sentiments expressed by the majority of the 3500 attendees were surprisingly progressive. Here's a link to the worksheet - notice the limited choices:

http://susiemadrak.com/?p=3647

All I can say is, if you think the AmericaSpeaks results are "in line with the polling," something is very, very wrong with your polling. Perhaps you should talk to Markos about that.

Posted by: uberblonde1 | June 29, 2010 6:38 PM | Report abuse

Those who whine about budget deficits in times of economic downturns obviously have never taken a Freshman course in MacroEconomics. Krugman is completely correct that it is absolutely intelligence-defying and logic-defying to cut government spending OR raise taxes during a recession. He is also correct that Deflation, not Inflation, is a threat in the current environment. I continue to be amazed by the sheer stupidity of those who put budget-cutting ahead of economic recovery.

Over 9% Unemployment in this country, with the "real" unemployment rate well above 15%, and yet more than 40 Senators are refusing to extend Unemployment Benefits. The recipients of Unemployment Benefits are more likely than most to actually spend the money from those Unemployment checks, feeding that money directly into the economy, helping to sustain the economy.

We had 5%+ GDP growth last quarter, yet we are not adding jobs because many companies had cut back so severely during the deepest recession since Hoover's Great Depression that many of their normal "full-time" workforce had their hours previously reduced, and as recovery has accelerated, they merely restored those workers to true full-time status, rather than increasing their workforces.

Budget deficits at the current level are a long-term concern---we need to reduce the deficit as a proportion of GDP over the next 10 years or so as a nation, but attempting to do so in the short-term, as in the next 2-3, or maybe even 5 years, is logic-defying, and goes against all accumulated economic history and knowledge.

For a nation which has reached an economic crossroads precisely because over the previous 25-30 years it pursued deregulatory, trade, and overall economic policies which effectively destroyed the U.S. manufacturing base, reduced the number of decent-paying middle-class jobs, produced the greatest inequality of wealth and income since the Gilded Age of the late 19th century, and has allowed our basic infrastructure to basically rot at the seams while failing to reduce our ghastly dependence upon oil, and has encouraged American-based corporations to ship jobs overseas rather than working in the national interest, it is completely appalling that we continually fail to develop a well-coordinated national economic policy which allows us to expand our advantage as the world's leading economy.

It seems as though modern conservatives want to roll back the clock to the 1920s economic policies. In fact, I would suggest that the modern Republican Party basically seeks to join 1920s "laissez-faire" economic policies with 1950s social policy prudery, all while kowtowing to corporate interests at the expense of the public interest. The Republican Party of today is no longer the Party of Lincoln and T.Roosevelt. In fact, there are virtually no elected Republicans today whose views approximate those of Lincoln or T.Roosevelt. If either were alive today, he would certainly not be a Republican.

Posted by: OHIOCITIZEN | June 29, 2010 11:18 PM | Report abuse

If you look carefully at the results you will find that raising the retirement age was offered as "gradually increasing the retirement age to 69 by 2028", which of course is much different than raising it tomorrow.

Also, more people voted to raise the payroll tax than voted to increase the retirement age
here are the vote counts on Social Security give the options provided:

Raise the limit on taxable earnings: 85%
Raise the payroll tax rate: 67%
Raise retirement age: 52%
Cut future COLA: 32%
Change formula to cut benefits: 30%
Create personal savings accounts: 27%
No Change: 23%


Posted by: cautious | June 30, 2010 1:53 AM | Report abuse

"3) Raise tax rates on corporate income and those earning more than $1 million."

How many of the idiots that want this get paid by corporations?

Posted by: staticvars | June 30, 2010 2:14 PM | Report abuse

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