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'Its like my accountant telling me how much my income should be'

By Ezra Klein

Perhaps the oddest feature of the report from the co-chairs of the deficit commission is its cap on the amount of revenues the federal government can raise. It would've been one thing to propose a tax plan bringing revenues up to 21 percent of GDP -- we were at 18.5 percent in 2007 -- but instead, the co-chairs say that revenues shouldn't be allowed to go above 21 percent of GDP. One of Josh Marshall's readers smartly noted that this is pretty far afield from the commission's purpose:

Doesn't that exceed the mandate here? We are looking to these guys to tell us how to bring the budget into balance, not what the role and size of government ought to be. I would think liberals and conservatives ought to be able to agree in saying, who the hell are these guys to put their finger arbitrarily on the number 21% and tell us that's where it should be (I'd assume conservatives would like to see it lower, and I don't necessarily disagree with the number, but don't know why we'd set it in stone)? Its like my accountant telling me how much my income should be, in addition to how I should balance my family budget.

From a deficit reduction perspective, it would've made more sense to say that revenues shouldn't be allowed to go under 21 percent of GDP. So why'd the co-chairs add this provision? It's not explained anywhere in the proposal, but I'd guess that it's a too-clever-by-half attempt to get the GOP to accept a tax increase. The hope is that the GOP's smart budget people will go back and tell them that given the look of the federal budget over the next few decades, locking taxes in at 21 percent of GDP is actually quite shrewd, as it'll mean we don't raise taxes to 23 or 24 percent of GDP when we hit a fiscal crisis and pass a bunch of emergency measures to cut the deficit all at once.

The odds that such a subtle political ploy will work are very low, and the odds that it'll antagonize liberals who think taxes should be a bigger part of the mix going forward are very high.

By Ezra Klein  | November 10, 2010; 3:40 PM ET
Categories:  Budget  
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Comments

Revenues never went above 21% for any extended duration of time even during the Clinton administration under bubble conditions.

Setting 21% as a cap aligns with historical record, and as Obama has finally recently admitted, the American disdain for big government.

Posted by: krazen1211 | November 10, 2010 4:22 PM | Report abuse

So, who's surprized? Ezra always shilling for higher and higher taxes.

Posted by: WrongfulDeath | November 10, 2010 4:48 PM | Report abuse

Be nice if we had a historical chart...
This link is a start:

http://greenewable.files.wordpress.com/2008/10/total-federal-government-receipts-as-a-percentage-of-gdp-1945e280932008.jpg

Posted by: AgaBey | November 10, 2010 4:53 PM | Report abuse

"From a deficit reduction perspective, it would've made more sense to say that revenues shouldn't be allowed to go under 21 percent of GDP ...The odds that such a subtle political ploy will work are very low, and the odds that it'll antagonize liberals who think taxes should be a bigger part of the mix going forward are very high."

Ezra, the liberals will accept things if you give them enough a few goodies to go along with it. Say modest changes to Social Security, including increased benefits for the most vulnerable.

There is almost nothing you could offer Republicans to accept a revenue floor of 21% of GDP.

Posted by: justin84 | November 10, 2010 5:05 PM | Report abuse

You know, I don't know anyone that likes to pay taxes, or likes taxes to be as high as the sky. What Ezra has said here, and what most liberals seem to agree on, is that taxes (revenue) are an important side of the equation in balancing the budget, and we should consider all options when we're having these discussions. Tax rates of 24% of GDP may be necessary to balance the budget, and an arbitrary cap at 21% doesn't make any sense.

Posted by: MosBen | November 10, 2010 5:10 PM | Report abuse

"You know, I don't know anyone that likes to pay taxes, or likes taxes to be as high as the sky. What Ezra has said here, and what most liberals seem to agree on, is that taxes (revenue) are an important side of the equation in balancing the budget, and we should consider all options when we're having these discussions. Tax rates of 24% of GDP may be necessary to balance the budget, and an arbitrary cap at 21% doesn't make any sense.

"

That would at least be a discussable point if it was achievable.

Posted by: krazen1211 | November 10, 2010 5:19 PM | Report abuse

One purpose of a cap on federal revenue is to forestall a much tougher balanced budget amendment. Most BBA proposals don't consider the possibility of true emergency (eg, an attack on the nation) which requires deficit spending: one BBA, though, does allow a supermajority of state governors to declare an emergency lifting the cap.

The 21% value is quire reasonable, as it's not readily apparent that a higher value could possibly be diverted from the non-government economy. Remember, some profits now subject to tax are pseudo-profits based on pseudo-investments in pseudo-valuable property (both real and intellectual) -- the presence of such pseudo-sources of federal revenue cloud the picture.

Posted by: rmgregory | November 10, 2010 5:31 PM | Report abuse

Ezra,
Two points.
First, I'm actually kinda mad that the Budget Deficeit Commission cut taxes at all. That's a separate conversation. I would have had it recommend three things in keeping with its mandate: taxes to raise, loopholes to close, programs to cut. Nothing more or less. Grand bargains about streamlining the tax code to reduce the nominal marginal rates should have been left to others.
Second point, I wouldn't bother hedging the margins about annoyed liberals and defiant conservations. It has a near-zero chance of passing with conservatives and was certain to annoy liberals.

Posted by: ctown_woody | November 10, 2010 5:44 PM | Report abuse

I think liberals should like the cap because
1) it is a more generous cap than inflation + population growth
2) it's generous by historical standards
3) agreeing to it shows seriousness about the deficit. Refusing to agree means there is an expansion of government agenda on the table as well and accordingly whole idea of a bipartisan focus on the deficit is lost.

Posted by: bdell555 | November 10, 2010 6:02 PM | Report abuse

The 21% cap is nonsense. Take Social Security, for example, which is 5% of GDP: 10.6% of wage income under $106000, none of income above the cap, capital gains, corporate income, etc.

Now, imagine that we switched SS to some sort of mandatory government-sponsored accounts. Would this mean that government spending has now dropped by 5% of GDP, meaning we can spend 5% more on other things? Health care is just as bad, with government currently covering about half of the 16% of GDP we spend on it. If we decide in the future to change this proportion, why should that have any effect on how much we spend on, say, the EPA or unemployment benefits?

Each individual policy and program should be judged on its own merits, and not bound together under some arbitary cap.

Posted by: brickcha | November 10, 2010 6:08 PM | Report abuse

You don't write a report with the commissioners you have, you write a report pretending the commission is one you might want or wish to have at a later time. Simpson and Bowles already had this script written six months ago, so it's not actual news what they're proposing cutting and how much.

Posted by: JF11 | November 10, 2010 6:11 PM | Report abuse

Where are all you people on a day to day basis? I feel like I walked in to my normal restaurant and suddenly had an hour wait for a table!

Anyway, this is a one, maybe two week story. Bernanke is already attacking the deficit by debasing the dollar. He'll do it long past the point it becomes a runway train because he'll use core inflation, and not real inflation.

You heard it here first, the march of the angry old people is only beginning. They haven't gotten a COLA for two straight years now, meanwhile real inflation has already taken off. Been to the gas pump lately? By summer the old people will be screaming about the deterioration in their incomes while they wait for January 2012.

Meanwhile the deficit in real terms will be shrinking, and the Chinese will be fit to be tied.

Posted by: 54465446 | November 10, 2010 6:40 PM | Report abuse

Ezra,
I would be eager to know what your take is on what this "proposal" will do to the income inequality in the Country (given what it already is). It looks to me that the tax brackets proposed will make the US income tax the most regressive in the developed World. So the rich will get richer and the rest of us will pay more taxes to enable them.

Posted by: Yoni1 | November 10, 2010 7:29 PM | Report abuse

The cap makes sense in a long term fiscal sense because every dollar taken from the economy to fund the government or its debt is a dollar that isn't available to grow the economy.

Posted by: robert17 | November 10, 2010 7:39 PM | Report abuse

Um, forget about right/wrong, is that even possible?! Here are the countries that have a revenue to GDP ratio of less than 21% - do we really want to be in this list (Source - Heritage Foundation: http://www.heritage.org/index/Ranking.aspx):

Tunisia
Uzbekistan
Senegal
Ghana
Colombia
Kenya
Nicaragua
The Gambia
Chile
Vanuatu
India
Azerbaijan
Burundi
China
Tajikistan
Malawi
Zambia
Mauritius
Venezuela
Benin
Honduras
Armenia
Mauritania
Togo
São Tomé and Príncipe
Thailand
Mali
Côte d'Ivoire
Peru
Niger
Egypt
Costa Rica
Dominican Republic
Ecuador
Lebanon
Malaysia
Singapore
Hong Kong
Sri Lanka
Mozambique
The Philippines
Taiwan
Guinea
El Salvador
Rwanda
Tanzania
Burkina Faso
Uganda
Guatemala
Laos
Micronesia
Paraguay
Indonesia
Gabon
Guinea-Bissau
Madagascar
Cameroon
Syria
Panama
Sierra Leone
Ethiopia
Cambodia
Pakistan
Comoros
Democratic Republic of Congo
Nepal
Mexico
Bangladesh
Algeria
Bhutan
Central African Republic
Yemen
Haiti
Angola
Iran
Nigeria
Saudi Arabia
Republic of Congo
Chad
Oman
Kuwait
Burma
Libya
Bahrain
Qatar
Equatorial Guinea
United Arab Emirates

Posted by: chrisgaun | November 10, 2010 9:44 PM | Report abuse

"First, I'm actually kinda mad that the Budget Deficeit Commission cut taxes at all. That's a separate conversation."

The commission didn't cut taxes. It proposed several new formulas with the goal of raising $800 billion (paying back ARRA, if you will).

"Um, forget about right/wrong, is that even possible?! Here are the countries that have a revenue to GDP ratio of less than 21% - do we really want to be in this list"

Let's see, Hong Kong and Singapore are both wealthy economies with high standards of living.

China is a rapidly developing nation, the second largest economy and will before long be the largest.

Chile has the one of (if not the) highest standards of living in Latin America.

As for poor nations, it is very hard to raise a lot of revenue if the country is poor.

Posted by: justin84 | November 10, 2010 10:13 PM | Report abuse

chrisgaun subscribes to the JournoList.serv ethos, I guess. I've lived in four of those countries and visited many more and also lived in the UK & France, which weren't on the list. I'd rather be a citizen of the four ON the list than UK & FR. Lil Ezra should put a sock on each hand so his keyboard skills reflect reality.

Posted by: djman1141 | November 10, 2010 10:59 PM | Report abuse

@djman1141 : Well which countries at what times? Living in Chile during after the US backed and orchestrated by the CIA wasn't exactly a bed of roses. In the 15 years following the coup, living standards for average Chileans either stagnated or dropped. Chances are you weren't living on the wages of the average person in those countries you resided in or visited. (except possibly the UAE) so its not really a reasonable argument about livability in different countries.

Funny, people are trying to get to the UK and France from a lot of those countries...I wonder why...By your logic, shouldn't the British and French be trying to get into the countries where you thought life was so much better?

Posted by: srw3 | November 11, 2010 12:06 AM | Report abuse

Maybe I'm incorrect, but Ezra, you seem to be a lot more concerned with this than the Healthcare Bill. Wish you'd have picked it apart some.

Posted by: jobro2 | November 11, 2010 6:54 AM | Report abuse

I watched most of the debt commission meetings online and they do explain why they use 21%....it isn't exactly an arbirtrary number and it isn't a ploy to get GOP votes.

I believe they said that 21% is a historic benchmark...if taxes were to go above this rate then it proves to be unsustainable because American voters simply won't have it.

The commission isn't just trying to solve the debt problem, they're trying to find a solution to the debt problem people will accept. Now, one could argue that there are other propositions in the draft proposal more unacceptable than a would be tax revenue above 21%...and I might agree...but I am just trying to explain their line of thinking. I think the criticisms here of the commission (that they picked an arbitrary number / they want GOP votes) is unfair.

Posted by: Mazzi455 | November 11, 2010 8:36 AM | Report abuse

Also on the 21%...benchmark....i'm not really sure if this is in fact a tipping point on the amount of acceptable taxes (maybe something for Dylan or someone to graph)

Posted by: Mazzi455 | November 11, 2010 8:38 AM | Report abuse

Alert: Yes, Give tax breaks to the rich, which will cost Americans trillions of dollars, and then cut Social Security and Medicare to pay for it, should be an abomination to the people. I do not believe Pres. Obama will sign off on this insult, Nancy Pelosi has alredy spoken with a resounding No! We cannot keep taxing the people to death, while the wealthy and big business do not pay their fair share due to tax cuts, tax breaks, tax shelters, etc. Until we replace Greed, with the prinicpals of sharing, we will be unalbe to solve our problems. Greed and tax cuts for the rich is not the answer -- it is the problem!

Wake-up Call: The soon to be Speaker, John Boehener, is the man who recently campagined for an Ohio Congressional Candidate who dresses up as a Nazi on the weekends! You know the Nazi uniform that stands for separatism, white power, kill off all Jews! This is who the U.S. Speaker of the House Palls around with -- God Help This Country!

Posted by: wdsoulplane | November 11, 2010 8:44 AM | Report abuse

21% just for the Federal Government,everyone forgets what they give to the State,County,and Local.Ridiculous.Why,Why can't we cut foreign defense spending?Why are we as Americans citizens obligated to pay for defense of another nations citizens?Hundreds and Hundreds of military bases worldwide, Why? American military should be for defense of American citizens only.Don't even get me started on poor Trade agreements and Foreign Aid.

Posted by: faeyth | November 11, 2010 9:49 AM | Report abuse

It's pretty clear that these guys just fired themselves. But left this turf as their parting gift.

Posted by: LosGatosCA | November 11, 2010 10:05 AM | Report abuse

Please note that 21 percent includes social security, which is self-financing. SS spending and receipts will grow as baby boomers retire, and we're supposed to cut back on everything else. For no good reason, other than perhaps lowering tax rates on the wealthy.

Posted by: pjro | November 11, 2010 10:22 AM | Report abuse

Wait....Bill Ayers and the Rev. Wright didn't matter to you though..........right?

...............
Alert: Yes, Give tax breaks to the rich, which will cost Americans trillions of dollars, and then cut Social Security and Medicare to pay for it, should be an abomination to the people. I do not believe Pres. Obama will sign off on this insult, Nancy Pelosi has alredy spoken with a resounding No! We cannot keep taxing the people to death, while the wealthy and big business do not pay their fair share due to tax cuts, tax breaks, tax shelters, etc. Until we replace Greed, with the prinicpals of sharing, we will be unalbe to solve our problems. Greed and tax cuts for the rich is not the answer -- it is the problem!

Wake-up Call: The soon to be Speaker, John Boehener, is the man who recently campagined for an Ohio Congressional Candidate who dresses up as a Nazi on the weekends! You know the Nazi uniform that stands for separatism, white power, kill off all Jews! This is who the U.S. Speaker of the House Palls around with -- God Help This Country!

Posted by: wdsoulplane

Posted by: LMW6 | November 11, 2010 4:50 PM | Report abuse

I'm willing to bet that the 21% figure came from paul ryan.

one thing worth noting, if you're going to compare our percentage of revenues to other countries, keep in mind that most of those other countries don't also have state level taxes.

Posted by: SnowleopardNZ | November 12, 2010 12:11 AM | Report abuse

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