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Posted at 5:00 PM ET, 12/ 8/2010

Nothing is agreed to until everything is agreed to: Jeff Merkley edition

By Ezra Klein

Sen. Jeff Merkley isn't thrilled with the tax-cut deal. And according to one of his aides, he's planning to offer an amendment to make it better. The Merkley proposal would end the tax cuts for income over $1,000,000 and redirect that money -- about $400 billion over 10 years, though obviously much less than that over two -- to shoring up Social Security's finances.

I don't really understand how this would work in practice: The money going to the millionaire's tax cuts is borrowed money, so this would be borrowed money going to Social Security. Merkley's aide says it would come from general revenues, but I'd say this is just evidence of how "trust fund" accounting gets everyone confused.

If the mechanics of this are unclear, the messaging isn't: You can be for using a given dollar for tax breaks for millionaires or for using a dollar for deficit reduction. You can't be for using the dollar for both things, though that's certainly the more popular position on the Hill. More broadly, Merkley is one of the first to begin working on a specific reform to the framework, but he won't be alone. Expect a lot of these proposals to force Republicans to go on the record for tax cuts for the wealthy and against deficit reduction in the coming days.

By Ezra Klein  | December 8, 2010; 5:00 PM ET
Categories:  Taxes  
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Next: Reconciliation

Comments

I'm pretty sure that out there somewhere, Art Laffer is drawing something on a napkin that will show that the deficit will actually increase unless we let the richest 1% keep another 75 billion of money that would otherwise be government revenue.

Posted by: Nylund154 | December 8, 2010 5:31 PM | Report abuse

Ezra, I though James Galbraith explained to you pretty convincingly why the focus on the deficit per se is wrong - so what's with the deficit hysteria that you keep channeling? The deficit can be anything in X years, whatever % of GDP, as long as the economy is growing. And if it does not, then deficit will be the least of our problems. Go back to Galbraith or Bill Mitchell or Randall Wray and ask them to explain it again, if you did not get it the first time.

Posted by: pdrub | December 8, 2010 5:47 PM | Report abuse

pdrub:

Focusing on the deficit is always wrong, . . . after both sides have just agreed to spend more money they don't have!

Timing is everything in life.

Posted by: 54465446 | December 8, 2010 7:23 PM | Report abuse

Revenue from taxes is not borrowed money. We either collect that money or not.

That is allow the tax cuts to stand, no $400b. Eliminate the tax cuts and there is an additional $400b and this to the payroll tax collections to fund SS benefits. The amount of money that SS will need to pull from its trust find is less.

This matters since the SS trust fund is not really money in bank account. So the general fund which used that money previously when SS was taking in excess $ now must pay that back to SS benefits.

So earmarking the money as such essentially reduces the deficit all else being equal. That is by tying this to an existing obligation directly. It also reduces pressure on a SS fix which is a red herring. Thus reducing health care costs can take front and center.

Posted by: sailor0245 | December 8, 2010 7:32 PM | Report abuse

54465446, I am not sure I understood your comment. The US Govt neither has not does not have money - it creates it at will out of thin air by crediting accounts at the Fed.

Posted by: pdrub | December 8, 2010 10:19 PM | Report abuse

That should read "The US Govt neither has *nor* does not have money"

Posted by: pdrub | December 8, 2010 10:23 PM | Report abuse

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