Marcus - An Elegant Financial Fix Based on Economic Realities
July 28, 2016 at 4:25 p.m.
By Ruth Marcus-
Today, I come to praise Waldo, and to sympathize with him. You’d be tempted to hide too if you were dealing with the knee-jerk intransigence that infects both sides in the debt-ceiling debate.
Actually, he’s not hiding now. The flip side of the president’s penchant for holding back is his occasional inclination to go for the three-point shot. To its credit, the White House is trying for a more sweeping deal, taking on the left over entitlement spending and the right over taxes.
Three cheers for that. Bigger is better – a serious plan must encompass both entitlements and taxes – but could also be easier. The multiple moving pieces and constituencies of the budget debate may make it more feasible to patch together a grand bargain than a measly one.
Except that the administration has to contend with the likes of House Majority Leader Eric Cantor. The Virginia Republican’s facsimile of reasonableness is to express openness to closing tax loopholes, but only so long as the closure doesn’t end up raising any new revenue.
“We need offsetting tax cuts somewhere else because we’re not for raising taxes,” Cantor told MSNBC. Where is it written in stone that tax revenue can’t go up? Cantor’s explanation is that raising taxes is “not the right thing to do when you’ve got a sputtering economy.”
This is contradictory and nonsensical. It is contradictory because, if raising taxes threatens to slow the economic recovery, the same is true of cutting spending – and Republicans simultaneously insist on slashing more spending sooner.
It is nonsensical because it responds to a phantom argument. Beyond closing relatively trivial loopholes, the administration is not pressing to raise taxes now. In the short term, if anything, it would like to see another tax cut in the form of continuing or expanding the payroll tax cut.
That cut, by the way, offers a potential way out of the Cantor conundrum: It is possible to imagine a deal that is “revenue neutral” because it combines tax cuts now with increases mostly down the road.
But then the president also has to deal with his supposed allies, although the left’s allergy to dealing with entitlements is not quite as maddening as the right’s intransigence on taxes.
For one thing, Democrats are acceding to negotiating huge spending cuts while Republicans insist on revenue neutrality. For another, as frustrating as I find the hands-off-my-Social-Security crowd, at least they believe their fight is essential to preserve the safety net. The no-new-taxes true believers are in it for what – to preserve hedge fund managers’ right to a lower tax rate than us chumps?
Still, it’s pretty maddening. Take the uproar over a proposal to change the way inflation is calculated for purposes of indexing tax brackets or making cost-of- living adjustments to Social Security benefits.
The existing measurement overstates inflation because it doesn’t account for what’s called “upper-level substitution bias.” It assumes that if the price of apples rises, people will shell out more money for apples rather than switch, say, to less expensive pears.
Changing to a different measure that takes such switching into account, called the chained consumer price index, would save about $300 billion over 10 years. It would bring in about $87 billion more in taxes and reduce the cost of government retirement benefits, saving about $112 billion in Social Security alone.
This would be an elegant fix because it produces huge savings, gores the oxen of both sides simultaneously, and is based on economic realities. If there is a need to soften the blow of lower benefits for those at the bottom of the income scale or otherwise tweak the calculation, fine, but why should better-off seniors see their benefits rise faster than their real costs?
Yet the left has convinced itself that not a cent of scheduled benefits can be touched. “Any politician of either party that messes with Social Security, Medicare or Medicaid will feel the wrath of voters in the next election,” thundered Roger Hickey of the Campaign for America’s Future. “Americans do not want the bedrock programs that support their parents to be part of a deficit-reduction package.”
Oh please. This is tantamount to saying that Americans do not want a serious deficit-reduction package.
Poor Waldo.
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Today, I come to praise Waldo, and to sympathize with him. You’d be tempted to hide too if you were dealing with the knee-jerk intransigence that infects both sides in the debt-ceiling debate.
Actually, he’s not hiding now. The flip side of the president’s penchant for holding back is his occasional inclination to go for the three-point shot. To its credit, the White House is trying for a more sweeping deal, taking on the left over entitlement spending and the right over taxes.
Three cheers for that. Bigger is better – a serious plan must encompass both entitlements and taxes – but could also be easier. The multiple moving pieces and constituencies of the budget debate may make it more feasible to patch together a grand bargain than a measly one.
Except that the administration has to contend with the likes of House Majority Leader Eric Cantor. The Virginia Republican’s facsimile of reasonableness is to express openness to closing tax loopholes, but only so long as the closure doesn’t end up raising any new revenue.
“We need offsetting tax cuts somewhere else because we’re not for raising taxes,” Cantor told MSNBC. Where is it written in stone that tax revenue can’t go up? Cantor’s explanation is that raising taxes is “not the right thing to do when you’ve got a sputtering economy.”
This is contradictory and nonsensical. It is contradictory because, if raising taxes threatens to slow the economic recovery, the same is true of cutting spending – and Republicans simultaneously insist on slashing more spending sooner.
It is nonsensical because it responds to a phantom argument. Beyond closing relatively trivial loopholes, the administration is not pressing to raise taxes now. In the short term, if anything, it would like to see another tax cut in the form of continuing or expanding the payroll tax cut.
That cut, by the way, offers a potential way out of the Cantor conundrum: It is possible to imagine a deal that is “revenue neutral” because it combines tax cuts now with increases mostly down the road.
But then the president also has to deal with his supposed allies, although the left’s allergy to dealing with entitlements is not quite as maddening as the right’s intransigence on taxes.
For one thing, Democrats are acceding to negotiating huge spending cuts while Republicans insist on revenue neutrality. For another, as frustrating as I find the hands-off-my-Social-Security crowd, at least they believe their fight is essential to preserve the safety net. The no-new-taxes true believers are in it for what – to preserve hedge fund managers’ right to a lower tax rate than us chumps?
Still, it’s pretty maddening. Take the uproar over a proposal to change the way inflation is calculated for purposes of indexing tax brackets or making cost-of- living adjustments to Social Security benefits.
The existing measurement overstates inflation because it doesn’t account for what’s called “upper-level substitution bias.” It assumes that if the price of apples rises, people will shell out more money for apples rather than switch, say, to less expensive pears.
Changing to a different measure that takes such switching into account, called the chained consumer price index, would save about $300 billion over 10 years. It would bring in about $87 billion more in taxes and reduce the cost of government retirement benefits, saving about $112 billion in Social Security alone.
This would be an elegant fix because it produces huge savings, gores the oxen of both sides simultaneously, and is based on economic realities. If there is a need to soften the blow of lower benefits for those at the bottom of the income scale or otherwise tweak the calculation, fine, but why should better-off seniors see their benefits rise faster than their real costs?
Yet the left has convinced itself that not a cent of scheduled benefits can be touched. “Any politician of either party that messes with Social Security, Medicare or Medicaid will feel the wrath of voters in the next election,” thundered Roger Hickey of the Campaign for America’s Future. “Americans do not want the bedrock programs that support their parents to be part of a deficit-reduction package.”
Oh please. This is tantamount to saying that Americans do not want a serious deficit-reduction package.
Poor Waldo.
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[email protected][[In-content Ad]]
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