My column this week examines the political challenge at the center of the deficit debate: the mismatch between the government services that voters want and the taxes that they are willing to pay. I suggest that a deadlock over the Bush tax cuts – expiring on Dec. 31, 2012, as prescribed by current law — may be one of the most plausible medium-term solutions.
Two notes about the column:
First, the Congressional Budget Office projects that not only would the short-term deficit come under control if Congress let current law stand, but the long-term deficit would, too. Austin Frakt has reproduced the chart on the Incidental Economist blog.
But these calculations assume that the Alternative Minimum Tax affects more and more families over time because Congress stops passing exemptions. The calculations also assume that Congress ignores something called real bracket creep, in which more families are hit with higher tax rates as incomes rise over time.
Both of these situations seem pretty unlikely. It’s just hard to imagine a world in which the United States government collects taxes equal to 30 percent of gross domestic product, up from an estimated 14.4 percent this year.
Second, a fair question to ask is, But won’t President Obama worry about taking the blame, just as he did when the tax cuts expired last year? Yes and no. Here’s Jonathan Chait at The New Republic, who has done some of the best writing on this subject (subscription required):
… what happens at the end of 2012? Well, the economy should be two years further along into a recovery. And Obama’s re-election will be behind him. At that point, his choice is easy. All he has to do is refuse to extend the tax cuts on income over $250,000 a year. He can say he favors a tax cut for income under that level, but he won’t have to follow through on that pledge, because Republicans will never agree to pass a tax cut only on income under $250,000. In a hostage standoff where one party secretly hates the hostage and the other party is at best indifferent to the hostage, then the hostage is probably going to die. End result: All the Bush tax cuts disappear starting in 2013.
Mr. Obama could blame Republicans for letting taxes go up on the hard-working middle class. (Hey, he wanted to extend them!) But their expiration would be a huge policy boon. It would slice $3.9 trillion off the national debt by 2020. How much is that? It would reduce the budget deficit to about 2.5 percent of gross domestic product, which means it would be out of the danger zone where the debt is growing faster than the economy.
I don’t want to suggest this chain of events is very likely. (And I don’t know that Mr. Chait does either.) But no single solution to the deficit seems likely. This one seems more plausible than many others.
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Snookinomics // My column this week examines the political challenge at the center of the deficit debate: the mismatch between the government services that voters want and the taxes that they are willing to pay. I suggest that a deadlock over the Bush tax cuts – expiring on Dec. 31, 2012, as prescribed by current law — may be one of the most plausible medium-term solutions.Two notes about the column:
First, the Congressional Budget Office projects that not only would the short-term deficit come under control if Congress let current law stand, but the long-term deficit would, too. Austin Frakt has reproduced the chart on the Incidental Economist blog.
But these calculations assume that the Alternative Minimum Tax affects more and more families over time because Congress stops passing exemptions. The calculations also assume that Congress ignores something called real bracket creep, in which more families are hit with higher tax rates as incomes rise over time.
Both of these situations seem pretty unlikely. It’s just hard to imagine a world in which the United States government collects taxes equal to 30 percent of gross domestic product, up from an estimated 14.4 percent this year.
Second, a fair question to ask is, But won’t President Obama worry about taking the blame, just as he did when the tax cuts expired last year? Yes and no. Here’s Jonathan Chait at The New Republic, who has done some of the best writing on this subject (subscription required):
… what happens at the end of 2012? Well, the economy should be two years further along into a recovery. And Obama’s re-election will be behind him. At that point, his choice is easy. All he has to do is refuse to extend the tax cuts on income over $250,000 a year. He can say he favors a tax cut for income under that level, but he won’t have to follow through on that pledge, because Republicans will never agree to pass a tax cut only on income under $250,000. In a hostage standoff where one party secretly hates the hostage and the other party is at best indifferent to the hostage, then the hostage is probably going to die. End result: All the Bush tax cuts disappear starting in 2013.
Mr. Obama could blame Republicans for letting taxes go up on the hard-working middle class. (Hey, he wanted to extend them!) But their expiration would be a huge policy boon. It would slice $3.9 trillion off the national debt by 2020. How much is that? It would reduce the budget deficit to about 2.5 percent of gross domestic product, which means it would be out of the danger zone where the debt is growing faster than the economy.
I don’t want to suggest this chain of events is very likely. (And I don’t know that Mr. Chait does either.) But no single solution to the deficit seems likely. This one seems more plausible than many others.
The number of job openings rose at their fastest pace in almost seven years in February, according to a new report from the Labor Department.
The ratio of working-age people to retirement-age counterparts is dwindling across the developed world.
Both honesty and a fear of loss of income if caught seem to drive taxpayer compliance, an economist writes.
An analysis of Census data shows that it’s more important to invest now in education than in infrastructure, an economist writes.
A conversation with Karl Gerth, an Oxford professor and the author of “As China Goes, So Goes the World: How Chinese Consumers Are Transforming Everything.”
Why Jersey Shore’s Nicole “Snooki” Polizzi gets paid more than Toni Morrison for a speaking gig.
A tax on the wealthy would solve many problems, and, history shows us, would not curb economic growth, an economist writes.
Lower corporate taxes would draw more investment, both domestic and foreign, and would help American workers, an economist writes.
Bryan Caplan, an economist at George Mason University, talks about his new book, “Selfish Reasons to Have More Kids.”
An alliance of retailers is taking on the big banks over debit-card fees, a fight in which consumers have much at stake, an economist writes.
Catherine Rampell is an economics reporter for The New York Times.
David Leonhardt writes the Economic Scene column, which appears in The Times on Wednesdays.
Motoko Rich is an economics reporter for The New York Times.
Michael Powell is an economics reporter for The New York Times.
Steven Greenhouse writes about labor and workplace issues for The New York Times.
Liz Alderman writes about European economics, finance and business from Paris.
Jack Ewing writes about European economics and business from Frankfurt.
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