Wednesday, January 02, 2013

So Who Won the Fiscal Cliff Fight?

Obviously, former President George W. Bush.  Despite how much he has been vilified in the years since his departure from office, the Congress and the President yesterday decided to ratify almost all of his tax policy agenda.  As Joe Wiesenthal of Business Insider noted, "The difference between the Obama Tax Cuts and the Bush Tax Cuts?  Obama's are permanent*."  Joe also pointed out, quite astutely, that even if top marginal tax rates are not lower than in the Clinton years, taxpayers with the highest incomes are still paying lower taxes because all the tax rates below the top are lower.  Who's laughing now?

Not me.  In over eight years of blogging, you won't find a single word of praise for the Bush-Obama tax cuts.  As a matter of revenue, we now permanently have a tax system that will not raise enough revenue to cover our expenditures.  As a matter of policy, we continued to constrain our choices based on whether some portion of legislation that wasn't popular enough to pass initially without explicit sunsets should be continued or not.  The proper course of action for President Obama was to allow all the sunsets to occur and then to force the Republicans to propose legislation to achieve their political objectives.  Instead, he surrendered his political advantages and handed it to them without a fight.  What an abject failure of leadership. I am reminded this year, as I was last, of a statement by Paul Tsongas in his Call to Economic Arms, "It takes toughness to lead a people toward their preservation no matter how disquieting the journey may be."

Maybe the next step is as Brad DeLong suggests -- they are now Obama's tax cuts, so he has to find a way to fund them.  A large carbon tax to recover much of the revenue would complete the "Green Tax Swap" that I have long wanted to see.  An economist can hope, can't he?


5 comments:

Grandpa Don said...

"An economist can hope, can't he?"

Yes, he can. But I'd bet he's worried as a lot of us are that the next thing to be given away by our president will be cuts to social insurance programs like Social Security, Medicare and Medicaid. Obama has little problem accepting Republican framing (and thinking) and then giving away the store.

Anonymous said...

We still have unemployment that is way too high. It is important to extend the UI for now and get whatever meager stimulus Congress can be enticed to serve up.

Grand Bargain Deficit reduction can always be undone. Debt will be easier to pay down if we first close the GDP gap and reduce unemployment- More taxpayers, fewer benefits paid out, same percent of GDP as revenue means lower deficit.

In the 1990s, we only ran surplus after unemployment dropped to 4%. Fix unemployment, contain health care costs and the deficit will take care of itself.

- jonny bakho

ProGrowthLiberal said...

Senator McConnell has declared the tax debate over:

http://econospeak.blogspot.com/2013/01/was-that-last-word-on-taxes.html

And yes I highlighted the fact that you disagree.

Azleader said...

It is easy for someone wearing professorial robes to talk academically about how other people should spend their money.

Keynesian macroeconomists are, by far, the world's worst offenders.

Have you guys ever really checked the track record of Keynesian fiscal policy? It don't work! Didn't in the Depression. Hasn't since.

I bet no one, Dr. Samwick, can cite a single convincing example of quantifiable Keynesian fiscal policy that actually predicted and achieved a pre-defined result.

Such an animal does not exist on this planet.

Should you chose to try and prove that statement wrong with specific examples then...
All I have to say is...
Get your calculator ready...

Go ahead, make my day!

Anonymous said...

I wish the conversation was,

"How much money should be spent on the Infrastructure Bank?"
rather than counterproductive deficit reduction.

jbakho