Thursday, September 20, 2007

A Comment on Senator Obama’s Tax Proposal from a Bear Inflicted by Deficit Dementia

While I have been a big fan of what Max Sawicky started in Blogland a few years back, he and this ProGrowthLiberal (if you are thinking another Gene Sperling type – you are close) did not entirely agree 100% on how to express our views on things like fiscal policy. After all, someone who has been signing onto the Angrybear blog (before our cave got too crowded with all sorts of Bears – some of which I worry have been visiting Dick Cheney’s cave) as PGL, it is fair criticism that I’m in the Rubinomics camp at least when it comes to trying to restore national savings. I can try to defend my DeLong-ish deficit hawk view on things by appealing to the Solow growth model and all, but I know this crowd will rightfully fire back with things like the benefits of public investment, the importance of distributional equity, and even the need to stay close to full employment. No argument here, so let me get to my first politically framed post with an economist twist by pointing to a recent Angrybear post:


I see the Republicans topping the modest tax cuts that Senator Obama is proposing by promsing larger tax cuts for everyone. But that’s the problem. The GOP is all about Spend&Spend and Borrow&Borrow, which simply means deferring the tax bite. I don’t want Democrats promising voters that money grows on trees.

OK, you may say this Bear really has Deficit Dementia so badly that he has no clue as to how to play the DC games with the reprehensible GOP types. Fair enough but as I try to distance myself just a bit from Kevin Drum, I do need to step back and realize that Kevin is also afflicted with both Deficit Dementia and a desire to be slightly right of MoveOn. But that should not stop either one of us for calling on the next President for insisting on a more progressive tax code.

Which leads me to where I think Senator Obama must have been reading MaxSpeak, You Listen. Over at Angrybear, I had two habits: (1) complaining a lot about how multinationals manipulated transfer pricing and got away with it; and (2) stealing choice phrases from Max. These were not mutually exclusive activities as Max has some of the best commentaries on how transfer pricing manipulations would cheat the US Treasury.

So my first post is less on the issue of fiscal policy and more a promise to say more on this issue of how the next President – be that Senator Obama or one of the other good choices from the Democratic side (please don’t get me started on Rudy McRomney) – can gather at least a few morsels from effectively enforcing section 482, which should be the domain of economists even if we let the tax attorneys trample all over us.

Of course, if one of these responsible GOP types dusts off Social Security deform, expect this Bear to reject the notion that prefunding is jive. But I don’t want to go down that road just yet as I remain thankful that Max has given me the right to post here.

Update: Did I predict that the Republicans would up the ante on tax cuts? Ramesh Ponnunu proves me right! He wants everyone to get a tax cut. And I thought Ramesh was the sole smart one at the National Review. For why this is another nitwit rant, see Mark Thoma. Shall we just call the GOP, the “money grows on trees” party?

3 comments:

Bruce Webb said...

Hi PGL.

Things have gotten a little weird at AB these last months, the parallel thread to this one has buffpilot as the voice of comparative moderation. At which point you throw up your hands.

Why is Obama proposing middle income tax cuts at all? I can see not rolling the existing ones back, although I don't remember actually feeling overtaxed under Clinton's rates, but this notion that the default position always has to be tax cuts for someone is disturbing. Every bit of polling I see shows that people are willing to pay for things like universal health coverage, yet at best the Democrats are tip-toeing up to the line. You wouldn't think that taking the line "Restore Clinton era top rates and pay for health care for all American children" would exactly be a deal killer with the Democratic base.

What's maddening is that everything we know suggests that covering all children's health would be both a more efficient as well as a more equitable outcome than today's system. Both job mobility and entrepreneurship are adversely effected by employer paid dependent health coverage, parents are in many cases shackled to a job that does not tap their productive potential simply because they won't put their kids health at risk.

The problem is not that the middle class is over taxed, the problem is that it is under served, and the way to restore the proper balance is through progressive taxation. The weirdest thing is that right through the seventies this was hardly even an issue in mainstream political opinion. I mean goldbugs and Austrians have always been among us, but somehow 'taxes' managed to substitute for 'Social Security' as the Third Rail of American Politics.

Somewhere FDR and LBJ are looking at each other in mute incomprehension. "Where the hell did our America go?"

Anonymous said...

SamChevre says:

On the transfer pricing issue, my pet corporate tax plan fixes it entirely and easily.

Tax corporations at the top marginal tax rate, on all undistributed GAAP earnings. For multinationals, use the proportion of revenues earned in the US to get the proportion of earnings taxed.

rosserjb@jmu.edu said...

Hi, and welcome to pgl,

Never knew what pgl stood for before.

Regarding the Solow growth model, my major complaint about it is that I am one of these old devotees of the Cambridge capital theory debates and Joan Robinson, which leads me to not take too seriously models based on aggregate production functions with aggregate capital in them, which certainly includes the Solow model, big time.

And, of course, to stick to the more empirical side, there was all that lit, recognized fully by Solow himself, about the "unexplained residuals" coming from his model, with the first estimated figure being a massive 88% of US growth not explained by the model (that is, by simple crude accumulations of labor and aggregate "capital").