Serious article first, then an op-ed by Krugman...

http://www.nytimes.com/2010/11/12/us...adlines&emc=a2

Deficit Reduction Plan Draws Scorn From Left and Right
By JACKIE CALMES
Published: November 11, 2010

WASHINGTON — By putting deep spending cuts and substantial tax increases on the table, President Obama’s bipartisan debt-reduction commission has exposed fissures in both parties, underscoring the volatile nature and long odds of any attempt to address the nation’s long-term budget problems.

Among Democrats, liberals are in near revolt against the White House over the issue, even as substantive and political forces push Mr. Obama to attack chronic deficits in a serious way. At the same time, Republicans face intense pressure from their conservative base and the Tea Party movement to reject any deal that includes tax increases, leaving their leaders with little room to maneuver in any negotiation and at risk of being blamed by voters for not doing their part.

Mr. Obama, on a diplomatic tour of Asia in which the fiscal condition of the United States has been a recurring backdrop, maintained his silence on Thursday about the particulars of the draft deficit-reduction plan the commission chairmen had released the day before.

“The only way to make those tough choices historically has been if both parties are willing to move forward together,” he said at a news conference in Seoul, South Korea. “And so before anybody starts shooting down proposals, I think we need to listen, we need to gather up all the facts. I think we have to be straight with the American people.”

Mr. Obama’s stance was at the request of the chairmen, Alan K. Simpson, a former Republican Senate leader, and Erskine B. Bowles, a White House chief of staff to President Bill Clinton, who wanted to avoid any statements that might prejudice the panel’s deliberations before its Dec. 1 deadline. But it was also a response to the outcry from both conservatives against taxes and from Mr. Obama’s liberal base against the plan’s proposed long-term cuts in domestic programs across the board, including Social Security and Medicare.

The liberals are already frustrated with the White House on issues like the Afghanistan war and what to do about the Bush-era tax cuts, which expire Dec. 31, and are increasingly uncertain about Mr. Obama’s willingness to fight for long-held party priorities. That question loomed over a meeting at the White House on Thursday between progressive activists and administration aides about strategy for dealing with the Bush tax cuts in the Congressional lame-duck session that begins next week.

Several activists who attended said in interviews that they sought reassurance after a report Thursday suggesting that the White House was prepared to acquiesce in extending the tax cuts for income above $250,000, as Republicans have demanded.

While David Axelrod, Mr. Obama’s senior strategist, subsequently denied that the White House position had shifted, the immediate suspicion among liberals that the administration was abandoning them reflected broader insecurity among the president’s allies on the left that he would move to center for the rest of his term.

“Dealing seriously with these things is fraught with political peril for both parties, but at some point not dealing with these issues is also fraught with political peril,” Mr. Axelrod said in an interview.

So riled are some liberals about the Bowles-Simpson plan that, privately, several suggested that if Mr. Obama were to embrace its major parts, he would invite a primary challenge in 2012.

Republican Congressional leaders, three of whom are on the commission, similarly remained neutral about the draft, even as conservative groups condemned its proposals to raise revenues.

To these groups, the plan’s call to drastically lower income tax rates for individuals and corporations holds no appeal. That is because the reductions are tied to proposals to restrict or repeal tax breaks for investors and corporations, with additional tens of billions of dollars in revenue left over to reduce deficits.

The Web site of Americans for Tax Reform, which is led by the influential antitax activist Grover Norquist, warned Republicans bluntly, “Support for the commission chair plan would be a violation of the Taxpayer Protection Pledge, which over 235 congressmen and 41 senators have made to their constituents.”

Republicans would also be looking over their shoulders at the growing ranks of the Tea Party. Ryan Hecker, from the Houston chapter, said it would be “a big mistake” for Republicans to go along with tax increases. “I think that is something that would not sit well with members of the Tea Party,” he said.

Emboldened by their victories, Tea Party members are mobilizing for 2012 to work against any Republican who shows signs of compromising. Among Republicans who may well face rivals in the 2012 party primaries are Senators Olympia J. Snowe of Maine, Scott Brown of Massachusetts, Richard Lugar of Indiana and Orrin G. Hatch of Utah.

Mr. Lugar, who began his long Senate career as indisputably conservative but is now seen by many as a moderate as the party has turned further right, said the Tea Party was no “irresponsible fringe” in an essay this week for a publication of the Ripon Society, a moderate Republican group. But, he added, Republicans must not reflexively oppose everything Democrats propose.

“Opposing unsound administration policies remains important,” Mr. Lugar wrote, adding, “But simple, unadorned ‘opposition’ is mistaken, from both the policy and political perspectives.”

With Republicans taking charge of the House, they face pressure to go beyond campaign claims and produce a budget with cuts that live up to their promises.

“There is a ton of postelection survey evidence that the American people are fed up with rejectionism, and want the parties to work harder to find common ground,” said William A. Galston, a former adviser to Mr. Clinton. “But there’s a caveat, and this is critical: While a majority of independents, Democrats and swing voters are for compromise over standing on principle, a majority of Republican voters are against compromise and for standing on principle.”

Certainly Mr. Obama’s inclination, before the election drubbing, was to turn to major long-term reductions in projected annual deficits and to make changes that would ensure Social Security’s solvency until the end of this century. But if he chooses a path like that, he must take time to educate the public about the tradeoffs, said Geoff Garin, a Democratic pollster and strategist.

“What he did in health care was he engaged Washington without first trying to engage America,” Mr. Garin said. “And on deficit reduction it has to work the other way around. For the next two years, who he is as president is as important as what he does as president.”

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The Op Ed: http://www.nytimes.com/2010/11/12/op...R_AP_LO_MST_FB

The Hijacked Commission
By PAUL KRUGMAN
Published: November 11, 2010

Count me among those who always believed that President Obama made a big mistake when he created the National Commission on Fiscal Responsibility and Reform — a supposedly bipartisan panel charged with coming up with solutions to the nation’s long-run fiscal problems. It seemed obvious, as soon as the commission’s membership was announced, that “bipartisanship” would mean what it so often does in Washington: a compromise between the center-right and the hard-right.

My misgivings increased as we got a better feel for the views of the commission’s co-chairmen. It soon became clear that Erskine Bowles, the Democratic co-chairman, had a very Republican-sounding small-government agenda. Meanwhile, Alan Simpson, the Republican co-chairman, revealed the kind of honest broker he is by sending an abusive e-mail to the executive director of the National Older Women’s League in which he described Social Security as being “like a milk cow with 310 million tits.”

We’ve known for a long time, then, that nothing good would come from the commission. But on Wednesday, when the co-chairmen released a PowerPoint outlining their proposal, it was even worse than the cynics expected.

Start with the declaration of “Our Guiding Principles and Values.” Among them is, “Cap revenue at or below 21% of G.D.P.” This is a guiding principle? And why is a commission charged with finding every possible route to a balanced budget setting an upper (but not lower) limit on revenue?

Matters become clearer once you reach the section on tax reform. The goals of reform, as Mr. Bowles and Mr. Simpson see them, are presented in the form of seven bullet points. “Lower Rates” is the first point; “Reduce the Deficit” is the seventh.

So how, exactly, did a deficit-cutting commission become a commission whose first priority is cutting tax rates, with deficit reduction literally at the bottom of the list?

Actually, though, what the co-chairmen are proposing is a mixture of tax cuts and tax increases — tax cuts for the wealthy, tax increases for the middle class. They suggest eliminating tax breaks that, whatever you think of them, matter a lot to middle-class Americans — the deductibility of health benefits and mortgage interest — and using much of the revenue gained thereby, not to reduce the deficit, but to allow sharp reductions in both the top marginal tax rate and in the corporate tax rate.

It will take time to crunch the numbers here, but this proposal clearly represents a major transfer of income upward, from the middle class to a small minority of wealthy Americans. And what does any of this have to do with deficit reduction?

Let’s turn next to Social Security. There were rumors beforehand that the commission would recommend a rise in the retirement age, and sure enough, that’s what Mr. Bowles and Mr. Simpson do. They want the age at which Social Security becomes available to rise along with average life expectancy. Is that reasonable?

The answer is no, for a number of reasons — including the point that working until you’re 69, which may sound doable for people with desk jobs, is a lot harder for the many Americans who still do physical labor.

But beyond that, the proposal seemingly ignores a crucial point: while average life expectancy is indeed rising, it’s doing so mainly for high earners, precisely the people who need Social Security least. Life expectancy in the bottom half of the income distribution has barely inched up over the past three decades. So the Bowles-Simpson proposal is basically saying that janitors should be forced to work longer because these days corporate lawyers live to a ripe old age.

Still, can’t we say that for all its flaws, the Bowles-Simpson proposal is a serious effort to tackle the nation’s long-run fiscal problem? No, we can’t.

It’s true that the PowerPoint contains nice-looking charts showing deficits falling and debt levels stabilizing. But it becomes clear, once you spend a little time trying to figure out what’s going on, that the main driver of those pretty charts is the assumption that the rate of growth in health-care costs will slow dramatically. And how is this to be achieved? By “establishing a process to regularly evaluate cost growth” and taking “additional steps as needed.” What does that mean? I have no idea.

It’s no mystery what has happened on the deficit commission: as so often happens in modern Washington, a process meant to deal with real problems has been hijacked on behalf of an ideological agenda. Under the guise of facing our fiscal problems, Mr. Bowles and Mr. Simpson are trying to smuggle in the same old, same old — tax cuts for the rich and erosion of the social safety net.

Can anything be salvaged from this wreck? I doubt it. The deficit commission should be told to fold its tents and go away.

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I know it's getting to sound as though I basically hate everyone, but fuck you Krugman. So you were right once or twice? I once won a pub quiz but I don't go around writing NYT editorials about how everyone else alive today is a dribbling, morally vacuous cretin.

Has he even got a solution of his own or is bitching about people who are actually trying to do stuff as far as he goes?

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Tax the rich and declare trade / currency war on China...

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For a different take on the same story: http://www.nytimes.com/2010/11/16/op...ubbard.html?bl

Left, Right and Wrong on Taxes
By GLENN HUBBARD
Published: November 15, 2010

GIVEN the furor from both the left and the right, one would be tempted to think that the initial proposal from the co-chairmen of President Obama’s fiscal commission, Erskine Bowles and Alan Simpson, must offer an excellent starting point for a discussion of deficit reduction.

Indeed, it does — particularly when it comes to tax policy. America’s fiscal mess is real. As Messrs. Bowles and Simpson aptly demonstrate, we are in a difficult situation in large part because we have designed entitlements for a welfare state we cannot afford. And, perhaps less obviously, they show how we have used the tax code as a vehicle for special-purpose spending that weakens both the efficiency and fairness of our tax system.

When I left my job as the deputy assistant Treasury secretary for tax policy in 1993, I left a message on my office blackboard for my successor. I wrote, “Broaden the base, lower the rates” repeatedly until I filled the entire space. I then had it covered with wax so it could not be erased. (Yes, the government charged me for my bit of vandalism. But it was worth it.)

The Bowles-Simpson report seems to have taken that message to heart, recognizing that when we provide tax advantages to spur certain types of spending — with, say, a deduction for interest payments on home mortgages — we in turn require higher marginal tax rates to raise offsetting revenue. Not only are those higher rates a drag on overall growth, but because the tax preferences are often more valuable to affluent households than to poorer ones, they also make the tax code less fair.

This is why the two chairmen suggested that the government reduce marginal tax rates for households to a range from 8 percent to 23 percent, based on income (as opposed to 10 percent to 35 percent now). This cut in rates — which should promote job creation, entrepreneurship, saving and investment — would be made possible by limiting many of the deductions that make the tax code so complicated and often inequitable.

The loopholes proposed for elimination or at least reduction include not just the mortgage-interest deduction, but also exemptions for charitable contributions and for employer-provided health care subsidies, as well as the earned-income tax credit. (It’s worth noting that the Bowles-Simpson plan does allow for some flexibility: Congress could add back deductions and exclusions it feels are vital, but at the expense of higher marginal rates.)

The co-chairmen also wisely propose a cut in the corporate income tax, which holds back both investment and wages, reducing it to 26 percent from 35 percent. This cut shouldn’t actually require much in terms of offsetting revenue, as research from the Organization for Economic Cooperation and Development suggests that the new level would not be far from the “revenue-maximizing” rate.

This is not to say the commission’s proposal is ideal. For one, it missed a chance to make better, more radical changes to the revenue system — like a shift to a consumption tax rather than taxing incomes. My greatest concern, however, is that the plan is more about “principal” (cutting federal debt) than about “principle” (what we want taxes and spending to accomplish).

To meet the nation’s fiscal challenges, we need to refocus our economic activity — primarily with less reliance on consumption and more on investment and exports. The Bowles-Simpson plan to cut marginal tax rates and the corporate tax would help. But their proposal to treat capital gains and dividends, which are now taxed at favorable rates, as ordinary income would not; in fact, it would hamper saving and investment. And the proposed increase in gasoline taxes seems designed simply to plug a budget hole, not to spur energy innovation.

What of the critics on the left and right? I understand the complaints of liberals. The proposal essentially claims that maintaining a broad welfare state is inconsistent with planning for a long-run fiscal trajectory that includes economic growth and social insurance. This idea is anathema to Democratic Congressional leaders. The proposal also lays bare the fallacy on the left that any lowering of marginal tax rates is necessarily “tax cuts for the rich.” The plan’s limits on tax deductions and cutbacks in the generosity of entitlement benefits for upper-income households render the plan a progressive reform.

The right’s criticisms are more puzzling. Groups like Americans for Tax Reform insist that any member of Congress who supported the proposal would be voting for a tax increase. It is hard to share the view that no tax increase of any sort can figure in a fiscal solution. The proposal calls for taxes and spending to be capped at 21 percent of gross domestic product, which, while higher than I might design, is a serious suggestion worthy of debate.

Second, it is not reasonable to argue that there is no single activity that can face higher taxation. If the economy must pivot toward investment and exports, tax policies must be changed to encourage productive investment over consumption.

Two cheers for this first draft of our economic future. If President Obama embraces its structure and Republicans embrace the tradeoffs it presents, the proposal will begin a discussion that, one hopes, will end in fiscal sanity and economic growth.


Glenn Hubbard, the dean of Columbia Business School and the co-author of “Seeds of Destruction,” was a chairman of the Council of Economic Advisers under President George W. Bush.

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http://www.nytimes.com/2010/11/22/us...dlines&emc=a24

Vow to Repeal Health Care Holds Little Promise
By ALBERT R. HUNT
Published: November 21, 2010

Republicans won a smashing victory in U.S. national elections this month; no issue resonated more with the party’s base than President Barack Obama’s health care legislation.

The House Republicans’ “Pledge to America” vowed “to repeal and replace the government takeover of health care with common sense solutions focused on lowering costs and protecting American jobs.” The party won more than five dozen seats, the most in seven decades.

There is no chance this pledge will be achieved.

While Republicans have a big majority in the House, Democratic control of the Senate and the presidential veto power make repeal or major change impossible.

There is another reason.

More than a few Republicans know that while the politics of trying to nitpick provisions and curb funding are appealing, any wholesale repeal of major provisions of the health care overhaul is likely to generate a backlash.

Even the Republican-leaning electorate on Nov. 2 was evenly split on repealing Obamacare, the exit polls showed. And many of the major provisions of the bill command broad support or could expose critics and repeal advocates to embarrassing contradictions.

One such provision is the enhanced prescription-drug benefits for Medicare.

It was in 2003, under President George W. Bush, that Medicare was expanded to cover drugs — a measure backed by most congressional Republicans, who chose not to pay for these new benefits.

The Obama health care bill expands and funds this coverage to cover a gap in payouts, or close the so-called donut hole. Under this provision, senior citizens currently affected by the gap next year will get, on average, an additional $553 of benefits.

Seniors voted 58 percent to 39 percent for Republican candidates in the midterm elections. Whatever the merits, there’s little clamor within the party to reopen the donut hole.

Medicare poses a larger quandary. A central critique of the Democrats’ health care bill was that it would cut back on that program.

The Senate Republican leader, Mitch McConnell of Kentucky, accused Democrats of trying to “raid” Medicare. The Republican political group, Crossroads GPS, funded by anonymous contributors, ran attack ads against the Democratic Senate candidate in Pennsylvania, Joe Sestak, charging he “voted to gut Medicare — a $500 billion cut.” Mr. Sestak, who lost a close Senate race, supported the health care overhaul, which seeks to temper the explosion of health care costs through greater efficiencies and checks and balances. Whether effective or not, it’s not a half-trillion-dollar cut in Medicare benefits.

Yet when it comes to reducing government spending and budget deficits, a Republican priority, there’s no more important target than health care spending in general, and Medicare in particular. The proposal by the Republican congressman Paul Ryan of Wisconsin to turn Medicare into a voucher system is designed to hold down costs. The catalyst for the 1995 government shutdown was the Republicans’ attempt to foist deep Medicare cutbacks on President Bill Clinton; it was a political disaster for them.

The reaction to the recent proposal by Erskine Bowles and Alan Simpson, the co-chairmen of Mr. Obama’s deficit-reduction commission, was instructive.

They offered a plan that would take the deficit down to 2.2 percent of gross domestic product in 2015, from 9 percent today. It includes almost $100 billion of tax increases that year, which leading congressional Republicans say is unacceptable, though they embrace the objective. To achieve such a goal without new revenue almost certainly would require slashing health care spending.

The other principal Republican objection to the health care bill is the individual mandate requiring Americans to buy health insurance or pay a penalty. That has been denounced by critics as bad policy. Some have even charged it is unconstitutional, or as Senator Jim DeMint, a South Carolina Republican, put it, “inconsistent” with “the freedoms our Founding Fathers hoped to protect.” Simultaneously, many critics say that one provision they would keep is the bill’s ban on denying health-insurance coverage because of pre-existing conditions. That can be done, Mr. Ryan and others say, by expanding high-risk pools in states to cover those people, disproportionately those with disabilities.

Except it never works that way. These high-risk pools are not adequately funded, there are cumbersome regulations to join them and, with fiscal situations tight in the years ahead, it is a safe bet that those with the most clout will not be people with disabilities.

To be sure, there are problems that could lend themselves to a bipartisan fix. Small businesses complain of too much red tape, some of which can be alleviated. Some Democrats even want to allow states to opt out of the individual mandate, though that would create enormous complications.

Still, many of the horror stories that critics contend the bill has already produced, upon closer examination, are distorted or simply wrong. When several Roman Catholic hospitals in Scranton, Pennsylvania, announced this year that they were closing, Republicans immediately charged it was because of the onerousness of Obamacare. It sounded persuasive, until the director said the hospitals had been in economic trouble for two decades, and the health care bill had little to do with the closures.

Almost none of the stakeholders who supported the bill — hospital associations, drug companies, some physicians groups and even many insurers — favor repeal.

What some would like is to gut a provision that establishes an Independent Payment Advisory Board, which would be charged with curbing spiraling costs in the future. Everybody is for “bending the cost curve” of the most expensive health care system in the world until it comes to actually cutting costs. That transcends party and philosophy.

Most of the health care moves in the 112th Congress will be more games and pandering to a hard-core base; charges of socialism will reverberate, just as they did after Medicare was enacted in 1965. Never mind that under Obamacare there is less government involvement in the health care system than in most countries.

The Republicans’ real agenda is to continue the drumbeat of criticism until Mr. Obama is defeated in 2012 or, what many privately say is a more realistic hope, a Republican-dominated Supreme Court rejects the measure.

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