tax cuts

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Rubio Reality? Not Really

I have friends who think I am too harsh on the Republicans. They tell me that there are some good ideas over on that side of the fence if only blinkered and crazy liberals like myself would stop being so shrill and pay attention.

So that’s what I did.

With Marco Rubio now the new favorite son of the Republican ‘establishment’ – whatever that is nowadays – and the presumed ‘sensible’ candidate come the primary season, I think it appropriate we do exactly that: pay attention.

To his tax plan as an example.

Here it is: lots of tax cuts. So many tax cuts that, according to the Citizens for Tax Justice a leftish think tank, the Rubio plan would scrape about $11.8 trillion off of Federal tax revenues over the next decade. That’s a whole lot of lost revenue, so let’s put it in perspective.

Under present policies total Federal tax revenue in the next ten years is estimated to be about $41.6 trillion. So the Rubio plan knocks around 28% off of that. Numbers that large cannot be thought of as incremental changes or ‘fine tuning’. They are radical. Massively radical. Just to put it in perspective: the Bush tax cuts that so damaged the Federal budget accumulated to a loss of only $3.4 trillion over a decade. So Rubio is proposing something three times as big.

That’s big. It surely qualifies as revolutionary. It is hardly conservative. To achieve such levels of revenue reductions requires major overhaul of the tax code. And guess what? A very large percentage of that cut goes to the top 1% of income earners. A disproportionate amount. Now, I am certain Rubio would argue that this is only natural since those folk pay a disproportionate amount of the total tax, so a tax cut will automatically flow largely to them. Let’s acknowledge that for now, but does a tax cut have to be so balanced? Why can’t a tax cut be biased towards people with lower incomes? Why does the top tier have to benefit so much?

rubio1132015chart

 

 

 

 

 

 

 

 

 

 

 

As you can see from the table above, taken from the CTJ website, the proportions aren’t even closely aligned throughout the income spectrum. The top tier gets a larger percentage cut than anyone else.

We can see who is paying for the Rubio campaign. His financial support isn’t coming from small donors. Obviously.

This ought not be a surprise to any of us. Big business and the wealthy dictate the political agenda by paying for the elections. This is called ‘freedom of speech’ by the Supreme Court, and corruption everywhere else in the world.

No. It is not a surprise.

Nor is the paradox the tax plan raises.

You see, because he’s a hard core Republican, Rubio also has to claim he will reduce the Federal deficit. It is a vital plank on which any credible Republican has to run. He has even proposed that we adopt an amendment to the constitution enforcing an annual ‘balanced budget’. So his budget credentials are safely within the Republican limits of acceptability.

Anyone with ambition on the right has to propose two things in order to be taken seriously out there: they must argue for a balanced budget; and they must argue for big tax cuts.

Hence the paradox.

The conundrum is this: Knocking 28% out of federal revenue implies a similar cut in spending in order just to keep the current imbalance. To get to a balanced budget you would have to cut even more. A lot more. And Rubio doesn’t talk about this. Instead he simply throws around the Republican approved key words and hopes that no one does actual math.

Well we do, don’t we?

The answer is ugly.

Because he fears people might think he is crazy – which he is – and because he needs to shore up his popularity amongst likely voters, who tend to be older and whiter than the average population, Rubio has gone on record saying he will preserve social programs for those near retirement. Presumably he is proposing getting rid of them for younger people. Further, because to be a good Republican you have to want more military spending – apparently we don’t spend enough and the entire world is laughing at how weak we have become – Rubio has suggested he will increase the defense budget as well.

Now here’s the fun part: if we assume Rubio keeps the current levels of social programs and defense spending with no increases over the next ten years, they will cost us approximately $30 trillion.

Go back to the numbers above. Current spending projects to be $41.6 trillion. over the next ten years. Rubio wants to cut revenues by $11.8 trillion. Do the math. $41.6 trillion – $11.8 trillion = $29.8 trillion. Hey presto. To produce a balanced budget Rubio has to eliminate absolutely everything else other than defense and the big social programs. All of it. Education, justice, energy, foreign aid, poverty relief, unemployment assistance all gone. Entirely. All zeroed out. No FBI. No Supreme Court. No salaries for Senators. Nothing. Just lots of weapons and social benefits for elderly voters.

This is not a conservative plan. It is a wildly radical or revolutionary plan.

Which is why I feel completely at ease calling the current crop of Republicans totally crazy. Rubio is disconnected from reality. His plan doesn’t pass the first hurdle of being vaguely coherent. I wonder if he has thought much about it at all. Or is it simply a badge of honor to establish his credentials within the extreme world inhabited by the Republican primary voter stable?

In any case: if Rubio, and his plan,is now the new favorite of the Republican establishment, we can conclude that the so-called establishment is itself arguing for revolution. Either that or they are content with living in an alternative world where numbers don’t have to add up and the word ‘balance’ has lost its meaning.

Rubio reality is simply not real.

Why are we surprised? Or are we?

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Trump’s Tax Plan

I wasn’t going to mention it, but someone asked, so here’s what I think of Trump’s tax plan.

Well, I can’t write that here.

In broad terms the Trump tax plan is just another version of standard Republican dogma, with a twist here and there. It’s core is a massive tax cut: Trump would reduce the number of tax brackets to four; he would lower the top rate of tax 25%; he would create a very large zero tax bracket for lower paid people; he would reduce corporate taxes radically; he would eliminate the estate tax; and he would reduce the number of tax deductions available to higher paid taxpayers.

All of that is normal Republican speak. In this plan Trump is very far from being a maverick. No wonder a few of the usual suspects — Grover Norquist in particular — stood to attention and saluted him.

As an aside I can never quite understand the Republican ire over estate taxes. It only ever affects people with very large estates, so the middle class never gets hit much, and it’s original purpose was to keep the US from developing a class like system where the wealthy could accumulate vast estates through generations. Yes, that was one of the primary motivations for its implementation here: to stop the US becoming like Old Europe. Oh well.

There are a few wrinkles in Trump’s plan, however, that spread a little discord amongst the faithful. For instance, he wants to get rid of the egregious carried interest tax wheeze that hedge fund managers use. This loophole has allowed people earning billions of dollars a year to cap their top tax rate at 20%, leading to the absurdity of their total tax percentage being smaller than that of their administrative assistants, none of whom as far as I am aware earn more than a billion dollars a year. If they do, good for them!

When this loophole came up under attack in the early stages of the 2007/2008 crisis, and particularly in 2009 when Obama was trying to pass his stimulus package, one of its most ardent defenders was none other than Chuck Schumer, a Democrat who just so happens to represent New York — and therefore Wall Street — in the Senate. And who says money doesn’t influence legislation?

Oh, and Trump want to give companies like Apple and Google a tax break on all the cash they have hoarded abroad. They keep the cash offshore to avoid paying US corporate tax on it, but since they don’t repatriate it they cannot invest it here either. So Trump will give them a one time tax break: they can repatriate it and pay only 10% tax.

According to the very conservative Tax Foundation, an organization that has never met a tax cut it doesn’t appreciate, the Trump plan would add just under $12 trillion (yes trillion) to the Federal deficit. For those of you who can remember as far back as last year such a radical increase in the deficit would normally have caused a Republican to explode with fiscal rectitude fury. Not any more apparently. Trump’s plan adds more than the other’s do, but his, Jeb!’s, and Rubio’s are all the same budget busting duds. The Republicans may appear divided on a number of things, but sticking to supply side, tax cutting, magic based economics is something they all have in common.

Speaking of supply side: Trump hails his plan as being pro-growth. He argues that by cutting taxes his plan will stimulate the economy — torrent of new capital will appear from under the mattress, and an army of workers will suddenly appear for work because now they aren’t being taxed on their wages — with the result that GDP will surge towards growth of 6% a year. Consistently. This is fantasy only Jeb! can match. We haven’t seen consistent growth at that kind of pace for decades. And it’s certain that the Trump plan won’t get us back there.

You may have heard of an economic forecasting trick called “dynamic scoring”. This is a dodge that tax cutter use to try to mask the damage their plans will wreak on the Federal budget. It goes like this: cutting taxes does indeed reduce revenue to the budget, so, at first, the deficit rises; but, and this is a huge but, because lower taxes stimulates all that new capital and work to flood the economy, GDP subsequently rises above where it would have been otherwise. So. This rise in GDP produces new tax revenue, also over and above what it would have been otherwise, and so offsets the prior lost revenue. Got that? This dodge is why the Republicans have told the Congressional Budget Office to use dynamic scoring when evaluating legislation. Basically it allows Republicans to make up fantasy numbers and have a way of defending them.

So: what does the conservative Tax Foundation have to say about the Trump plan when they use dynamic scoring? It still increases the deficit. Not by that nearly $12 trillion, but only by $10 trillion.

I rest my case.

Trump’s tax plan is the usual toxic supply side Republican junk. It lowers taxes for the rich and big business. It clobbers the Federal deficit. And it does precious little else.

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Jeb!’s Tax Plan Blues

Silly season is well and truly underway.

Earlier this week Jeb! – formerly known as Jeb Bush – released his great spanking new tax plan. Except there wasn’t much new in it. We’ve seen all of it before, but usually in separate pieces.

Undaunted by the spectacular failure of his brother’s 2001 and 2003 tax cuts which both blew a great hole in the Federal budget and failed to deliver much of the promised growth, Jeb! has doubled down on plutocratic tax policy.

The highlights are that he proposes to reduce the current five tax brackets to three, with the top rate being cut back to the old Reagan level of 28% (it is currently 39.6%). I suppose Jeb! fails to recall that even Ronnie the Amazing was forced by subsequent budget problems to raise the top rate higher than that 28%, but never mind. Jeb! is just getting going.

He is also proposing to double the standard deduction that most families take on their taxes. This would so reduce taxable incomes that millions of low income families would fall below the threshold for paying any taxes at all. This flies in that face of the argument that many Republicans were making during that last election: they were aghast that millions of American don’t pay income taxes and thus had ‘no skin in the game’. Apparently this is no longer an issue. At least not for Jeb!

Why not?

Well he has to throw a sop to the masses doesn’t he?

He must if he wants to persuade them to allow him to slash taxes for the wealthy and big business.

And that’s the core of the entire plan.

Jeb!’s plan is to cut corporate tax rates to 30%, which is silly because no well run business pays anywhere near the current rate of 35% after all the fiddling and special deductions they take. Just ask Apple or Google, both of whom have parked vast seas of cash abroad in order not to pay taxes at all.

Then he wants to eliminate the estate tax altogether. After all rich families have a right to concentrate their wealth don’t they? This is particularly galling because the US was an early leader in instituting an estate tax back around World War I. It’s primary purpose was to prevent the exact concentration of wealth that the Republicans are now so hell bent on encouraging. An estate tax is one of our barriers to the emergence of a class system. I guess all that talk of equality is not fashionable any longer. At least amongst Republicans (was it ever?).

Next up, Jeb! wants to eliminate the write-offs currently allowed for State and Local taxes, and also to put tight limits on the allowances for mortgage interest and health care costs. This is a direct attack on the middle class living in higher tax states, which, I am sure by pure coincidence, tend to vote for Democrats. The effect on the governments services, and especially education, could be disastrous. But who cares about that?

Now comes the fun part:

Presumably Jeb! sent an early copy of his plan to the Tax Foundation, a notoriously conservative and gung-ho group who have never seen a tax cut they didn’t like. They have analyzed the plan for us so we can see how it affects the economy.

Naturally Jeb! has claimed all sorts of miraculous magical effects. His plan is a libertarian dream come true. GDP will soar! Jobs will drop from the sky by the bushel load! Tax revenues will increase! The deficit will shrivel to nothing! Job creators will be free to … well whatever they do, like buy more yachts.

Well not quite.

It turns out that even the wildly optimistic Tax Foundation cannot make any of that happen. Try as they might Jeb!’s plan sucks.

Contrary to his promises it blows a great big hole in the budget. To the tune of $1.6 trillion over the next decade. And that’s if we look on the bright side. If we are somewhat more sober – which of course you and I are – and we ignore all the silly supply side hoodoo and hoopla, then that gaping hole widens even more. To a whopping $3.7 trillion to be exact.

So there you have it.

The Bush family is at it again. I can only assume they pay no attention to any of the reports they might receive, or to history, or to any other thing that could darken their jolly supply side sensibilities.

The inestimable Glenn Hubbard – one of the ethically challenged stars of the movie “The Inside Job” – has been rolled out to defend the plan. He says its just wonderful and that GDP growth will double – double I tell you – if Jeb! can only get those tax cuts to his rich buddies.

Meanwhile here on earth we lumber along waiting for one of theses clowns to put forward a plan that has a smidgeon of reality in it. Yes, we are reduced to such desperation that a plan with the merest touch of reality would surely look good.

Jeb!’s plan is too moronic to qualify even by that minimal standard.

Still it brings a tear to my eye as I recall all those fun times we had laughing in disbelief as his brother dug the economic hole from which we are only now crawling out.

Please not Bush Jeb!

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Actual News and Outer Space

The ridiculous and unedifying spectacle that has become American politics has finally separated itself entirely from planet earth. It has moved off into space in order to discuss – I use that word because I cannot come up with a more appropriate one – issues that it feels are important. Those of us who remain behind have to deal with actual news. Real things. Problems that exist here and not entirely in the fetid minds of ideologues and lobbyists.

So, in that spirit.

I trust you all noticed the recent spate of news from some of our big companies. They seem to be entering another round of firings. Cisco, Lockheed Martin, and the late lamented Borders are all planning to fire thousands of workers later this year. Poor old Borders has fallen victim to a combination of ill advised expansion and the sea change in book selling. It was doomed to fail eventually. As testimony to the extent of the changes it faced in its business: it failed to find a buyer when it offered itself up for sale at bargain prices. It now is being liquidated. Cisco’s case is more interesting: it is making decent profits and has no compelling need to cut back. More importantly, it is one of the more outspoken leaders of the push to get a tax amnesty for all the cash big business has stashed away in various offshore tax avoidance schemes.

As you may recall there has been a concerted effort in Washington to give big corporations tax relief on their cash they hoard offshore. Their tax avoidance lawyers and accountants have been so successful that many of them have billions hidden around the world. Cisco alone has $30 billion sitting abroad. The demand for routers and networking equipment in the Cayman Islands must never be underestimated. Apparently all three local inhabitants spend freely – about $10 billion each.

Anyway, it is just a bit ironic – as in totally tone deaf – for Cisco to be announcing layoffs and thus adding to our unemployed and the cost of unemployment, at the very same moment it is flaunting its offshore cash hoard, and its desire to extract a tax cut so that it has an “incentive” to repatriate those funds. I can hear the obvious next words coming from the lobbyists mouth: if you give us amnesty we will bring back our hidden cash and invest. That will create jobs back here in the US. We should be rewarded for being good citizens and creating those jobs, so how about a tax break on investment?

The problem is that our politicians always fall for this rubbish. Instead of closing the tax avoidance loopholes, they cave in whenever they hear the magic words: “new jobs”. They overlook those old jobs. The ones cut to make way for the new ones.

But back to the news. Job cutting seems to be back on the agenda. Why?

This is the season for businesses to start their planning for next year. They are looking at the prospect for sales and not seeing much improvement. Since the CEO’s and other executives are paid to keep profits rising, even in years of bad sales, they turn to cost cutting as the most obvious way to ensure their bonus pool targets are met. Since demand is flat or weak, they have every incentive to fire more workers. They are being rational within the game they play.

That they hurt the economy is not their problem.

The people who should be worrying about the economy and how to offset the self-serving actions of our CEO’s are in Congress. And, as I noted earlier, they are off in space somewhere worrying about problems like the debt ceiling, deficits, and the national debt, none of which should be on their short term agenda. And should not get back on the agenda until we have pumped up demand.

Instead – do I need to say this? – reports from outer space tell us that our Congressional leadership has decided to compound our economy’s problems and throw us into cost cutting mode in government. So not only is the private sector – the place where this crisis all started – settling down into more cutbacks, but the public sector is as well.

Enquiring minds are thus led to ask: from whence will the recovery emerge? If the entire economy is moving back into contraction, where exactly will growth come from? Or is that too earth-bound a question?

Nuttiness is an attribute best exhibited in fruit cakes. Not in national economic policy. Someone should let Congress know.

Only don’t write to Washington. Address yourself to outer space.

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Debt Deal: Is It A Deal?

Not really.

The re-emergence of the Simpson-Bowles commission on fiscal reform as the rallying point for debt reduction should be no surprise. Obama said he liked it when it was first released, but politics intruded and it seemed to have faded away. Then, as the lunatics ran amok inside the Congressional asylum – that vote on the Republican proposal to cap spending and to advocate a balanced budget amendment to the constitution was both farce and cynical tragedy – sensible people began to look for ways to build a consensus that hid everything controversial and punted the big decisions into the arms of future Congresses.

Simpson-Bowles is just such a plan.

The media is obsessing over the cute way in which tax increases can still be scored as tax cuts and thus allow our sundry extremists to vote for the deal. I suspect that enough of the zealots will see through the ruse and still try to destroy the country, but, perhaps, enough will be persuaded and we can get beyond this moment of national shame.

So: is Simpson-Bowles the real deal?

No.

I didn’t like it when they first aired it in public, and it hasn’t improved with age.

To start with there is the small matter of the up-front cuts. About $500 billion of spending cuts will be phased in over the next four years. This is the “sweetener” designed to allay extremist fears that we are not actually cutting big government down to their liking. To put these cuts in perspective: the 2009 stimulus included a combination of tax cuts and spending increases. If we eliminate the tax cuts – they are largely ineffective as a stimulus device anyway – the proposed cuts are actually larger than the increases within the stimulus. In other words, Obama is asking to reverse, or undo, his already too small stimulus. More to the point: he is asking to do this even though the economy is still weak.

This is foolish. It is unwise. It is stupid. It is a lot of things other than good. Quite how anyone on the left of politics could see this as a positive action I don’t know. It is a capitulation to the right. And it is bad, very bad, economics.

In a vivid testimony to just how far to the right our political landscape has shifted, Michelle Bachmann voted against the Republican plan to eviscerate government spending, so I doubt that Simpson-Bowles has much chance with her if it only includes this down payment on cost cutting.

On that score alone the deal is not good.

On its broader and longer term aspects it isn’t much better.

A great deal is left to be determined. Much of Simpson-Bowles is “illustrative” and requires future Congresses to do all the hard work. Given the extraordinary failure of our leadership to deliver a simple increase in the debt ceiling, I have absolutely no confidence – zero – that anything resembling the cuts proposed will ever get passed into law.

Still let’s take a look.

First, the numbers [all totals over the period ending in 2020].

  1. Cuts to discretionary spending, including defense: $1,464 billion
  2. Cuts to mandatory spending, mainly Medicare and Social Security: $733 billion
  3. Savings from tax reform: $751 billion
  4. Miscellaneous bits and pieces: $210 billion
  5. Reduced cost of interest on national debt: $673 billion

This all adds up to net deficit reduction over the entire period of $3,831 billion. That’s roughly the figure you keep seeing bandied about in the press.

It’s quite an austerity package. If it’s real.

Every aspect of spending gets a hit. Even defense spending, which is an unusual step in such a militarized society. The problems start with identifying actual programs to cut to add up to the top line suggestions. There are pious targets to achieve annual 3% productivity gains in the public sector. Great. How? Then there is the notion of reducing total expenditure to 21% of GDP and then holding it there. That assumes, a major “if”, that Congress thinks 21% is proper and isn’t tempted to do silly things like channel cash to local projects that help Representatives get elected. In case you think our band of zealots is better than their awful tax and spend predecessors, think again. Zealotry stops at those home district borders. Even the most devout Republican Congressman or woman seems to see fit to make sure the cash flows home. The notion is to stop it flowing anywhere else. Suffice to say that if, in this most extreme of Congresses, budgetary discipline is weak, future and less extreme Congresses might find it more difficult to resist the call of largesse flowing home. Especially prior to an election. So the Simpson-Bowles reliance on such ruses is somewhat naive. OK, more than somewhat.

The proposed cuts to discretionary spending are a mixed bag. They include a freeze on military and government employee wages for three years. They include the loss of about 250,000 contractor jobs. Foreign bases are cut by a third. The government payroll – apart from those contractors – is to be cut by 10%, this yields $13.2 billion in 2015 alone. Foreign aid growth is reduced. A sale of federal property yields $1 billion. Then there is the grandstanding: a modest cut in White House and Congressional spending is in the proposal, although I don’t see a freeze on Congressional pay and benefits. Funny that. I must have missed it.

Tax reform is even more of a hodge-podge. The basic approach is to zero out all major deductions – called “tax expenditures” in the proposal, which is why getting rid of them can be positioned as spending cuts rather than tax increases, get rid of the Alternative Minimum Tax, allocate some of these gains to deficit reduction and the rest to reducing all marginal tax rates. If Congress should then decide to protect one or more of those deductions, then it would have to make sure total revenue was the same by raising the marginal tax rates appropriately.

This is where things get funky. The deep red state sponsors of tax reform want to get rid of the deduction for state and local taxes. That would drive a stake into the heart of property values in high tax states, which by some miracle of coincidence are predominantly blue states. How did that happen? One of the sponsors argues that it is time the red states, who have all chosen to have rotten public services and thus lower local taxes, stopped subsidizing the indulgent spending habits of the blues states who all seem to value things like education and so on. Thus he wants to cut the deduction in question. Presumably he hopes this doesn’t precipitate a reaction by the blue states who, by and large, ship truckloads of cash south and west every year by way of government subsidies for those very red states who all fail to finance themselves. Needless to say this is one deduction that will be hard to cut.

It isn’t alone. Mortgage interest credit is a big annual cost and no one, not even our most extreme of zealots, is arguing to cut that out entirely. By the time the Republicans are done it may well be the only boondoggle left for the middle class. We have to leave them something poor dears.

At its most extreme all this tax reform would lower the top marginal tax rate from its current 33% – it would have been 36% had the Bush tax cuts been allowed to go away – all the way down to 23%. This won’t happen in anything like the way proposed. There are too many hands in the till – or is it mouths at the trough?

That mystery “miscellaneous” set of cuts is mainly accounted for by a change in the way in which inflation is measured in any governmental contract that is adjusted for inflation. By shifting to a chain weighted index away from the current index that rate of increase in inflation magically dies down, and all those escalation clauses scale up much more slowly. Funny money? Actually no. This is one of the easiest changes being proposed and could deliver on its promise.

Which is dangerous, because the exact same ruse is in the proposals for mandatory spending cuts. The idea is to slow down the way in which Social Security rises each year to reflect changes in the cost of living. Since the new index measures the increase in the cost of living differently, the outer years covered by the proposed cuts have large reductions in planned spending. This will be a real reduction in the value of Social Security in those outer years.

Other changes in Social Security include raising the retirement age to reflect longer lifespans, but to ask Congress to investigate how to mitigate this reduction in benefits for people who work in manual labor jobs – their lifespans are not increasing anywhere as fast as that of the rest of us and so it would be unfair to attribute it to them. Is Congress likely to be this fair? Ask people like Michelle Bachmann, who is outraged at all and any government program anyway.

Besides changing the inflation index, the other big shift being proposed in Social Security is to increase the amount of income subject to payroll tax. Right now payroll tax is only applied to the first tranche of incomes. So high income earners do not pay tax on all their income. Changing this is the largest contributor to the overall effort to “save” Social Security. Since it didn’t really need “saving”, all this cutting is a sop to the extremists. But let’s leave that discussion for another time.

Last, but not least, are a plethora of cuts to Medicare and Medicaid. This is a real mess of cuts and dodges. Much os it is illustrative and therefore of little value as an actual hard cut. Right wing favorites are the change in tort law to reduce frivolous health related law suits. On the other side of the political ledger the proposal calls for the mitigation of the ridiculous Bush giveaway to the pharmaceutical industry, and its prohibition on Medicare using its market power to reduce drug costs. Reversing that alone save billions. Other than that the proposal melts away quickly into things like “ask doctors, other health care providers, lawyers, and individuals to take responsibility for slowing health care cost growth”. Good luck with that.

The entire section on cutting Medicare is the weakest part of the proposal. It includes things like changes to military retiree benefits and caps on aid to states. These could be real. But much of it appears more aspirational than concrete. So as a viable austerity program it fails at the first hurdle.

In fact this criticism could be leveled at the Simpson-Bowles package in general. Lots of aspiration. Little concrete. Unfortunately the most concrete elements are all those aimed at the elderly or the poor, so I imagine the extremists could support those. But the defense cuts and much of the health care savings are entirely wishful thinking and would need a Congress able to act rather than simply posture.

My conclusion?

The proposal is bad economics – it cuts when we can least afford it; it accepts, tacitly if not explicitly, a cap on spending which cramps future fiscal policy; and its mix is too biases towards spending cuts rather than revenue increases. Simply allowing the Bush tax cuts to expire would produce a very similar effect and wouldn’t attack the poor or elderly either.

The proposal is also vague in many key areas. It places a great burden on Congress to act responsibly and coherently. That is not possible in these days of extremism. More likely is that the extremists will continue their attack on middle class programs and entitlements generally, without allowing any revenue increase. The door is still open, as a result, for a radical re-engineering of American society back to a 1800’s model of small government, high inequality, severe business cycles, and no safety nets. A libertarian paradise, but hell for the rest of us.

Finally, the proposal is a triumph of politics over sensibility. The only reason Simpson-Bowles is back on the agenda is that it provides a framework that middle of the road legislators can sign up for without too much compromise. It is essentially a right of center program. It smacks of sensible austerity without actually requiring tough decisions right now. And by so being, it provides cover for a vote to increase the debt ceiling, which is the true near term objective.

One final thought: I doubt that most of this means anything. Next year’s election will change everything. If the Republicans gain, we can expect the extremists to to ramp up their attacks on the elderly and the poor, and to cut taxes more, which could produce a package with zero revenue increases and 100% spending cuts, as opposed to the Simpson Bowles 33%/67% split.If the Democrats gain, we can expect a shift towards revenue increases and less spending cuts – say a 50%/50% split. Either way this grand bargain so beloved of our leader is a short term fix, and has no real bearing on how, or even whether, we alter our fiscal trajectory.

That we have to sacrifice so much to accomplish so little is a sad testimony to the state of our nation.

Very sad.

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