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November 06, 2003

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Brad DeLong

Could you please run an alternative "Krugman prescient" contest?

I mean, I was reading Alan Greenspan's speech from yesterday--the one where he says that:

--inflation is worrisomely low--too low.

--if employment growth doesn't pick up soon, the entire recovery might be in jeopardy.

--the long-run deficit forecasts are really scary.

And it reminded me of Krugman. Greenspan was channeling Paul Krugman. (Minus, of course, the ability to write in short, clear, shocky sentences; and the tendency to personally declare Intellectual Thermonuclear War on all the denizens of the pit and other carriers of error.)

Seb

I like this one: "possibly high enough to create some jobs, but not high enough to make jobs easier to find."

There will be more jobs, but jobs won't be easier to find. How can this be -- especially when the economy (we'll see in 2 hours how many I guess) is adding net jobs? [But BDL's comments on the Krugman/Greenspan connection are spot on.]

Jon Henke

"Greenspan was channeling Paul Krugman."


- - -With due respect, professor, I don't think Paul Krugman would have said "Tax rate increases of sufficient dimension to deal with our looming fiscal problems arguably pose significant risks to economic growth and the revenue base."

Mr Greenspan went on to recommend closing the gap with growth, rather than tax hikes.

If, however, this is also Paul Krugmans view, I must ammend my view of him, to some degree. Krugman is in favor of cutting the size/growth of government, rather than "raising taxes on the rich"? Who knew?

Cecil Turner

Well Professor, my reading of Greenspan’s remarks was quite a bit different. (The full text is here for those who’d like to make up their own minds.) Let’s take them point-by-point.

On hiring, he did caution that: “Unless hiring picks up and layoffs ease, assuaging the latent job security fears of many of those currently employed, the share of income spent could decline, a development that would hamper the vigor of the expansion.”

But the next paragraph provides some balance: “The odds, however, do increasingly favor a revival in job creation. . . .[various factors are] a combination that could generate a notable pickup in hiring should growth in final sales remain firm.”

He said nothing of inflation being “worrisome.” Although there is some remote possibility of deflation, continued low inflation is a positive trend that allows a more flexible monetary policy: “Indeed, the Federal Open Market Committee has judged that the probability, though minor, of an unwelcome fall in inflation exceeds that of a rise in inflation from its already low level. In these circumstances, monetary policy is able to be more patient.”

Finally, the long-term deficit forecasts are mainly concerned with the retirement of the baby-boomers . . . which is hardly news. And the note he sounded was significantly more hopeful than “really scary”:

“History has shown that, when faced with large challenges, elected officials have risen to the occasion. In particular, looking back over the past twenty years or so, it has been evident that the prospect of large deficits generally has led to actions to narrow them. I trust that the recent deterioration in the budget outlook and the fast-approaching retirement of the baby-boom generation will be met with similar determination and effectiveness.”

TM

Ok, good point for the Prof, and fair's fair - A "Krugman Got Us" contest it is!

That said, I think on the specific Greenspan example, it's one thing to say they agree on the problems, and quite another to say they agree on the solutions.

I am firmly on both sides of this. Sometimes even agreeing on the problem is difficult, and I am sure there is less than full agreement about the significance of the deficits - I don't really think that Bush is terribly worried about large deficits ten or fifteen years from now. Krugman is worried about the impending insolvency of the Federal Gov't, Greenspan thinks the political system will respond to the challenge as it develops, and Bush's advisors probably agree with Greenspan. Sufficient unto the term is the election therof.

Brad DeLong

>>"Greenspan was channeling Paul Krugman." - - -With due respect, professor, I don't think Paul Krugman would have said "Tax rate increases of sufficient dimension to deal with our looming fiscal problems arguably pose significant risks to economic growth and the revenue base."<<

Touche...

I will send a messenger to the Cardinal to send reinforcements...

Brad DeLong

>>He said nothing of [de]flation being “worrisome.” "Although there is some remote possibility of deflation, continued low inflation is a positive trend that allows a more flexible monetary policy: “Indeed, the Federal Open Market Committee has judged that the probability, though minor, of an unwelcome fall in inflation exceeds that of a rise in inflation from its already low level."<<

Yes, he did! He's worried about the possibility of an unwelcome fall in inflation!

Surrender now, musketeer dog, and swear allegiance to the Cardinal!

Brad DeLong

>>Greenspan thinks the political system will respond to the challenge as it develops, and Bush's advisors probably agree with Greenspan.<<

I only have one rapier. How can I block all these simultaneous thrusts? Has my messenger to the Cardinal gotten through?

Well, clearly we want the political system to respond to the challenge. And clearly Krugman and Greenspan crying, "Deficit! Deficit!!" is part of the process by which we get the political system to respond. So, OK, everybody, one, two, three, "DEFICIT!! DEFICIT!! DEFICIT!!!!"

To the extent that "political system will respond" is code for "we make a mess, and then those pathetic responsible Democrats clean it up so that we can then make another one," I think it's short-sighted. There's a good likelihood that economists will have much less of a voice in the next Democratic administration than they did in the last one--will have, say, as much voice as economists have in the current administration. Then the response of the White House will not be Clinton's, "My God! Look at this disgusting mess the Republicans made! We need to clean it up!!" It will be, "The Republicans made a budget mess? Well, we have our spending priorities. Let's roll double or nothing, and leave an even bigger mess for the next Republican administration to clean up."

Do that twice, and you're in Argentina-land...

Jon Henke

Lol.....Professor, I may not agree with you, but I suspect I would like you.

Hm....taking up your theme, perhaps we could convince you to pull a Richelieu and abandon your ideological peers to side with us, as a matter of self-interest? :)

Brad DeLong

Join the side of those who favor the adulterous Queen, and who are the catspaws of Britain's Duke of Buckingham and of the Hugeonots who want to tear France apart with fifty more years of religious war?

Never!!


*Urk* You'd think I'd haver learned how to spell Huguenot by now, wouldn't you...

TM

Whoa. Paul Krugman must be Rochefort, Maureen Dowd is MiLady deWinter - this is a lot to take on all at once.

When I worry about this, I have to admit that, although Reagan raised taxes, after the experience of Bush I, it's hard to see another Repub doing so.

However, Clinton's tax hike was not at all the disaster we predicted, so I don't think Dems are afraid to suggest tax hikes, as the current crop of candidates is doing. And the hidden wrinkle is that, if the next Admin is Dem (we are talking 2009, now), they don't need to vote a tax hike - they can just veto extensions of Bush's tax cut as various provisions expire.

So politically, I think/hope the roadblocks are manageable. And this view suggests that we need a Dem President vetoing tax cut extensions, and a Repub Congress blocking new spending. Of course, since the current crop of Rep. Congressman have fallen into feeding at the trough (with no significant WH resistance), that may now work so well.

Cecil Turner

Papist scoundrel!

The probability of a decrease in inflation is “minor,” the economy is expected to grow out of the current short-term crisis, and the Democrats’ programs got us into the long-term problem in the first place (or are they not taking credit for Social Security now?). In any event, marginal tax rate increases isn’t the answer.

“Gentlemen, make ready.” ”Aim!” “In volley, Fire!”

“Heh. Ain’t that just like a bunch of unreconstructed heathens—bringin’ knives to a gunfight.”

Good job Prof. Haven't laughed that hard in weeks. You won that one on style, anyway.

Jim Glass

"... clearly Krugman and Greenspan crying, 'Deficit! Deficit!!' is part of the process by which we get the political system to respond. "

I'd rather hear PK cry to the Democratic Senate conferees "Means test that drug benefit like you already agreed to do!" That one act -- applying the test, not the cry -- would do more to close future budget deficts than anything else imaginable today.

Applying the principle in the end is inevitable -- it will have to be part of any future deficit-closing deal, in return for tax increases from the other side -- so why fight it? It's the progressive thing to do, so progressives should want it. Letting entitlements grow unchecked will really bust the budget whatever happens to taxes, so if we are concerned about the deficit we've got to want it. Delaying will only make things worse by the year, so we should want it now.

And Krumgan is in the position to pull a "Nixon going to China" on this, to actually *do* something about the budget and help actually get the political system moving sooner rather than later -- rather than just keep on polarizing everything into warring camps.

For the life of me I don't see why progressives who are worried about the budget wouldn't support this -- except to preserve an advantageous short-term partisan political issue at the long-term cost of everybody. And I thought the self-proclaimed good guys had proclaimed themselves above that kind of politics.

Brad DeLong

Are you accusing us servants of the Cardinal of being out for short-term loot rather than being servants of the Destiny of France? If it were short term loot we were after we would all be on the National Review cruise.

It is profoundly odd. "Means testing" is the same as "progressive income taxation"--only done on the spending side rather than on the taxation side. Liberals who are for the one should be for the other, IMHO.

There are two arguments against means testing. First, administrative simplicity. God knows we don't need any more forms or tests. That's a strong argument. Second, there's the argument that the rich and the middle-class will approve of benefits that are not means-tested and so they get them (never mind that four times the value of the benefit to them is snarfed back in taxes to pay for benefits for others who are less well off), but don't like benefits and don't like politicians who vote for benefits that are means-tested.

I've never liked that argument very much. It's always seemed to me to hinge on fooling people--and a good government should play it straight with its citizens. Plus it has always seemed to me unlikely to be true: it's seemed to me that social insurance--the government is giving you an insurance policy so that if, when you are old, your income falls below X and your medical expenses exceed Y, the social insurance program will pay Z% of the excess above Y--is something that is (a) very worth having, and that (b) can attract a lot of votes.

Sebastian Holsclaw

Good back and forth, but this is a bit much:"we make a mess, and then those pathetic responsible Democrats clean it up so that we can then make another one"

Are you speaking of the mess of Social Security and Medicare? Nice if we could fix a mess that threatens to take over huge portions of the budget in the near future.

Brad DeLong

Well, we were projected to be in rough balance out to 2050. We aren't any more. And only a small part of the change is due to our expectations of economic growth have fallen.

To claim that Reagan in 1981 and Bush in 2001 did not make *huge* fiscal policy messes is beyond belief--kind of like showing up for a duel holding a ham rather than a rapier...

Cecil Turner

Professor,

Surely you aren't suggesting the President's modest tax cuts are responsible for the change in revenue projections? Or that raising taxes during a recession is good fiscal policy? Or that Congress has no responsibility for spending?

Perhaps you could explain what, other than bad assumptions in the economic growth forecasts, has caused the pixie-dust projections to change so dramatically? Did we obligate an additional several trillion dollars in the last two years?

And while dueling may bring temporary satisfaction, true servants of the "Destiny of France" will bear the King's musket against His enemies . . . instead of cutting up each other in pointless personal squabbles.

Brad DeLong

Well, do you believe that the provisions of the 2001 and 2003 tax cuts that are currently legislated to expire at the end of this decade will in fact expire? That the tax cuts for the $200K+ crowd will be reversed? That the estate tax will come back? Et cetera.

If you believe that the current law will remain that current law--that these provisions won't be extended and made permanent--then things aren't so bad.

On the other hand, if you think that we will have current law plus extension of expiring tax-cut provisions plus indexing the Alternative Minimum Tax plus discretionary domestic spending remaining a constant share of the economy...

Then let me call in the regulars: the Regiment of Picardy commanded by the Prince de Conde, Peter Orszag, and the Irish Guards commanded by the Comte d'Artois, William Gale, both from the Brookings-Urban Tax Policy Center Brigade. Their forecasts as of late September were...

Then we are looking forward to a fiscal 2013 deficit of some $1,105 billion dollars--6.5% of GDP--of which some two-thirds is due to the Bush tax cuts and associated interest payments on the debt thus accumulated.

Some $300 billion of the swing relative to year-2000 projections of 2013 is due to "changes in economic and technical conditions"--that is, projections that GDP in 2013 will be less than we had thought. Some $250 billion of the swing relative to year-2000 projections of 2013 is due to changes in military and homeland security spending and associated interest.

And, of course, in the years after 2013 Social Security expenditures become a problem and Medicare and Medicaid expenditures become a *huge* and *serious* problem...

Cecil Turner

Prof,

Oh piffle. You can’t seriously be suggesting we have accurate estimates for the deficit ten years hence. I’d assumed you were talking about total debt—which is much easier to guess at—the deficit estimates in the last ten years have gone from -$200 billion per year to +$400b and back to -$400b. The only thing I’m sure of about the current figures is that they’ll be wrong.

As to tax cuts causing deficits, that assumes there’s no relationship between tax rates and economic growth. Mr Greenspan isn’t buying any . . . and neither am I. The argument that the tax cuts and stimulus spending would not increase growth are looking less defensible by the day. The short-term goal is clearly to get the economy moving again. And raising taxes at this point isn’t the way to do it.

TM

I'm actually getting intrigued by the question of how to think about these "expiring" tax cuts. On the one hand, when the legislation was passed they were described in some quarters as a cynical maneuver to stage manage the budget projections. Other folks said it was a cynical ploy to create an environment where Oceania is always cutting taxes, or at least exploting them as a political issue.

But why not view them as a responsible use of the democratic process? As the expiration of those tax cuts approaches, Reps will (we presume) use that as an election issue - vote for me, or taxes will go up. Dems will probably take an opposite tack. And let the voice of the people be heard!

Although I understand the legislative process can be a minefield, I imagine that Dems will have an easier time playing defense - all they have to do is block a bill extending the cuts, either by filibuster, or by sufficient votes in the House, Senate, or White House. That should be easier for Dems to achieve than some future attempt to actually pass a bill affirmatively raising taxes.

SO, is it the current Dem position that (a) these tax cuts will, in the fullness of time, be clearly revealed as causing huge deficts and economic distress; and, (b) voters will refuse to elect Dems or responsible Reps who will address this?

Both those things may happen, but it seems awfully gloomy. And if future voters are projected to be so ignorant or irresponsible, why should we expect more of current voters?

Hmm, my quick response is running long. I guess part of the Krugman world view addressing my question is that the entrenched plutocracy will control the future elections to the detriment of the rest of us, so the current crop of voters represent the last, best hope of democracy. And good luck to us.

I don't know. However, I just struck a typo, which I will repeat with the hope that I can remember it someday to describe the reaction of an excited lefty to some (presumably gloomy) economic news - that would be, having a "Krugasm".

Now I just have to wait for some bad economic news - may be a while...

Brad DeLong

>>You can’t seriously be suggesting we have accurate estimates for the deficit ten years hence.<<

We have forecasts--which might be too high, which might be too low, and which are very unlikely to get it on the nose.

The fact that forecasts have error doesn't mean that we shouldn't make them, Mr. Ostrich. The argument that we shouldn't care if our current plans are stupid because things will turn out differently from what we plan is the weakest one I've heard in months.

Brad DeLong

>>all they have to do is block a bill extending the cuts, either by filibuster, or by sufficient votes in the House, Senate, or White House.<<

It will move through the Senate as a Reconciliation bill using the streamlined Reconciliation process: no filibuster.

On the other hand, the Senate *might* restore the provisions of the Budget Enforcement Act making any bill that increases the projected deficit in any of the next ten years automatically out-of-order...

Cecil Turner

“The fact that forecasts have error doesn't mean that we shouldn't make them, Mr. Ostrich.”

No, Mr Chicken Little, but it does mean that we shouldn’t ignore faulty assumptions in the forecasts that would lead to error . . . and very poor decisions. Projecting spending vs revenue during a peaceful bubble led to forecasts of “free bubble-up.” They were wrong. The same projections during a wartime recession lead to . . . falling sky! This is not a surprise. Nor is it a good argument for raising taxes during a recession. Contrary to Gale and Orszag’s doctrine, there is historical precedent for growing out of large public debt. Even they admit priming the pump is appropriate.

In any event, making a ten-year forecast based on two years’ policy (and assuming everyone will fall asleep at the switch for the remainder of the decade) seems a bit fatalistic. I admit sharing Mr Greenspan’s optimism we won’t all abrogate our responsibilities in the matter. In the meantime, however, the first two years of the current administration’s policies have led to a much-needed boost in economic growth, and it’d be nice to see that fact acknowledged, and perhaps factored into predictive models.

Brad DeLong

To start out by denying that administration tax cuts have had a significant effect on deficit forecasts, and then to turn tail and run as fast as one can back to the position that who cares about long-run deficit forecasts anyway--that's the kind of cowardice one would expect from a musketeer. We who serve the Cardinal are made of much sterner stuff...

:-)

Cecil Turner

No Professor, I didn’t say I didn’t care about long-run deficit forecasts. I said yours were based on faulty data and led to an incorrect conclusion. Gale and Orszag state: “the projected unified budget balance for 2002 through 2010 deteriorated from a surplus of $4.7 trillion in January 2001 to essentially zero ($13 billion) in August 2002.” Obviously this is primarily based on differing estimates of economic growth, not tax cuts.

And some of their assumptions are shaky. E.g., “Gale and Potter (2002) estimate that the tax cut will have little or no net effect on GDP over the next 10 years and could even reduce it.” That may be true, but the early returns are not promising. If the cuts in fact spur economic growth, as seems likely, the study’s conclusions are worthless.

Finally, amateurs with blades often mistake Musketeer tactical acumen with cowardice. However, since bayonets have yet to be perfected, professional gunmen will maintain a distance . . . at least until the enemy’s ranks are disrupted by initial volleys.

Will Allen

Thanks to all for a thoughtful exchange that was devoid of the all-too-typical ad hominem attacks, while displying a good measure of good humor.

Brad DeLong

Re:

>>Gale and Orszag state: “the projected unified budget balance for 2002 through 2010 deteriorated from a surplus of $4.7 trillion in January 2001 to essentially zero ($13 billion) in August 2002.” Obviously this is primarily based on differing estimates of economic growth, not tax cuts.<<

Yeah. Differences in 2002-2005 are primarily due to differences in economic growth rates. Differences from 2008 on are primarily due to the tax cuts (if they are extended).

Just like a musketeer to focus on the short run, when it is the long run that is by far the most important...

Cecil Turner

“Differences in 2002-2005 are primarily due to differences in economic growth rates. Differences from 2008 on are primarily due to the tax cuts (if they are extended).”

Agreed. But the longer-range forecasts are inherently least accurate (as the accumulated error from faulty assumptions pile up). If Gale and Orszag were to recalculate today using the same methods, they’d get a much more favorable estimate—primarily due to unexpectedly strong economic growth in the 11 months since publication. And again, I think choosing ten-year-on estimated deficits as a measure of merit is chancy at best . . . total debt is a much better guess if only because some of the cyclic variance cancels itself out.

If tax cuts do play out badly, they may be allowed to expire. Or at any time they may be changed by a simple majority vote and the President’s signature (or a supermajority without the signature). The main reason that may be difficult is not because raising rates is politically unpopular, but because the lower rates appear to be working (providing economic stimulus). In any event it makes more sense to prime the pump and then divert some of the flow downstream, rather than to withhold priming water in an attempt to take an earlier drink.

We Musketeers will freely admit to his Eminence’s greater political experience. However, the effects of his adventures appear primarily to be unrest among the French people and militarization of Germany. Neither would appear to be in the long-term interests of France.

TM

Good to see we are back on the Musketeers; the "Mr. Ostrich, Chicken Little" was starting to ruffle my feathers.

That said, I can't shake the suspicion that the Cardinal's man has carried the day, yet has been denied the satisfaction of leading away his prisoners in chains.

So, my reluctant and grudging summary: are these long term forecasts useful for gauging where we are likely to end up? Not really, since the political environment will, we hope, adapt to that ghastly reality if and when it actually unfolds. However, as a projection of where the (unexpired) Bush tax cuts might take us, even Bush supporters seem to agree that the projected destination is not quite what we signed up for. I have a very quick and dirty "analysis" (too long for a comment, insufficiently half-baked for a post) suggesting that even much more optimistic gropwth forecasts don't save these figures.

From which we might conclude:

(a) Bush and his economic team are idiots;

(b) Bush and his team are part of a Republican cabal hiding (in plain sight) their determination to wreck the American social contract;

(c) Bush and/or his successors are going to raise taxes - Reagan, Bush and Clinton all did, and we still like one of them;

(d) deus ex machina;

(e) the secret Republican belief most firmly articulated by Jonah Goldberg, if I can find it - if the worst that happens is that we have relaunched the budget wars of 1980-2000, well, bring it on - those were hardly the worst two decades on record.

As to (e), some will differ, pointing to (among other things) the stagnation in middle class incomes over much of that period. Defenders of that era will go on about globalization, immigration, fundamental changes in the economy, and so on. My guess is that, put to a vote, a majority would replay that era.

Or would they? It does include the worst economy since the Great Depression (twice, in 1982, and 1990), and a lot of hyperbole, so maybe a replay would be just too painful, and we should switch to screaming about something else.

Anyway, Bush critics clearly lean to (a) and/or (b); supporters seem to favor some combination of (c), (d), and (e). But, unless they appear soon, we haven't heard from anyone insisting that these projected numbers are trumped by more plausible forecasts elsewhere.

It is also worth noting that, Mr. Carville's insight aside, it's not just the economy. Personally, I had plenty of reasons to dislike Al Gore, just as others have plenty of reasons to dislike George Bush.

Brad DeLong

>>Personally, I had plenty of reasons to dislike Al Gore<<

Like his declaration to the Clinton environmental policy staff that they *would* come up with estimates showing that observing the Kyoto Protocol would cost the average American family no more than $100 a year?

TM

If I had known that, I would have been screaming that he politicized the intelligence.

Instead, I just screamed. Man, does that seem like a long time ago.

Cecil Turner

On the merits, I’d freely concede the long-term US fiscal outlook isn’t optimal. But the current administration inherited a bursting bubble and a long-term challenge, and much of the turnaround was based on the previously over-optimistic assessment that we had a window of peaceful prosperous opportunity to solve the baby-boom retirement crunch. I also think there’s merit to the pump priming argument, and further merit to the position that tax cuts labeled as temporary will not prime as effectively as ones with a longer presumed run (even if they are subsequently truncated). And the relatively sparse data available seems to support the President’s position better than some economists’.

If I were making His Eminence’s case, I’d concentrate more on the administration’s program to construct new entitlement programs with potential for explosive growth (e.g., drug benefits), without having a plan to properly fund current programs in the out years. That, however, is a less effective partisan issue, mainly because there’s plenty of blame to go around.

I’m not disinterested, but I’d give it to the Prof on style. My apologies to Tom for bringing Henny Penny into the fray, but it seemed to be part of a self-correcting process.

Brad DeLong

This servant of the Cardinal has no problems with deficits last year or this year or next year--and in fact wants bigger ones. The Good Lord whom the Cardinal serves every waking hour made deficit spending for times of high unemployment.

But it's the defense of those who are pushing for larger deficits five, ten, twenty years hence who excite the ire of us right-thinking folk. Only a musketeer would be so misled as to think that the structural deficits proposed by Austrian and British agents are really steps to enhance the glory of France...

Jim Glass

>>It is profoundly odd. "Means testing" is the same as "progressive income taxation"--only done on the spending side rather than on the taxation side. Liberals who are for the one should be for the other, IMHO. <<

It seems so to me. After all, transferring other people's incomes to the rich would seem even more regressive than letting the rich keep more of their own.

Yet the inconsistency seems remarkably consistent.

>>There are two arguments against means testing. First, administrative simplicity. God knows we don't need any more forms or tests. That's a strong argument. <<

I'll remember that as I'm filling out my kid's college financial aid forms. There's too much means testing in the world already.

>> This servant of the Cardinal has no problems with deficits last year or this year or next year--and in fact wants bigger ones ... it's the defense of those who are pushing for larger deficits five, ten, twenty years hence who excite the ire of us right-thinking folk <<

Right-thinking? Or left-thinking? Well, as for deficits we need political alternatives and I don't see that either side's thinking is presenting one now.

While riding the train to meet with my kid's teachers I read the Economist's article about fiscal proposals of the Democratic candidates, which said that they basically all want to revoke Bush's tax cuts but then spend all the money obtained on their own new programs, leaving the same deficits as now but funded by more spending rather than less taxes. I don't know what was more depressing, the train ride or what was waiting for me at the end. So is there really a Democratic alternative?

ISTM the two sides effectively are just staking out bargaining positions for the future while they can still afford to do so. The progressives aren't at all progressive about means testing because if they admitted as a matter of principle right now that some people should have to pay for their own medical care and retirements ... egads! ... that would validate privatized medicine and retirement savings! What effect would that have on the political base with an election coming? While those on the other side see that the only constraint on unlimited growth of entitlements will be if someday someone is forced to incur the unhappy political task of demanding that people's taxes be raised a whole lot to pay for them. So they are slashing taxes to prepare for that day.

But both sides, like you, feel that in the short run of a few years the deficits aren't really a problem. So why would either side compromise now? That would be a weakness, the other side would just grab it for nothing. (And both sides are right about that, they would, IMHO)

Oh, well. When Medicare and SS start pulling on serious general revenue, around 2015 or whenever, push will come to shove and they'll get means tested for sure. But by that time my kids' college means tests will already have arranged my affairs so I can pass that means test easy. Or, if the kids have spared me by getting jobs at the box factory, the government's means tests will get me.

Looks like it comes out about the same either way in the end for me. So no point in getting shrill about it, I guess.

Cecil Turner

Musketeers dispute that reduced tax rates necessarily lead to long-term deficits. Rate cuts encourage more work, investment, and savings—stimulating economic growth. The steady upward creep of maximum marginal rates (e.g., from 28 % under Reagan to 39.6% after the last hike in 1996) encourages tax avoidance and a stagnant economy. Bringing them back to 35% is not the cause of long-term budgetary woes.

The main problem with the economic forecasts is this little qualifier at the bottom of the CBO estimates: “the estimates do not include the effects of these proposals on economic growth.” The note admits: “the proposals are likely to result in modest increases in growth of the economy during the 10-year budget estimating period.” Similarly, large tax increases slow growth, and those effects pile up rapidly to skew longer-term estimates. If one assumes tax rates don’t affect economic growth, then the obvious answer is to raise taxes. But that assumption is clearly wrong, especially when taken to extremes. Unfortunately, the effect is difficult to quantify, and AFAIK is not included in any economic forecast.

Back to Mr Greenspan’s statement:
“Tax rate increases of sufficient dimension to deal with our looming fiscal problems arguably pose significant risks [. . .] they are of enough concern, in my judgment, to warrant aiming to close the fiscal gap primarily, if not wholly, from outlay restraint.”

His Majesty’s servants do not see this as a political ploy. We honestly believe raising marginal rates above a certain point causes harm to the economy and actually decreases revenue in the long term. And while that point is difficult to locate precisely, it’s probably lower than 35%. Historical evidence provides no assurance that raising marginal rates will usher in a period of new prosperity . . . and several instances where it had exactly the opposite effect.

Jim Glass

>> Well, do you believe that the provisions of the 2001 and 2003 tax cuts that are currently legislated to expire at the end of this decade will in fact expire? ...That the estate tax will come back? Et cetera ... then things aren't so bad. <<

Gosh, have you really given up on the Democrats ever winning another election? Even Sideshow Bob had more faith in the Democrats than that, when he said how soon he'd be out on the street again.

Historically, the estate tax has already been repealed "in the future" something like three times, IIRC. It hasn't happened in the present yet.

Republicans promising tax cuts in the future this way is the exact same thing as Democrats promising ever bigger entitlements to retirees in the future without providing any way to pay for them. It's a cost-free way for today's politicians to get credit for something that someone else will have to pay for later. If these were in any way legally binding commitments, like a corporation's legally contracted income and outgo, they would be atrocious policy and I would roundly condemn the Republicans for joining the game.

But it is all only politics, there's nothing legally binding about it -- the government is always funded in real time, not from a prior era -- and the Democrats have been playing this game a lot longer than the Republicans. So if the latter should be condemned for anything it's for taking so long to realize what game was being played and get into it.

What's the alternative? Ted Kennedy ladles out a new entitlement to get the surging AARP vote, then the Repubs as the party of fiscal responsibility finds a way to pay for it. So then Ted pushes the rest of the camel's head in the tent, and the Repubs act fiscally responsible again. Then Ted starts shoving the back and butt-end of the camel ... ?

The great political middle in America is progressive at heart, so that is what prevail in the end. But if in the meantime the left intends to profit politically by being anti-progressive on the benefit side, the only effective answer for the right is to be anti-progressive on the tax side. It's the only effective counter politically, and the only one that sets up a compromise in the middle when necessity forces one in the future. And it is the right thing to do.

>> On the other hand, if you think that we will have current law plus extension of expiring tax-cut provisions plus indexing the Alternative Minimum Tax plus discretionary domestic spending remaining a constant share of the economy...<<

I'll bet money that the estate tax will never go away, although it should. And that the AMT won't be indexed. Congress loves it as is or they'd have fixed it years ago. AMT is the tax-writer's dream of rapacity hidden in obscurity. All they have to do to fix it *politically* is adjust it for personal exemptions and put in an exemption for state taxes, to keep the middle-middle class out of it -- which will be a lot less costly revenue-wise than indexing.

One thing I know for darn sure is that the tax code 10 years from now will be very different from today's. Look at history and try to find 10 years when it's stayed the same.

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