In “Let’s Talk About X” Bobo gurgles that it’s time to break out of the 1986 paradigm of closing loopholes and lowering tax rates. Here’s a case for the consumption tax. Right, Bobo. A HUGELY regressive tax is just what this country needs. Cripes… Mr. Cohen, in “Keeping Egypt’s Republic,” says Morsi must correct course and liberals must seek compromise. In “The Gun Frenzy” Mr. Blow says nothing warms the heart for the holidays like cold steel. Prof. Krugman addresses the “Class Wars of 2012.” He says the same people who bet big on Mitt Romney, and lost, are now trying to win by stealth the ground they failed to gain in the election. Here’s Bobo:
In 1986, Democrats and Republicans came together and enacted a tax reform measure that closed loopholes and lowered tax rates. That was a great achievement. The ’86 act has shaped thinking ever since. Now when people talk about tax reform, they instinctively say, “Let’s do another ’86-style act.” When they debate tax ideas, they inevitably fixate on the two levers that were central back then: closing loopholes and changing top marginal rates.
The problem is that it’s not 1986 anymore. We have a different set of problems. The two levers highlighted in that earlier reform are not powerful enough to help us address the issues we face today. The 1986 paradigm has become an intellectual straitjacket, foreclosing considerations of the things we actually have to do.
Unlike in 1986, the baby boomers are now in full retirement mode. The aging population means more government spending, even if we get entitlement programs moderately under control. It also means slower growth. The United States grew at about 3.2 percent a year for the five decades after World War II. It is projected to grow at only 2.2 percent over the next few decades.
We need a tax reform that will raise revenue and significantly boost growth. The 1986 model is poorly designed to do both those things.
Let’s say we closed loopholes or capped itemized deductions at $50,000, as many of the current proposals would do. That would raise, at most, about $760 billion over 10 years. And it would produce much less than that if we started carving out exceptions for the charitable deduction, as we should. That revenue wouldn’t be close to covering the trillions in new debt.
Let’s say we raised the top tax rates back to where they were under President Bill Clinton. That wouldn’t come close to raising sufficient revenue either. It might raise $82 billion a year, according to the Joint Tax Committee. That’s small potatoes compared with what’s needed.
Let’s say we closed the loopholes and raised rates all at once. That might theoretically produce enough revenue, if you hit the middle class, but it would decimate growth.
Even the 1986 reform, which closed loopholes and lowered rates, didn’t do much to increase growth. Even after the reform was passed, people were paying the same amount in taxes, so they faced the same basic incentives.
If you closed loopholes and raised rates, as we’d have to do this time around, then you would make the incentives worse. Raising top tax rates may not be as cataclysmic for the economy as some have argued, but this is still one of the most growth-killing ways to raise revenue.
In other words, if we’re going to simultaneously address our two most pressing needs — raising revenue and boosting growth — we’re going to have to break free from the 1986 paradigm.
That means asking the basic question: What is the single biggest problem with the tax code? It’s not the complexity, bad as that is. The biggest problem is that it rewards consumption and punishes savings and investment.
You can’t fundamentally address that problem within the 1986 paradigm. You can address it only through a consumption tax. This idea is off the table right now, but reality will inevitably drive us toward it. We have to have a consumption tax if we want to both grow the economy and reduce debt.
But isn’t a consumption tax regressive since poor people spend a bigger share of their incomes than rich people? The late David F. Bradford of Princeton University effectively solved that problem with his so-called X Tax, which has recently been championed by Alan D. Viard of the American Enterprise Institute and others. Under the X Tax, you wouldn’t pay the consumption tax at the cash register. Businesses would be taxed on their cash flow, taking an immediate deduction for investments rather than depreciating them over time. Households would pay tax at progressive rates on their wages but would not pay tax on income from savings.
The X Tax effectively taxes the money you spend right now and rewards savings and investment. The government could raise a chunk of revenue this way and significantly boost growth with little or no change in how tax burdens are distributed between rich and poor. Most economists vastly prefer consumption taxes to income taxes.
The other complaint is that a consumption tax is politically impossible to get passed. There are, indeed, political difficulties. But there would be huge political difficulties if we try to do another 1986-style act next year. Every special interest will fight every loophole closing. And after all that, the country would get very little benefit in return. The political barriers to an X Tax are no greater, and we would actually address our problems.
It’s time to break out of the 1986 paradigm. It’s time to explore consumption taxes. Let’s think about X.
No, Bobo, let’s think about taxing you more than the file clerk in my office. Here’s Mr. Cohen:
President Mohamed Morsi of Egypt has made a big blunder. His motives may have been honorable — I am inclined to give him the benefit of the doubt — but the error is grave and needs to be rectified.
His seizure through decree of near absolute power, placing him above judicial oversight, recalls the famous phrase of the French diplomat Talleyrand: “Worse than a crime, it was a mistake.”
Morsi says his move is temporary — a means to fast-forward Egypt out of its post-revolutionary limbo — but “temporary” is not a credible word in a nation where the ousted President Hosni Mubarak’s “emergency” dictatorial powers lasted decades.
The constitution of the most important Arab state — home to almost 25 percent of the world’s Arabs, the litmus test of the freedoms promised by the Arab Spring — cannot be forced through by a constitutional assembly that has lost about a quarter of its 100 members, mainly liberals and women who have walked out in protest. It now amounts to a discredited rump body dominated by parties of Islamist inspiration.
Not when the nation’s judges (who would have to supervise an eventual referendum on a draft constitution) have gone on strike and Morsi through his rashness has accomplished a singular political feat: Uniting Egypt’s ineffective and divided liberal-secular factions in mass street protests and a demand that the decree be revoked. A tweet from Mohamed ElBaradei, the Egyptian Nobel laureate, comparing Morsi to a new Pharaoh has resonated.
Morsi must press the reset button. Democratic politics is laborious; ask President Obama. He cannot avoid difficult political trading in an Egypt where he won the presidential election this year with 51.7 percent of the vote. The other 48.3 percent cannot be trampled upon. At a minimum his decree must be undone and the constitutional assembly given the credibility only inclusiveness can confer.
I said I was inclined to give Morsi the benefit of the doubt on his motives. He knows dictatorship will not fly in the new Egypt. He outmaneuvered the military, helped on Gaza, was brave on Iran and Syria. He is a product of a Muslim Brotherhood culture that, as a result of fierce repression, inclined toward the conspiratorial and secretive. Enemies were everywhere.
It is easy to see how, with a court decision looming Sunday that might dissolve the constitutional assembly, Morsi would have convinced himself of an ancien-régime plot to undermine popular will and put Egypt back at square one in its transition. The problem is he did not try to resolve the issue by reaching out. He closed himself in an absolutist cocoon and has allowed voting on the draft to begin.
In a recent interview in Cairo, Essam Soltan, a prominent lawyer who was a member of the Brotherhood and left to form his own party, told me: “Morsi represents the will of the people. Still you must remember he comes from a movement with 60 years of being forced underground. This produces diseases; wild generalizations like seeing everyone as the enemy of religion.
“Interests and human ideas should be the basis for discussion, not religion. But the left and liberals also have problems. Their ideas came from outside rather than within an Egyptian democratic system.”
Plenty of liberals these days in Egypt are inclined to reduce liberty to a subordinate clause. Yes, they say, we are free to say what we like, write what we like, and that’s dandy, but we cannot abide the Muslim Brotherhood and oppose whatever they do. To which I would say freedom is not a parenthesis. And 51.7 percent in a democracy is enough to govern.
Egypt has traveled a long way: U.S.-trained generals have saluted a freely elected Brotherhood president and a proud nation has emerged from a crippling political deep freeze. But the achievements are fragile.
Morsi and his liberal opposition would do well to recall Benjamin Franklin’s words on emerging from the Constitutional Convention in Philadelphia and being asked what system of government had been adopted: “A Republic, if you can keep it.”
Keeping Egypt’s newfound freedom will take courage and compromise. Morsi must correct his mistake and Obama should work hard behind the scenes to ensure that. Liberals must come together and accept trade-offs.
The draft constitution fails Egypt by favoring the Islamic camp, but the problems are not insurmountable. Since I wrote about it last month, a controversial clause that said men and women have equal rights “insofar as this does not conflict with the rulings of Islamic Shariah” has been dropped. This is important.
A broad compromise alluding to the “principles” of Islamic law as a guiding reference, as in the current Constitution, seemed to have been reached earlier this month but disintegrated as Islamists tried to rush through the draft document, whose concentration of power in the presidency is worrying.
Railroading a document of this importance is not an option. Egypt will split, investment dry up and unrest continue. Morsi must overcome his Brotherhood suspicions to forge a credible constitutional assembly including liberal opponents who, like Republicans in Congress, should now express patriotism through pragmatism.
A free Egypt, the first, is worth keeping. It could be a core agent of change in a region that desperately needs new thinking.
Next up is Mr. Blow:
President Obama’s election and recent re-election have apparently fueled a gun-buying craze in this country unlike anything we’ve seen in modern times.
USA Today reported this week:
“For the second consecutive year, prospective gun buyers joined Black Friday shoppers in record numbers as firearms dealers swamped the F.B.I. with required buyer background check requests. The F.B.I. fielded 154,873 calls, a roughly 20 percent increase from last year’s previous one-day record of 129,166, according to bureau records. The requests came in such volume throughout the day that F.B.I. call centers experienced two brief outages — one of 18 minutes and one for 14 minutes — during the busy day, bureau spokesman Stephen Fischer said Monday.”
As the report made clear:
“The F.B.I. does not track actual gun sales. But the number of firearms sold Friday is likely higher because multiple firearms can be included in one transaction by a single buyer.”
According to the F.B.I.’s data, the number of requests for background checks normally peaks toward the end of the year. Nothing warms the heart for the holidays like cold steel.
The F.B.I. has conducted nearly 156 million background checks for gun purchases from November 1998 to October 2012 (the last month for which they have published data) and a full 40 percent of those checks occurred in just the four years since President Obama was first elected.
This week the popular conservative Web site World Net Daily quoted the National Rifle Association spokeswoman Jacqueline Otto as saying that the N.R.A. is not surprised by the surging gun sales because gun owners “are very informed voters and they have known that President Obama has opposed our Second Amendment rights his entire political career.”
Then they quoted her as follows:
“Gun sales are undoubtedly going up because gun owners know that at best President Obama wants to make guns and ammunition more expensive through increased taxes and regulation, and at worst he wants to make them totally illegal.”
That’s the N.R.A. line. Here is the reality. The president has done almost nothing in his first term to restrict gun ownership. As The Washington Post’s blog The Fix reported in July:
“The president signed bills allowing guns in national parks and on Amtrak. He has not pushed for the reinstatement of the assault weapons ban — and Attorney General Eric Holder was reportedly chastised for suggesting he would. Nor has he moved towards closing the gun-show loophole.”
That loophole allows guns to be bought from private dealers at gun shows without a background check.
During the second presidential debate with Mitt Romney, however, Obama said:
“But I also share your belief that weapons that were designed for soldiers in war theaters don’t belong on our streets. And so what I’m trying to do is to get a broader conversation about how do we reduce the violence generally. Part of it is seeing if we can get an assault weapons ban reintroduced, but part of it is also looking at other sources of the violence, because frankly, in my hometown of Chicago, there’s an awful lot of violence, and they’re not using AK-47s, they’re using cheap handguns.”
That’s sounds mild and logical to me, but the N.R.A. took it as a shot across the bow. They started running ads in swing states that said, “Defend freedom, defeat Obama.”
In fact, it should be noted that, according to the Center for Responsive Politics, gun lobbyists contributed more than $3 million in the 2012 election cycle, and 96 percent of those contributions went to Republicans. That was the highest percentage going to Republicans since the center began providing comparable data.
The World Net Daily article also pointed out that “gun owners also are worried because just hours after Obama’s re-election, the U.S. signaled its support for a U.N. committee’s call to renew debate over a draft international treaty to regulate the $70 billion global conventional arms trade.”
But as Reuters pointed out this month: “U.S. officials have acknowledged privately that the treaty under discussion would have no effect on domestic gun sales and ownership because it would apply only to exports.”
And it’s not like we need more guns, anyway. The United States has more guns per capita than any country on the planet.
Welcome to the Great American Arming.
Last but not least, here’s Prof. Krugman:
On Election Day, The Boston Globe reported, Logan International Airport in Boston was running short of parking spaces. Not for cars — for private jets. Big donors were flooding into the city to attend Mitt Romney’s victory party.
They were, it turned out, misinformed about political reality. But the disappointed plutocrats weren’t wrong about who was on their side. This was very much an election pitting the interests of the very rich against those of the middle class and the poor.
And the Obama campaign won largely by disregarding the warnings of squeamish “centrists” and embracing that reality, stressing the class-war aspect of the confrontation. This ensured not only that President Obama won by huge margins among lower-income voters, but that those voters turned out in large numbers, sealing his victory.
The important thing to understand now is that while the election is over, the class war isn’t. The same people who bet big on Mr. Romney, and lost, are now trying to win by stealth — in the name of fiscal responsibility — the ground they failed to gain in an open election.
Before I get there, a word about the actual vote. Obviously, narrow economic self-interest doesn’t explain everything about how individuals, or even broad demographic groups, cast their ballots. Asian-Americans are a relatively affluent group, yet they went for President Obama by 3 to 1. Whites in Mississippi, on the other hand, aren’t especially well off, yet Mr. Obama received only 10 percent of their votes.
These anomalies, however, weren’t enough to change the overall pattern. Meanwhile, Democrats seem to have neutralized the traditional G.O.P. advantage on social issues, so that the election really was a referendum on economic policy. And what voters said, clearly, was no to tax cuts for the rich, no to benefit cuts for the middle class and the poor. So what’s a top-down class warrior to do?
The answer, as I have already suggested, is to rely on stealth — to smuggle in plutocrat-friendly policies under the pretense that they’re just sensible responses to the budget deficit.
Consider, as a prime example, the push to raise the retirement age, the age of eligibility for Medicare, or both. This is only reasonable, we’re told — after all, life expectancy has risen, so shouldn’t we all retire later? In reality, however, it would be a hugely regressive policy change, imposing severe burdens on lower- and middle-income Americans while barely affecting the wealthy. Why? First of all, the increase in life expectancy is concentrated among the affluent; why should janitors have to retire later because lawyers are living longer? Second, both Social Security and Medicare are much more important, relative to income, to less-affluent Americans, so delaying their availability would be a far more severe hit to ordinary families than to the top 1 percent.
Or take a subtler example, the insistence that any revenue increases should come from limiting deductions rather than from higher tax rates. The key thing to realize here is that the math just doesn’t work; there is, in fact, no way limits on deductions can raise as much revenue from the wealthy as you can get simply by letting the relevant parts of the Bush-era tax cuts expire. So any proposal to avoid a rate increase is, whatever its proponents may say, a proposal that we let the 1 percent off the hook and shift the burden, one way or another, to the middle class or the poor.
The point is that the class war is still on, this time with an added dose of deception. And this, in turn, means that you need to look very closely at any proposals coming from the usual suspects, even — or rather especially — if the proposal is being represented as a bipartisan, common-sense solution. In particular, whenever some deficit-scold group talks about “shared sacrifice,” you need to ask, sacrifice relative to what?
As regular readers may know, I’m not a fan of the Bowles-Simpson report on deficit reduction that laid out a poorly designed plan that for some reason has achieved near-sacred status among the Beltway elite. Still, at least you can say this for Bowles-Simpson: When it talked about shared sacrifice, it started from a “baseline” that already assumed the end of the high-end Bush tax cuts. At this point, however, just about all the deficit scolds seem to want us to count the expiration of those cuts — which were sold on false pretenses, and were never affordable — as some kind of big giveback by the rich. It isn’t.
So keep your eyes open as the fiscal game of chicken continues. It’s an uncomfortable but real truth that we are not all in this together; America’s top-down class warriors lost big in the election, but now they’re trying to use the pretense of concern about the deficit to snatch victory from the jaws of defeat. Let’s not let them pull it off.
I love it that he calls it “Bowles-Simpson” instead of the other way around. It’s so apt — “the BS report” has a nice ring to it.