Budgets and Congress: Opening bids

Congress finally restarts the budget process but the gaps are daunting

Mar 16th 2013 | WASHINGTON, DC |From the print edition
[Greg Ip] WHEN Congress sought to claw back fiscal authority from Richard Nixon in the early 1970s, it came up with its own budget process. The House of Representatives and the Senate would draw up separate budget resolutions and, through negotiation, turn them into a single budget.

In recent years that process has, more often than not, broken down. In six of the past 11 years, the House and Senate could not agree on a budget, and in the last three, the Democratic-controlled Senate did not even pass its own resolution. Instead, Congress has resorted to stand-alone spending bills, temporary fixes and behind-the-scenes deals with the White House.

How to solve the fiscal cliff: The Obamney tax plan

Nov 8th 2012, 23:33 by G.I. | WASHINGTON, D.C.

This post has been updated.

PRESIDENTS choose their words carefully. So when Barack Obama talked of  “tax reform” but not “tax rates” in his acceptance speech early Wednesday, he was presumably sending a signal. And it was similarly significant that later that day John Boehner repeatedly stated his opposition to higher tax “rates” rather than tax revenue.

Within those two statements lies the nucleus of a deal: raising tax revenue through some means other than higher tax rates.

Mitt Romney’s economics: Flip back please

The probable Republican nominee should stop pandering to the left on China and to the right on taxes

Apr 21st 2012 | from the print edition

[Greg Ip]

TO UNDERSTAND why Mitt Romney has triumphed over his rivals for the Republican presidential nomination, look no further than March’s disappointing job numbers. With growth fragile and petrol prices soaring, the economy is Barack Obama’s gaping weak spot, and Republican primary voters have backed the candidate best equipped to exploit it.

Yet it is very far from clear what they are getting. Blame that, in part, on a nominating contest that repeatedly veered into irrelevancies. But blame the candidate, too. In the past year Mr Romney’s views have metamorphosed worryingly as he has tried to protect his flank against a succession of conservative challengers. It is no exaggeration to say that there are now two Romneys when it comes to economics (see article).

Taxing the rich in America: The politics of plutocracy

America’s rich should pay more, but there is no need to raise their income-tax rates

Jan 21st 2012 | from the print edition

 IN AN ordinary American presidential election, a candidate who had earned a fortune in business and then paid an absurdly low tax rate would barely raise eyebrows. Americans have long considered wealth something to admire and pursue, not vilify and redistribute. Alexis de Tocqueville said he knew “of no country…where a profounder contempt is expressed for the theory of the permanent equality of property.”

But this is no ordinary election. That so much scrutiny has fallen both on how Mitt Romney earned his fortune (in the ruthless world of private equity) and his tax rate (15%, less than what some middle-class families pay) is a sign something has changed. For that, credit a decade in which the median family in America saw its real income fall by 7%, even as the top 1% grabbed a share of national income unseen since the 1920s (see article), and a level of unemployment that, though falling, remains troublingly high. Not many Americans like the tactics or fashion choices of Occupy Wall Street, but quite a few share the movement’s opinion that the economy is tilted in favour of the wealthy.

And so the rich are now a campaign issue. Barack Obama calls for “millionaires and billionaires” to “pay their fair share”: introduce a minimum tax rate on millionaires and return the top income-tax rate to 39.6% from 35%, and the other 98% of Americans would not have to pay more, he claims. Republicans shoot back that raising any taxes would destroy jobs and business confidence. They think you can fill the budget hole by spending cuts alone; many want to cut taxes further.

Neither side is talking sense. America’s rich should indeed pay more tax; but marginal rates should not go up.

History shows that deficit reduction works best when most of the burden falls on spending cuts. That means that middle-class entitlements will have to be reduced, no matter what Mr Obama tells his supporters. But, just as in every other budget squeeze, a portion must come from higher taxes, no matter what the Republicans say.

Democrats say only the top 1% need pay more; that’s misleading. Others will have to pay too. But more of the increase should be shouldered by the rich who have done so well from recent trends. Technological change and globalisation have sharpened demand for the most skilled workers, in particular superstars, be they athletes or hedge-fund managers, thus sharply increasing inequality. Tax policy has exacerbated this trend instead of mitigating it. George Bush junior slashed top income-tax rates as well as rates on dividends and capital gains, which explains why Warren Buffett and Mr Romney have such low tax rates.

Follow the money

However, restoring the top income tax rates, as Mr Obama proposes, is not the best way of extracting extra revenue from the rich. It would raise revenues of about 0.3% of GDP and do nothing to make America’s grotesquely complicated tax system more efficient. It would be far better to close or limit loopholes and deductions, currently worth up to 7% of GDP, which distort behaviour (by, for example, encouraging people to take out big mortgages) and mostly benefit the affluent. Some deductions, including mortgage relief, would have to be phased out in stages; but many could go immediately. In a similar way, equalising the rates on capital, dividends and ordinary income would make it possible to lower America’s corporate tax rate, currently one of the rich world’s highest.

The result would be lower rates, more revenue and a more efficient and progressive tax system. If that’s where the debate about wealth ends, it will have been worth it.

The original article is linked here.

The payroll-tax row: Backfiring brinksmen

The “tea party” loses a fight over economic stimulus

Dec 31st 2011 | WASHINGTON, DC | from the print edition

 [Greg Ip] SINCE the 2010 mid-term elections, “tea party” Republicans have enjoyed influence out of proportion to their numbers. They forced Barack Obama and congressional Democrats to accept spending cuts without any tax increases to keep the government from shutting down in April, 2011, and from defaulting on its bills in August.

This intransigence, however, backfired rather spectacularly just before Christmas when John Boehner, the speaker of the House of Representatives, was forced to reverse his earlier position and agree to an extension of a two-percentage-point cut in the payroll tax and to the payment of unemployment benefits for up to 99 weeks.

The payroll-tax row: Backfiring brinksmen

The “tea party” loses a fight over economic stimulus

Dec 31st 2011 | WASHINGTON, DC | from the print edition

 SINCE the 2010 mid-term elections, “tea party” Republicans have enjoyed influence out of proportion to their numbers. They forced Barack Obama and congressional Democrats to accept spending cuts without any tax increases to keep the government from shutting down in April, 2011, and from defaulting on its bills in August.This intransigence, however, backfired rather spectacularly just before Christmas when John Boehner, the speaker of the House of Representatives, was forced to reverse his earlier position and agree to an extension of a two-percentage-point cut in the payroll tax and to the payment of unemployment benefits for up to 99 weeks.

The jobs plan: From deficits to jobs, and back

Republicans and the deficit stand in the way of a new stimulus package

Sep 17th 2011 | WASHINGTON, DC | from the print edition

[Greg Ip] AMERICA’S political priorities have undergone a breathtaking about-turn. In early August Barack Obama and Congress were consumed by fears about deficits, eventually making a deal to cut more than $2 trillion dollars from the budget over the coming decade.

By the time Mr Obama spoke to Congress on September 8th, though, the deficit had taken a back seat to job creation.

 Mr Obama’s plan would neutralise that hit (see table). He would extend an employee payroll-tax cut due to expire in December and expand it to 3.1% of wages from 2%. He would also cut the employer’s share of the payroll tax, with larger cuts for those who boost net payrolls or raise wages. He would let the unemployed continue to collect benefits for up to 99 weeks, and wisely funnel some unemployment-insurance money into retraining and subsidies for hiring the long-term unemployed. He would also plough some $140 billion into aid to keep teachers, police officers and firefighters employed, to rehabilitate schools, and to build infrastructure. Macroeconomic Advisers, a consultancy, reckons that the plan, if fully implemented, would boost GDP by 1.25% next year and employment by 1.3m.

Read the entire article here.

Obama’s jobs speech: A call to action

Sep 9th 2011, 3:13 by G.I. | WASHINGTON

AS JOB growth has ground to a halt and stock markets have swooned, the outlook for both the American economy and Barack Obama’s presidency has dimmed. The jobs package he unveiled in a much anticipated speech before Congress on September 8th was a calculated attempt to resuscitate both. His “American Jobs Act” consists of a hefty $447 billion worth (roughly 3% of GDP) of new and renewed tax cuts and spending that, he hopes, will prevent a fiscal vice from pushing the economy into recession early next year. Its provisions were carefully chosen to stimulate job growth immediately while maximising the political price Republicans will pay to obstruct it.

America’s jobs crisis: A choice of medicines

A dismal employment picture precipitates competing remedies from the president and his challengers. But will any of them work?

Sep 10th 2011 | WASHINGTON, DC | from the print edition

[Greg Ip]  BARACK OBAMA began his first term trying to turn around a struggling economy and reassure an electorate consumed by anxiety about jobs. It increasingly looks as though he will end it in the same way. On September 2nd the government reported no net jobs were created in August. To be precise, private firms created 17,000 jobs while governments trimmed payrolls by the same amount. Adjusting for striking mobile-phone company workers, underlying private job growth was actually more like 60,000, consistent with an economy still growing; but barely. 

 

August was a particularly unfortunate month: it began with a reckless stand-off over raising the national debt limit and a downgrade to America’s credit rating, and ended with a hurricane. Throughout, Europe’s debt crisis simmered away. Yet a longer view is no more flattering to the president. Employment is some 2.4m, or 2%, lower than when Mr Obama took office in January 2009 and the unemployment rate, still stuck at 9.1%, is higher (see chart). Presidents are seldom re-elected on such dismal job performance (see Lexington).

If there is any silver lining, it is the increased urgency with which Mr Obama and his Republican opponents have sought solutions.

The entire article is linked here.

Barack Obama’s new economist: Micro scope

Alan Krueger is nominated to head the Council of Economic Advisers

Sep 3rd 2011 | WASHINGTON, DC | from the print edition

[Greg Ip] WHEN Barack Obama took office his priority was to keep the economy from collapsing. Fittingly, the first chairman of his Council of Economic Advisers, Christina Romer, was a macroeconomist who had investigated such matters as the Depression of the 1930s.Now approaching the final year of his first term, Mr Obama’s ambitions and room for of manoeuvre have shrunk. When he addresses Congress on September 8th he is less likely to call for a big new stimulus than for a laundry list of lesser initiatives. Appropriately, the man he nominated on August 29th to head the CEA, Alan Krueger, is a microeconomist at Princeton University who has studied, for example, how the minimum wage affects New Jersey restaurant workers.

The entire article is linked here.