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The Progressive Poison Pill
Posted by: Bryan Pick on Monday, June 16, 2008

Paul Krugman just penned an article accusing the Republicans of using tax cuts as a "poison pill," constraining any attempt by the next administration to change the course of American policy. Here's how it works: Bush cuts taxes, so the fisc runs a deficit, so if the next administration wants to ramp up spending (even more than Bush did), they'll have to either raise taxes or deal with a much deeper deficit.

Darn those Republicans, for doing something popular. Don't they realize that Americans won't want their taxes raised again? The Democrats, who look poised to capture the White House as well as larger majorities in both houses of Congress, will have a hard time changing the government's course if that requires getting the Americans to swallow a tax increase, or dealing with the various negative effects of the deficit getting too big.

Krugman ought to be smart enough to see the flip side of his argument: the government programs themselves are the progressives' (extremely effective) fiscal poison pills. The overwhelming majority of the federal budget is on auto-pilot because every government program creates new constituencies of invested parties to defend them. People receiving government employment, benefits or just plain subsidies are naturally interested in defending their place at the trough.

In 2005, the Republican wave broke on the rocks of Social Security, now a 73-year-old program which was identified as the "third rail of American politics" back when Reagan had just taken office. Think: what kind of political capital is it going to take to reform both SocSec and Medicare when they become a drain on the general fund?

By Krugman's reckoning, any part of the budget that's too popular to overturn without pulling teeth is a nefarious "poison pill." Well, Americans do love tax cuts, but they also love their entitlement programs. For all the cries that we can't have both, we're going to keep getting both as long as it's less politically painful than facing the truth about the price of the government. When the pain does come, the question will be how much of one we'll trade for the other. With multi-trillion-dollar shortfalls projected over the coming decades in the two biggest autopilot programs in the budget (SocSec and Medicare), something big is going to have to give.
 
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Let’s please not forget that the response to tax cuts is that the tax take goes up... and the response to tax hikes is that the tax take goes DOWN.

Kurgman ignores this outright... and you can understand why. Taxes have little to do with fiscal support of government programs, constitutionally mandated or not. It’s all about ’fairness’.



 
Written By: Bithead
URL: http://bitsblog.florack.us
Bithead - Not all tax hikes result in lower revenues. Though higher tax rates may discourage growth and encourage tax evasion, we’re probably at a point on the Laffer curve where a modest federal tax increase would indeed increase revenue for a while — not that I want the government to increase revenue, mind you. We should fight tax increases, but we should do it for the right reasons.
 
Written By: Bryan Pick
URL: http://www.qando.net
they’ll have to either raise taxes or deal with a much deeper deficit.

Are we "agreeing with the premise" here, as Republicans apparently have done with global warming? Where’s the missing third alternative: "...or cut spending"?

Bush was an absolute idiot here with his unfunded deferred income transfer from producers to senior citizens via the new prescription drug benefit, so he certainly has no legitimacy on the third option. Same goes for almost the entire Congress: using treasury debt attained from foreign nations to carry out record expenditures in the hope of attracting votes is where our nation is at. Worse yet, we have liberal candidates Obama and McCain trying to out-gift each other (with someone elses money).

But at some point, that all ends, and preferably of our doing rather than China and other less than friendly nations cutting us off and issuing hostile repayment terms when we can’t adjust quickly enough.

 
Written By: redherkey
URL: http://
I prefaced the comment with a conditional: "... so if the next administration wants to ramp up spending (even more than Bush did), they’ll have to either raise taxes or deal with a much deeper deficit."

I personally would love to see the Democrats cut spending. I’d also like a million dollars deposited in my name in a tax-free account.
 
Written By: Bryan Pick
URL: http://www.qando.net
Better yet, 30 million dollars a month to be given to me, tax-free, in a Swiss bank account. With apologies to Steve Martin.
 
Written By: Bryan Pick
URL: http://www.qando.net
As opposed to the Dems, who want to raise entitlement spending for everyone, so if a GOP administration wants to slash spending, the people yell like screech owls having their nests raided?
 
Written By: shark
URL: http://
Bryan; First off, my comment was not all encompassing, but a general one.

Secondly,
Though higher tax rates may discourage growth and encourage tax evasion, we’re probably at a point on the Laffer curve where a modest federal tax increase would indeed increase revenue for a while — not that I want the government to increase revenue, mind you. We should fight tax increases, but we should do it for the right reasons
I don’t substantially disagree, so don’t take this the wrong way, please...

But...

History does not look kindly on the proposition that tax hikes are temporary. Mostly, they’re set in stone from the moment they are concieved So, yeah, Laffer gets happy for a while. But the thing is the tax won’t go away once Laffer isn’t amused, anymore. And as I say, mine was a general comment.

 
Written By: Bithead
URL: http://bitsblog.florack.us
I bet most Dems would be willing to allow Social Security and Medicare to be means tested in exchange for tax increases.

Would Republicans be willing to do the same?
 
Written By: mkultra
URL: http://
Would Republicans be willing to do the same?
Why are you assuming only Republicans would be against means testing? Why do you assume most Democrats would be for it? For an idea worthy of merit and discussion, it sucks! Try this on for size - Universal helthcare for all, but only if you can’t afford it by yourself, otherwise pay up you rich bastard. Social Security for all, but only if you can’t afford anything else, otherwise pay up you rich bastard. How about "for the people" but only if they can’t afford it - the rest of you evil people who have worked hard all your lives, lived within your means, and deprived yourself of the "finer" things of this life in order to save for your "golden years" - stuff it, pay up you rich bastard.

And, just as an aside, who is going to determine where to draw the line? You know, the line that determines who is the rich bastard and who gets the free ride.
 
Written By: SShiell
URL: http://
I bet most Dems would be willing to allow Social Security and Medicare to be means tested in exchange for tax increases.
Most likely they would, if you’d then agree to call it what it would become - welfare.
 
Written By: McQ
URL: http://www.QandO.net
I bet most Dems would be willing to allow Social Security and Medicare to be means tested in exchange for tax increases.
You mean make it into just another welfare program.

The whole purpose of the tax cap and the no means testing was that this was a program with a limited return for all.
Means testing is in fact yet another tax on those who were stupid enough to save any money (if you have a 401k with your employer, you were stupid enough).
 
Written By: Neo
URL: http://
In exchange for mean testing, the Democrats would also have to admit that FDR lied when he started the program.

Do you think they could stomach that ?
 
Written By: Neo
URL: http://
There are positives and negatives to means-testing, as far as a smaller-government advocate is concerned:

POSITIVES:
1. It means that more of the people paying into it won’t be collecting, which means fewer rent-seekers and more people who resent paying for something on which they won’t get a return. That’s bound to make it less popular.

2. It would also go a long way to eliminating the popular and incorrect perception that Social Security is a way of "saving up" toward retirement, and clarify its role as a straight-up wealth transfer program.

3. Two of the likely responses of those who see reduced benefits due to means-testing are (1) supporting private accounts so that they can hold on to the money they’re paying in payroll taxes anyway, and (2) supporting rolling back benefits for those who are still collecting, in terms of both eligibility requirements and the income for those still on the welfare rolls.

NEGATIVES:
1. Another possible response, on the other hand, is to advocate for looser eligibility requirements so that one can make it under the bar. Where this is true (it’s most likely to happen just above the margins of eligibility), SS will gain supporters.

2. A rational response to means-tested old-age benefits is, you try to spend or hide all your means before you reach the age of eligibility, to deliberately become eligible for greater benefits.

3. Means testing can be quite spotty, especially if people take extra pains to hide their means so that they can be eligible for more benefits. How will the government measure means? By appraising the value of each person’s possessions? The amount of support they can reasonably expect to receive from their families? Or just by looking at their measured lifetime income?
 
Written By: Bryan Pick
URL: http://www.qando.net
In exchange for mean testing, the Democrats would also have to admit that FDR lied when he started the program.
Unless I’m mistaken, FDR warned against these programs becoming permanent, apparently foreseeing the fat, bloated carcass you have before you as well as the fat, bloated constituency it serves.

Hit and run by Ultra is noted here...
 
Written By: rob
URL: http://
By building in an expiry date and not making them permanent, the Republicans made the tax cuts a form of blackmail.

"Re-elect us, or the tax cuts go away."

Making them permanent was well within their power for years.

A pox on both their houses!
 
Written By: jpm100
URL: http://
jpm100,

I think that a sunset clause would be a good idea on ALL legislation. I also think that we voters know that any tax cut can be eliminated regardless of its supposed permanence.

The good news is that taxes can also be cut.
 
Written By: Harun
URL: http://
I think that a sunset clause would be a good idea on ALL legislation. [including tax cuts? -jpm]
The good news is that taxes can also be cut.
To say that so easily, you must be young? :p
I also think that we voters know that any tax cut can be eliminated regardless of its supposed permanence.
Except you get to say they raised taxes. And that resonates with the general public. It has political consequences. Although the effect of letting cuts expire are the same, it won’t resonate anywhere near as much. Why make things easier for the Democrats?

This past decade of Republicans have been a slimy lot.



 
Written By: jpm100
URL: http://
By building in an expiry date and not making them permanent, the Republicans made the tax cuts a form of blackmail.
The "Sunset Clause" was a necessity demanded by the Democrats. it was the price the Republicans were forced to pay in order to avoid a fillibuster, where the Dems promised it would remain with pout the clause.
Hit and run by Ultra is noted here.
And also noted here. MK can’t stand to lose a straight up fight (debate) so he/she has reverted to strict insurgency tactics. I’m still to find out how MK will employ IEDs in the future.

 
Written By: SShiell
URL: http://
Krugman ought to be smart enough to see the flip side of his argument: the government programs themselves are the progressives’ (extremely effective) fiscal poison pills.
Since Social Security and Medicare were enacted decades ago, no one currently in Congress is responsible for their creation. Contrast that fact with the prescription drug plan signed into law by that well known progressive George Walker Bush, or the Greater Mesopotamia Experiment in Big Government, Top Down Social Re-Engineneering, also sponsored by that great progressive George Walker Bush.

Repubs want it both ways: Big government programs and lower taxes.

It would be refreshing if just once those to the right would acknowledge that taxes are going to need to be raised to support entitlement programs. Unless yo want to toss old people onto the street and cut them off from their doctors, the demographics demand it. Amyone who believes otherwise is living in a fantasy world.

This ain’t the 1950’s. Better get used to it. Sorry to burst your bubble.
And also noted here. MK can’t stand to lose a straight up fight (debate) so he/she has reverted to strict insurgency tactics. I’m still to find out how MK will employ IEDs in the future.
If the fight were about the issues, that would be great. But the typical thread usually devolves into accusations of Marxism, or of a lack of sufficient worship of Bush.

As for means testing, it could be easily accomplished. The same incentives would be at work as are at work in the current tax system. Moreover, what’s worse, the current Social Security setup is regressive, not progressive.

As for resentnment, sorry, but there are at least some of us are not going to get worked up about the fact that an 80 year old woman who spent her entire life raising a family and working 60 hours a week at three jobs might be getting a little more than she put into the system. Republicans give us plenty of other things to get much more angry about.
 
Written By: mkultra
URL: http://
Why are you assuming only Republicans would be against means testing?
Because it would be considered class warfare against the rich, which, according to Republicans, is the only kind of class warfare that exists in America today.

This has been another edition of simple answers to simple questions.
 
Written By: mkultra
URL: http://
So Paul Slugman admits that Obama wants to raise taxes on everyone. What’s the news? That a leftist admitted what everyone with an IQ in double digits already knows?

This is the main issue in the election as far as I am concerned. If you want to be soaked tax-wise by the government, vote Obama. If you want to keep some of your money to pay for rising fuel and food costs, vote McCain.

It is as simple as that.
 
Written By: James Marsden
URL: http://
Krugman ought to be smart enough to see the flip side of his argument: the government programs themselves are the progressives’ (extremely effective) fiscal poison pills.
Since Social Security and Medicare were enacted decades ago, no one currently in Congress is responsible for their creation. Contrast that fact with the prescription drug plan signed into law by that well known progressive George Walker Bush, or the Greater Mesopotamia Experiment in Big Government, Top Down Social Re-Engineneering, also sponsored by that great progressive George Walker Bush.
Is that supposed to be an argument against something I’ve written?

1. SS and Medicare were indeed established decades ago. They’re still there. If no Democrats who signed those bills into law are still around today, does that conflict with any part of my argument?
2. Yes, Bush and the GOP majority spent a bunch of money. The expansion of a progressive program did indeed cost money. Does that conflict with any part of my argument?
3. Yes, the Iraq war is costing money, as is the rest of the War on Terror. Does that conflict with any part of my argument?

Paul Krugman called tax cuts a poison pill that constrains the next administration’s ability to make changes to the budget. Why? Because tax cuts are popular enough that reversing them is politically costly.
By the same token, large spending programs — like the New Deal and Great Society juggernauts — could just as easily be called poison pills. Do you object to the fact that I used the word "progressive" to describe the most numerous, the most expensive and untouchable items in the federal budget? Or did you just want to remind a libertarian that Bush spent a lot of money, too? In case I’d forgotten.
Repubs want it both ways: Big government programs and lower taxes.
As long as the American people keep voting for getting it both ways, Washington will deliver it, good and hard. As I noted in my post, Republicans have proposed entitlement reform, and they’ve been shot down for it. (I marked the failure of Social Security reform as the change in the tide after an extended period of Republican legislative initiative.) By the same token, when Democrats are in power, you’ll see them propose tax increases, and they’ll get flak for it... especially if people are already pessimistic about the economy.
It would be refreshing if just once those to the right would acknowledge that taxes are going to need to be raised to support entitlement programs.
That, to my mind, will probably be part of the eventual compromise. However, if you expect that either party is going to give ground on entitlements before it becomes absolutely necessary, I hope you find this more refreshing than what you asked for:

Greg Mankiw, April 9, 2006:
The federal budget is on an unsustainable path. When the baby-boom generation retires and becomes eligible for Social Security and Medicare, all hell is going to break loose. The policy options aren’t pretty—either large cuts in promised benefits or taxes vastly higher than anything ever experienced in U.S. history. The stalemate over Social Security reform that we have seen over the last year suggests that the Washington establishment is not ready for the bipartisan consensus that will be necessary to put the budget on a sustainable path.

In my view, there is plenty of blame on both sides of the aisle. The Democrats are not willing to entertain significant cuts in entitlement programs, but they are also not willing to admit that large tax increases that would be necessary to fund those programs as they currently exist. They talk as if reversing the Bush tax cuts on those making over $200,000 would solve the problem, even though the funding gap is far too large for such an easy fix. Similarly, the Republicans will not entertain talk of any tax increases, even as they expand entitlement spending with a costly bill to expand Medicare spending to cover prescription drugs.

If you were to take a poll of the American Economic Association about how to deal with the looming problem of entitlement spending, I believe that many would say that we should gradually phase in a significant increase in the retirement age. That would certainly be a large part of my preferred solution. Yet when pollsters ask the general public about the various ways to reform entitlements, raising the retirement age is one of the least popular possible reforms. This is why you don’t often hear politicians talking about it.
The American people, by and large, don’t want a tax increase; nor do they want their benefits cut; nor do they want an increase in the retirement age. In short, the American people, by and large, want to have their cake and eat it too. Until we reach crisis mode, it will be politically popular to promise both.

As for this response to SShiell:
Why are you assuming only Republicans would be against means testing?

Because it would be considered class warfare against the rich, which, according to Republicans, is the only kind of class warfare that exists in America today.
The question implied that Democrats would have problems of their own with means testing. You believe Democrats would overcome these reservations because they like class warfare against the rich?
 
Written By: Bryan Pick
URL: http://www.qando.net
Making them permanent was well within their power for years.
No, given the super thin margin by which the Republicans had their majority.
 
Written By: Bithead
URL: http://bitsblog.florack.us
Hard to find much sympathy for Krugman’s moaning about the Republican’s use of the "poison pill" given the Democrats recent shenanigans on the funding bills for Iraq (amnesty? Planned Parenthood? On a military appropriations bill?).
 
Written By: Terry
URL: http://
This has been another edition of simple answers to simple questions.
Courtesy of a Simple Mind.
 
Written By: SShiell
URL: http://
No, given the super thin margin by which the Republicans had their majority.
Why not? They caught as much or more flack as it was to make them temporary as it would if they were permanent. And a thin margin is a still a margin. Of course there are defectors, but there are defectors on both side.

Or, the republicans aren’t really republicans and are overloaded with RINOs. In which case my low opinion of them on this issue still stands.
 
Written By: jpm100
URL: http://
About Krugman’s piece...

1) The Queen Mother of all poison pills is Medicare, followed by Social Security.

Just how many people do you suppose would have voted for those if the Democrats had honestly said: "You’ll have to pay $2 trillion more in taxes per year to fund them on an actuarially sound basis ... but that’s a bargain, right???"

We know the answer: none, zip. That’s why the Democrats said: "Take these benefits free for now. Count on them for your retirement. No need to save to meet your future medical costs. Don’t worry about that tax bill that may finally arrive, people then will be able to afford a little teeny bit more in taxes..."

Talk about a poison pill! So he shouldn’t complain.

2) Krugman wants a 90% income increase now! He told the Asia Times that the US is a "bannana republic" in part because it is only collecting 18% of GDP in taxes instead of 28%! US income tax totals 11.2% of GDP ... so to add 10% of GDP to get to 28% is a 90% across-the-board income tax increase (or the equivalent in a new national sales tax or whatever). That’s where this guy is coming from.

The odd thing is that while he’s say this outloud to a newspaper in Asia he’s never once said it in his own column here in the US.

Maybe because if it got out that leading Democratic thinkers like him want a 90% across-the-board income tax increase today ... what would happen?
 
Written By: Jim Glass
URL: http://www.scrivener.net

 
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