The SOTU: He Hasn't Learned Anything More About the Economy in the Past Year
Last year I prepared for the SOTU by speculating about the “fairy tales” the President would tell about fiscal responsibility, fiscal sustainability and the debt/deficit problem. That series ended here, and here. Yesterday's SOTU covered many subjects, but once again, the President paid lip service to the irresponsible religion of fiscal responsibility. Here are some comments on the parts of the SOTU related to it.
"A return to the American values of fair play and shared responsibility will help us protect our people and our economy. But it should also guide us as we look to pay down our debt and invest in our future."
The President never does say why we need to pay down the public debt, nor does he consider that attempting to pay it down will, other things being equal, constrain our attempts to invest in our future. There is no “winning the future” if we try to pay back the public debt by withdrawing dollars from the private sector through taxing.
Right now, our most immediate priority is stopping a tax hike on 160 million working Americans while the recovery is still fragile. People cannot afford losing $40 out of each paycheck this year. There are plenty of ways to get this done. So let’s agree right here, right now: No side issues. No drama. Pass the payroll tax cut without delay.
Well, he's right about people not being able to afford ending his payroll tax cut at this point. But he also ought to point out that a really effective payroll tax cut would be a full one on both employers and employees. That kind of cut has the sort of fiscal multiplier that would really bring jobs back. As would State Revenue Sharing, and a Full Employment Job Guarantee Program. (JG)
When it comes to the deficit, we’ve already agreed to more than $2 trillion in cuts and savings. But we need to do more, and that means making choices. Right now, we’re poised to spend nearly $1 trillion more on what was supposed to be a temporary tax break for the wealthiest 2 percent of Americans. Right now, because of loopholes and shelters in the tax code, a quarter of all millionaires pay lower tax rates than millions of middle-class households. Right now, Warren Buffett pays a lower tax rate than his secretary.
I'm all for ending the Bush tax breaks for wealthy Americans but not to “save” more or "reduce the deficit." The Federal Government doesn't need to get back and 'save" money it previously created/spent into the private sector, or enabled the banking system to create, since as the currency issuer it can always make as much as it needs without doing that. The reason why the Government should end those cuts is to reduce the extreme economic inequality that's developed in the United States since it's creating political instability and threatening democracy here.
Do we want to keep these tax cuts for the wealthiest Americans? Or do we want to keep our investments in everything else – like education and medical research; a strong military and care for our veterans? Because if we’re serious about paying down our debt, we can’t do both.
Actually, yes we can, though it's not advisable to keep those tax cuts for “political reasons” in the very broadest sense of that term. Also, we can keep our investments in everything else, and also easily pay off the national debt if we decide to do that. All we need do, if we don't want to change current law is for the President to use proof platinum coin seigniorage to pay off the Federal debt as it comes due. This course won't destroy any net financial assets in the private sector, and that's what makes it much superior to using budget surpluses for that purpose. If, on the other hand, Congress wants to change the law, it could allow the Treasury to deficit spend without issuing debt. This also won't destroy net financial assets in the private sector.
The American people know what the right choice is. So do I. As I told the Speaker this summer, I’m prepared to make more reforms that rein in the long term costs of Medicare and Medicaid, and strengthen Social Security, so long as those programs remain a guarantee of security for seniors.
Sorry. President O, cuts in these programs are not “reform.” They are pure weakening of these programs and the economy. They mean less money in the private sector economy and less security for seniors at the same time, to the tune of perhaps $100 - $200 B per year over the next decade depending on what you and what your deficit hawk friends like Jack Lew think is “prudent.” Both the private economy and seniors need a strengthening of the social safety net by extending its support for everyone, including seniors. Changes that don't do that aren't “reforms,” they are just irresponsible fiscal policy based on false economic theory.
But in return, we need to change our tax code so that people like me, and an awful lot of Members of Congress, pay our fair share of taxes. Tax reform should follow the Buffett rule: If you make more than $1 million a year, you should not pay less than 30 percent in taxes. And my Republican friend Tom Coburn is right: Washington should stop subsidizing millionaires. In fact, if you’re earning a million dollars a year, you shouldn’t get special tax subsidies or deductions. On the other hand, if you make under $250,000 a year, like 98 percent of American families, your taxes shouldn’t go up. You’re the ones struggling with rising costs and stagnant wages. You’re the ones who need relief.
Well, I agree with part of this, but I think it's much too simple. People making a million a year should be paying 45% of gross income after deductions, and that figure ought to go up incrementally, say by a point for every additional $250,000 in gross income, up to a marginal tax rate of 90% at the top level. How do I know? Because the past 40 years have shown that increasing concentration of wealth in a few hands is dangerous to democracy; and in addition, it's also true that when marginal tax rates were much higher the economy grew much faster than it has over the past 30 years. So experience also tells us that the old New Deal marginal tax rates don't prohibit rapid growth, while they certainly are a factor in sharing the benefits of that growth across the whole population. So, I say to hell with the Buffet Rule. Let's go back to the FDR rule, and really get this "shared sacrifice" thing going.
Now someone will say that at this point, I'm sure that high tax rates will kill the incentives of the rich to work hard and employ us all. Well, my reply is that I don't consider most of the very rich to be talented geniuses who have created so much value that that they have been employing most of the rest of us at a living wage during the past 30 years. Looking at the Forbes 400 list, most of what I see are people who have acquired a great deal of nominal wealth either through inheriting it, or through manipulating the financial system or both.
So, I'm not in the least worried about their losing their incentive to keep working. In fact, I wish that most of them would just go to their favorite tropical island and leave the rest of alone.