JONATHAN CHAIT SEPTEMBER 8, 2010
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Indiana governor, former Bush budget director and rumored dark-horse Republican presidential candidate Mitch Daniels lays out his economic recovery plan in today's Wall Street Journal op-ed page. Here's the basic problem. The gulf between the foundational beliefs of the conservative movement and basic fiscal reality is so deep that it is impossible for a Republican in good standing to promote a budget proposal that remotely makes sense. Yet analysts don't want to appear so partisan that we simply dismiss every Republican plan. So the standards for such proposals are extravagantly lowered. A proposal that seems remotely close to reality will be widely praised, as if we were watching a person with severe disabilities manage to finish a race. Wow, look at that! You have a plan! With numbers! Hooray for you!
Thus, very smart guy Ezra Klein writes of Daniels:
I'm impressed by Indiana Gov. Mitch Daniels's op-ed laying out his proposal for "a time-limited, emergency growth program." It's a real plan, with concrete policy ideas that might actually make a difference. It's mercifully free from vague hand-waving about business uncertainty and government spending.
Okay, let's look at Daniels' plan. He says we should suspend or reduce the Social Security tax for a year. In order to compensate for the lost revenue, Daniels proposes to make it up "twice over."
The Social Security tax is projected to bring in $934 billion next year. If we "suspend" the tax, that means we need $1.8 trillion in savings to meet his target. If we merely reduce it, we need less. Keep that in mind while we go through Daniels' proposed savings, which are these:
• Impoundment power. Presidents once had the authority to spend less than Congress made available through appropriation. On reflection, nothing else makes sense. Plowing ahead with spending when revenues plummet is something only government would do. In Indiana, we are still solvent, with no new taxes, money in reserve, and a AAA credit rating only because our legislature gave me the power to adjust spending to new realities. I promise you that a president who wanted to could put the kibosh on enormous amounts of spending that a Congress might never vote to eliminate, but the average citizen would never miss.
• Recall federal funds. Rescind unspent Troubled Asset Relief Program (TARP) funds and any unspent funds from last year's $862 billion "stimulus" package, as well as large amounts of the hundreds of billions of "unobligated funds" unspent from previous appropriations bills.
• Federal hiring and pay freeze. Better yet cut federal pay, which now vastly outstrips private-sector wages, by 10% during the emergency term, and freeze it after that.
• A "freedom window." Might we try some sort of regulatory forbearance period in which the job-killing practice of agonizingly slow environmental permitting is suspended, perhaps in favor of a self-certification safe harbor process? Businesses could proceed with new job creation immediately based on plans that meet current pollution or safety standards, or use best current technology, subject only to fines and remediation if a subsequent look-back shows that the promised standards were not met.
Okay. First we have this business about "impoundment power," which entails magically re-writing the relationship between the White House and Congress. (All efforts to date to give the president line-item veto power have run aground in the courts.) Even if this process could magically occur overnight -- and Daniels is talking about a short-term plan -- it does not specify which spending programs he would impound.
Next, he wants to recall unspent TARP or stimulus funds. There's $78 billion in unspent TARP funds. The stimulus has $144 billion of spending still in process -- which means we can save the money only if we want to leave a lot of half-built bridges lying around -- and $69 billion in money left to be spent. So that leaves us with around $144 billion in savings, or about 8% of the way to the full goal he lays out.
Third, Daniels proposes to cut federal pay, "which now vastly outstrips private-sector wages," according to Daniels. In fact, this is a total myth. A study has shown that the pay gap is entirely due to differences in the kind of job and the skill level:
“Jobs in the public sector typically require more education than private sector positions. Thus, state and local employees are twice as likely to hold a college degree or higher as compared to private sector employees. Only 23% of private sector employees have completed college as compared to about 48% in the public sector."
Anyway, the 10% federal pay freeze would save a grand total of $26 billion, inching us up to 9% of Daniels' savings goal. Then the fourth item, a regulatory pause, is not even a plan for saving revenue at all. I mean, he clearly writes, "Offset the revenue loss twice over through a combination of the following four policies," but the fourth is not a revenue offset.
Oh, and this passage from Daniels' op-ed looks an awful lot like the "vague hand-waving about business uncertainty and government spending" that Klein says is not in there:
Moreover, the administration's big-government policies—most notably health-care reform—are holding back job creation. Drowning in new or pending regulations and taxes, businesses, banks and investors are understandably sitting on dollars that could be putting Americans to work.
But it's OK, Mitch. You put out a real plan. Sure, you rely on magical constitutional thinking and empirically false analysis of federal pay. And your savings only make it 9% of the way to your stated goal. And the four revenue offsets you promised are really only three offsets plus one unrelated ideological hobbyhorse. But it was a good try. Look at Sarah Palin and Newt Gingrich over there -- they fell down after only a few yards! You should really think about running for president.
10 comments
Where is evidence that lower top rates will improve employment? Compare. At a 35% top rate, the value of a dollar spent by a businessman in the top rate on non deductible items (like investments, a vacation, jewelry, the family dog, etc.) is only worth 65 cents, after taxes. The value of a dollar spent on an employee is still worth $1.00 after taxes. At a top rate of 40%, the value of a dollar spent on employees would still be a dollar after taxes, while the value of nondeductible items would drop to 60 cents. Higher payroll is more attractive to a business owner as rates go up. Under our system, taxes are lower as payroll goes up.
- Nusholtz
September 8, 2010 at 4:13pm
My myths are better than your myths! Why? Because because my myths are backed up by better bogus studies than your myths. Also, why would anyone want to consult with dull businessmen when there are fascinating academics available to provide advice.
- lsernoff
September 8, 2010 at 4:22pm
Have to comment on the payroll tax holiday (my hobbyhorse). Five things. First, it would provide needed stimulus, as take-home pay is suddenly increased for lower to middle income folks. Sure, not as much bang for the buck as government spending, but passing another round of stimulus has as much chance as me winning the lottery. Second, social security has a $2.5 trillion surplus (the so-called trust fund), so using part of it in this emergency makes sense; isn't that what rainy day funds are for. Third, for those who believe a payroll tax holiday would jeopardize social security, God bless you - we still believe in Santa Klaus at my house. In reality, social security is just one expense of many in the budget, as we have learned over the past 25 years (think "trust fund"). Fourth, for most folks a tax cut is what happpens when the amount withheld from the pay check is reduced, not some theoretical "cut" realized when the 1040 is filed. Fifth, might those folks with higher take-home pay appreciate it. And vote for the one who got it for them.
- rayward
September 8, 2010 at 4:53pm
Chait is beyond right. The standards are so low on these GOP plans. Look at the worship Paul Ryan got for a phoney plan that was a joke. Michael Medved was slobbering over this like it was the Special Theory of Relativity.
- MikeB.
September 8, 2010 at 5:39pm
I think the reason is there are so many Democrats that are desperate to find GOP thinkers and a resonable loyal opposition.
- MikeB.
September 8, 2010 at 5:40pm
Might be worth your time to take a look at how Indiana has done over the past few years, under Daniels' direction, compared to it's neighbors, Ohio, Illinois and Michigan. Whose plans have been more successful?
- lsernoff
September 8, 2010 at 10:11pm
lsernoff, do you dispute Chait's math here? Daniels has specified less than 10% of the budgetary savings he says is required, yet pitches this as a "plan"? Before going off about competing myths, would you mind admitting or disputing the main point of the piece?
- JEFF FREY
September 9, 2010 at 12:38am
http://voices.washingtonpost.com/ezra-klein/2010/09/defending_daniels.html Jeff Frey: I have pasted Ezra Klein's response to Chait's piece above FYI. Let's have a beer and let Zandi do the math. For anyone interested, The Economist had a good piece on Daniels a week or two ago. He's had his failures, but his overall record as governor has been quite solid.
- lsernoff
September 9, 2010 at 4:49pm
lsernoff, Ezra's response is hooey and tax-cuts are hooey. Tax-cuts only benefit people with jobs, and Daniels isn't proposing to cut the business side of the tax, so there will be 0 (zero, zilch, nada) impetus for creating or "saving" even 1 temp job. Now, I wouldn't mind a few extra bucks in my paycheck, but for the most part I'm just grateful to have a steady paycheck at this point. Way too many people are unemployed and cannot find new work, at least new work that pays as much as they're used to making in their actual profession: McDonald's, and Walmart are always hiring, or so we are told, but they don't pay all that much and aren't profligate with the hours...in fact, in my experience companies like them are very skilled at making sure no employee has to work more than 20 hours a week because then the company would be mandated to offer benefits and stuff. In short, tax-cuts only benefit people who still have a job; this idea isn't even as good as Bush's "write everyone a refund" plan because at least if you had had a job previously that year you would be eligible to receive the money. The real problem is unemployment, the real solution is employment. The free market isn't going to do shit because every actor/corporation/business/entrepreneur/shiester is using this opportunity to drive down wages and drive up productivity of employees while the banks play gotcha games with their shit-assets.
- GSpinks
September 9, 2010 at 11:14pm
lsernoff: thanks for the link. Daniels' original is at the WSJ, and there's no way I'm paying them to read their editorials. So I can't see the original version. But Ezra's defense of Daniels is that he mostly agrees with Chait, but thinks it s important that Daniels is taking the need for stimulus seriously. To be specific: 'Daniels said his proposal would pay for itself twice over. In my post, I wrote that "the CBO wouldn't agree with that assessment." Chait doesn't quote that part of my post, but he goes on to methodically detail why the CBO wouldn't agree.' Then a bit later, Klein says: "So what does he mean when he says the bill will offset itself twice over? I'm trying to get an answer on that. " So it seems that the numbers really don't add up, which means it is not much of a plan. Its one thing to praise Daniels' recognition that stimulus spending (or in this case, stimulus payroll tax holiday) is needed, but if he is not coming out and admitting that this will increase the deficit then this appears to be yet another example of Republican voodoo economics (or "magical thinking on taxes" if you prefer).
- JEFF FREY
September 10, 2010 at 4:18am