PLANK JANUARY 6, 2013
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Mitch McConnell appeared on three major networks Sunday morning. But the Senate Minority Leader had just one message to deliver: We’re done with tax increases.
As you probably know, the bipartisan agreement on taxes that President Obama signed last week will push tax rates on some high incomes back to what they were during the Clinton era. Republicans aren’t happy about that, or any of the other tax increases in the new law. At least two more fiscal policy debates are about to take place—one over whether to increase the government’s borrowing capacity, known as the “debt ceiling,” and one over whether to replace or postpone a set of automatic spending cuts, known as the "sequester." However those debates are settled, separately or together, McConnell and his colleagues are making clear they believe that more tax increases should not be part of the conversation. “We’ve resolved the tax issue,” McConnell said on NBC’s “Meet the Press,” echoing words he’d used in a Yahoo! News op-ed several days before. “It’s behind us.” Going forward, McConnell said, deficit reduction must take place through spending cuts exclusively. “We don’t have this problem because we tax too little. We have it because we spend way too much.”
Americans have heard this argument before. But they might be more inclined to believe it now, for precisely the reason that McConnell cites: Last week’s legislation raises taxes. Isn’t that enough? Isn’t it time to go back to spending cuts?
Hardly. For one thing, last week’s agreement, known as the “Taxpayer Relief Act,” was not the only deficit reduction legislation that Obama and the Republicans have enacted. Rather, it’s the latest in a series of measures. Most notable among the past efforts was the 2011 “Budget Control Act,” which Obama signed after Republicans first threatened to hold up the debt ceiling increase. Those past measures, which were all spending cuts and no tax increases, reduced the deficit by $1.5 trillion. The Taxpayer Relief Act, which is all tax increases and (almost) no spending cuts, reduces the deficit by less than half that amount. So even taking into account last week’s agreement, deficit reduction has meant more spending cuts than tax increases.
And it will continue to be so. During that same “Meet the Press” interview, McConnell said Obama “doesn’t embrace the effort to reduce spending.” That's just not true. The original proposal he made to House Speaker John Boehner, shortly after the election, included hundreds of billions of dollars in proposed spending reductions, including cuts to discretionary spending (which is already at historic lows) and to Medicare. The Medicare cuts were all on the provider side—that is, they would have reduced what the program pays hospitals, drug makers, and other suppliers of care, but without directly reducing benefits. But in a subsequent proposal, one Boehner ultimately rejected, Obama said he would even agree to a reduction in Social Security benefits. In this next round of fiscal policy making, Obama has said he wants more revenue; most likely, he will return to some of the ideas that didn't make it into last week's deal. But Obama hasn't said he wants an all-taxes approach. On the contrary, he has also said he wants more spending cuts, too.
In other words, neither party's approach to deficit reduction is truly balanced: Each side is actually leaning more heavily on spending cuts. But Obama would rely on those cuts a lot less than the Republicans would, as Robert Greenstein, president of the Center on Budget and Policy Priorities, recently explained:
If this Republican view holds, then when all of the deficit reduction efforts are tallied together, spending cuts will outpace revenue increases by nearly 5 to 1. ... If future deficit reduction comes through an even split of revenues and spending cuts, total spending cuts will still outpace revenue increases by nearly 2 to 1.
Of course, McConnell and his allies have no problem with five dollars of spending cuts for every dollar of new taxes. Remember: During the presidential primary campaign, all of the Republican candidates said they’d reject deals with even ten dollars of spending cuts for every dollar of new taxes. As far as they are concerned, one dollar of new taxes is one dollar too many.
But these days Americans aren't paying a lot of taxes, at least by historical standards. In 2012, federal tax receipts were equal to a little less than 16 percent of gross domestic product. Thanks to last week’s legislation, receipts will reach 19.4 percent in 2022, according to official projections. (Actually, receipts probably won't get quite that high, because that projection assumes expiration of provisions that Congress typically renews.) That will still be lower than they were in 2001, when the Bush tax cuts first went into effect. In fact, as Michael Linden and Michael Ettlinger point out, in a new brief from the Center for American Progress:
the last time we actually balanced the budget—from 1998 to 2001—revenue surpassed 19.5 percent every year, averaged 20 percent of GDP those four years, and topped out at 20.6 percent of GDP in 2001. And that was before the Baby Boom generation began to retire.
This may not be what most Americans want to hear. But most sensible budget observers, even more conservative ones determined to enact substantial budget cuts, 
believe taxes must rise even more—because the population is getting older and the government has, quite rightly, assumed so much responsibility for health and retirement benefits. The chairmen of the president’s deficit reduction commission, Erskine Bowles and Alan Simpson, suggested taxes should eventually reach 21 percent of gross domestic percent. (Sadly, and predictably, Bowles and Simpson neglected to criticize McConnell about this when they followed him on "Meet the Press.") Pete Domenici and Alice Rivlin, authors of a widely respected (but under-appreciated) proposal from the Bipartisan Policy Center, think taxes should go higher than that. Keep in mind that, by international standards, Americans pay very little in taxes.
Republicans and their allies take a different view, because, if they had their way, the government would provide a lot less than what it does now. But it’s not a popular view and they know it. That’s why, on “Meet the Press,” McConnell declined to get specific about exactly how he’d reduce spending. He didn’t say that the discretionary spending cuts he’s embraced would mean fewer food inspectors, longer delays at airports, or less housing assistance for poor people. And he didn’t reveal that the entitlement changes he’s endorsed would mean less financial protection for people on Medicare and Medicaid.
Nobody likes paying taxes, but everybody likes the services that taxes finance. The Republican strategy is to make people focus on the former and ignore the latter.
13 comments
Aren't you ever going to do a separate analysis of the deficit in the operating budget and the deficit in entitlements? If the entitlements were in balance, we would still have a huge deficit. Relying on the White House budget document: The 2012 budget deficit was $1.3 trillion. Social security and Medicare account for $475 billion of that. That leaves a deficit of $825 billion for the $2.55 operating budget (non-entitlement), including interest. All non-security discretionary spending and Medicaid came to $700 billion. Defense was $870 billion, all other mandatory programs, including interest, were $750 billion, interest $230 billion. So, where exactly are they going to cut spending to balance the operating budget, ever? The answer is nowhere (except that they would like to cut Medicaid to zero). There is no intention to balance the operating budget. The intention is to cut entitlements so as to balance that budget (even though they are protected by the trust funds that are solvent for at least another decade) so that they can continue to run deficits in the operating budget and keep taxes for the wealthy low by borrowing. Taxed too much? What is really shocking is that even for 2013, non-payroll taxes come to only 12% of GDP. Meanwhile, the top 10% earn nearly 50% of GDP. That means that even if the top 10% paid all non-payroll taxes, which is not the case, their average tax rate would be 25%, leaving them with somewhere between 35% and 38% of GDP and the other 90% with something like 45-47% of GDP. The top 10% ends up with about 43% of the net while in 1980 it had only 33% of the gross and an even lower share of the net. Our problem is quite simply that taxes are not sufficiently progressive, particularly in face of the huge growth in income disparity. And Republicans are determined to keep it that way while telling the country the fairy tale that the reason incomes are stagnant for most everyone is the government. Without government, it would only be worse, even thought the redistributive effects of taxation are paltry.
- roidubouloi
January 7, 2013 at 12:13am
Obama can propose abolishing any cap for Social Security taxes, then as a concession he can lift it to 400,000 then index it to inflation. That would fix Social Security. Then let Republicans propose cutting benefits for Medicare and Social Security, that will go over real nice with the rabid teabagger elderly who think foreign aid represents 20% of our budget.
- blackton
January 7, 2013 at 12:31am
McConnell sounds like a child who won't take any more medicine after one teaspoon. How about asking whether we can afford to continue the capital gains dividend preference? It isn't helping. How about whether we can afford to have tax laws where married couples making $85,000 in capital gains and dividends pay zero taxes, while married wage earners, making the same amount, pay $16,000.00 in payroll and income taxes? (And does McConnell ask if can we afford to continue our non government negotiated prescription drug benefit?)
- Nusholtz
January 7, 2013 at 9:00am
Well ok, you guys have a point. Good ideas Nusholz.
- WandreyCer
January 7, 2013 at 10:51am
Mitch McConnell got all his spending cuts via the Budget Control Act, a/k/a the Sequester, with not a penny more in taxes. Those cuts will go into effect in less than 2 months without any further action from the government. He can take those cuts and go home and tell all his conservative constitutents how much he cut gubmint spending and what a big hero he is. Or, if he doesn't think those cuts are so great, he can suggest some new cuts to replace them -- but that will involve negotiations with the White House, which reasonably expects to ask for revenues in place of cuts. In other words, tough shite for you. Oh, and don't even think about holding the debt ceiling hostage again in exchange for further cuts. If you do, let's have the White House suggest that they will furlough all Congressional staff in order to save money starting March 1. Then let the good Senator answer his own goddamn phone and type up his own documents.
- wildboy
January 7, 2013 at 11:11am
Yup. Stop paying the health insurance premiums for Congress too, hold up their paychecks.
- WandreyCer
January 7, 2013 at 11:22am
Great photo of Mitch. Speaks a thousand words. And many thanks for the link to the Tax Policy Center's chart - it's just the kind of nice meaty data helpful to counter whining right wing tax protestors, who have been brainwashed into believing that the American people are being currently taxed at historically high, not low, levels.
- Haole45
January 7, 2013 at 11:29am
Wandrey, there is some question as to the Constitutionality of withholding pay or benefits from members of Congress -- the 27th Amendment states that compensation for members of Congress cannot be changed until after there has been an intervening election. On its face, this would only preclude a lame-duck Congress increasing its salaries or benefits, but there is some argument that it actually prohibits decreasing (or increasing) Congressional compensation without a vote at any time. I suppose the White House could dock their pay and benefits and just dare Congressmen to sue, but the easier course of action would simply be to avoid the issue and lay off Congressional staff -- no Constitutional prohibition on that, plus no union prohibitions either as with some other Federal employees!
- wildboy
January 7, 2013 at 11:45am
Roi. You are right-- as far as you go. However, there really ISN'T a budget deficit problem of any magnitude-- there is a huge political problem... With reaonable politics, we'd have a short-term stimulus of $1T or more--- eliminating about $400B of output gap due to the current Great Recession/Lesser Depression. As you point out, SS (especially) and Medicare are really self funded and should not be considered part of the 1.2T present annual deficit, eliminating another $475B. SS is really OK for a long time--- Medicare need be reduced by single payer/universal coverage economics already in place in over 20 other "first-world" countries (in which "medical professionals" still do VERY well, but would see a reduction in income compared to current US rates) The remaining $400B can be covered by relatively small reductions in miltary spending and increased taxes-- including the middle to upper middle class (NEITHER are historically overtaxed at present) And THAT analysis doesn't include a preferred annual inflation of 2-4%--- and the fact that the deficit spending doesn't have to go to zero--- in fact, there are good economic arguments for continued well-controlled deficit spending at 200-400B/year at current GNP. What is lacking are politicians making arguments for sensible policies that are also seriously proposed--- Those 1960's policies are hardly Socialistic---However, they are considered verboten today because of the continued non-sensical arguments/policies by the Repubs NOT countered by BHO or Senate Dems... Until those arguments are forcibly and consistently made at the national level, no matter how sensible they are to voters, they will NEVER get traction. And many polls show that pluralities to majorities of voters prefer or accept the policies.
- drofnats1
January 7, 2013 at 2:49pm
I agree, drof. The Democrats are totally unable to explain how they think things ought to work. Even when they are not doing the wrong thing, the completely allow the Repugs to control the agenda, rhetorically and legislatively. The Democrats continue to be politically incompetent, and Obama is still politically AWOL. The proper thing to do is to run a structural deficit, meaning a full employment deficit, for the entitlement shortfalls, and balance or surplus in the operating budget to keep the net to the $400 billion range. But that is impossible unless we make the tax code distinctly more progressive, because almost all of the discretionary income in the country is now accruing to the top 10%. Like robbing banks because that's where the money is, we can only extract taxes where the income is. When we take that off the table, the situation becomes impossible. Of course, that is what the Republicans want because they are still intent on using deficits to destroy the government.
- roidubouloi
January 7, 2013 at 4:03pm
Thanks wildboy - I can see why really, it should be that much of a hassle. Your idea is perfect.
- WandreyCer
January 7, 2013 at 4:59pm
Liberals have NO intention of cutting even 1 Federal Employee. Just post a link to any Liberal that has named positions to be cut in this "compromise". You won't find such a link because Liberals have NO intention of cutting Washington. So no need to talk about more taxes until a list is published. The GOP did it's part in this debate - we compromised on taxes, now it's the Liberals' turn................
- perrym
January 8, 2013 at 8:14am
Democrats wanted tax increases and proposed the increases they wanted and then compromised on them. If Republicans want spending cuts, then it is their turn to propose the spending cuts they want and be prepared to compromise. So far, the Republicans won't propose the spending cuts they want, only vague generalities about how much then want. No reason whatsoever for the Democrats to do it for them. In fact, there have already been significant spending cuts under the Obama administration. That is why non-defense discretionary spending is lower by 5% of GDP than it was in 2000. Cuts to date are considerably larger than the tax increases to date. The question, perrym, is why you and the right must continuously fuel your ire with falsehoods.
- roidubouloi
January 8, 2013 at 11:31am