Compromise Still a Dirty Word, or Learn Your Arithmetic

Since the Simpson-Bowles Commission issued its report there has been much call from many in the media (see Scott Lehigh and David Brooks) for the serious minded to get on board and support the Commission’s findings, which call for entitlement reform, spending cuts, tax reform, and additional revenue. The revenue would be derived via the reform methodology, by eliminating loopholes and tax expenditures, thereby broadening the overall tax base. It uses the same methodology for corporate taxes, eliminating corporate loopholes but also lowering the corporate tax rate. Roughly speaking the Commission utilized three dollars in cuts to one dollar of revenues.

So if you achieve tax simplification, entitlement reform, deficit reduction ($4 trillion over a decade) where does the argument come in? Well Republican House members who were on Simpson-Bowles all voted against the final report, although Republican senators, including Tom Coburn, voted in favor.The Republicans just could not stomach the increase in revenue. But the report drew scorn from the left as well, with Nancy Pelosi and Paul Krugman attacking the findings. They just could not stomach the changes in entitlement programs.

So that brings us to independent Maine Senate candidate Angus King, who has come out in favor of Simpson-Bowles. King, a former Governor, has delighted in tormenting both parties, and his independent status has allowed him the freedom to speak out on budgetary issues. He has even refused to say who he would caucus with if elected. Angus King’s advocacy of Simpson-Bowles has drawn the ire of Grover Norquist, who has attacked this support of Simpson-Bowles by King in the way you would expect. With lies. Lets look at what Grover Norquist said in his press release.

According to the Simpson-Bowles co-chair report, the revenue target of their proposal is to “cap revenue at or below 21 percent of GDP.” This figure is significantly higher than the historical tax revenue burden of around 18.5 percent of GDP.If the Simpson-Bowles tax revenue target was in place for ten years, it would raise $5 trillion in additional revenue, or taxes, paid by American taxpayers and businesses.

Now the reality is that the Commission advocated a ten year revenue increase of $1 trillion, with a ceiling on federal revenues of 21% of GDP. (It is currently at about 24.5%) The Commission did not advocate raising revenues to that number, but rather placing a ceiling on federal spending that does not exist today. So Norquist simply twists a number, and creates an illusion. Or a lie. What else did Grover say?

“Angus King is absolutely correct that people aren’t going to be happy about the Simpson-Bowles Plan and that’s because the plan is a $5 trillion tax increase,” said Grover Norquist, president of Americans for Tax Reform. “His support for the Simpson-Bowles Plan demonstrates that when it comes to taxes, King stands with Democrats like Harry Reid and Nancy Pelosi.”

Norquist conveniently forgets that Nancy Pelosi came out against this plan, and opposes the entitlement reforms to this very day. Another illusion. Or lie.

Erskine Bowles talks in the below videos about the need for fiscal reform, and about what the drivers of our debt are. Listen to him, because his math is unassailable.

The Democrat in this race, Cynthia Dill, said this in response to Simpson-Bowles.

America also is not a corporation; America is a nation, founded on an idea, rooted in constitutional principles. We cannot view everything through the financial bottom line. We are not electing a CEO for America; we are electing a president.

This response is on her web site, and in my opinion, is, along with Republican fiscal positions, the reason we are in this problem. The bottom line does matter, especially over the long term. If there is spending that makes sense then we must eventually tax for it. If we cannot tax for it then you must borrow for it, or cut it. There is simply no way, in the long run, to avoid that iron law of math.

King is likely to win this race. The dynamic of having him in Washington should be quite entertaining. But the response from left and right to Simpson-Bowles shows why it has been so difficult to achieve a deal on the budget.

The Bowles letter to the Portland Press Herald is here.

http://www.msnbc.msn.com/id/32545640

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One Response to Compromise Still a Dirty Word, or Learn Your Arithmetic

  1. Axoul says:

    Tim, I am really suprsired by and disappointed with this post. You cherry picked the Krugman quotes. Why did you skip the next paragraph?Here it is for those of you who have not read the piece in its entirety: But beyond that, the proposal seemingly ignores a crucial point: while average life expectancy is indeed rising, it’s doing so mainly for high earners, precisely the people who need Social Security least. Life expectancy in the bottom half of the income distribution has barely inched up over the past three decades. So the Bowles-Simpson proposal is basically saying that janitors should be forced to work longer because these days corporate lawyers live to a ripe old age. The deficit could be a problem. It is getting larger thanks mainly to the Reagan years and the Bush II tax cuts. Yet, interest rates remain effectively at zero. How is that possible?If you want to cut the deficit, then let’s eliminate corporate welfare. How about the elimination of the 50% tax deduction for income above a million dollars? I don’t earn a million dollars in income and never will unless I (A) become a star professional athlete, (B) a CEO, or (C) work in the financial industry.Why are Americans subsidizing in the form of tax breaks salaries for star professional athletes, CEOs, and financial personnel? Screw em.

    Like

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