December 18, 2003

Nightly Business Report: Chimera

Script for taping for Nightly Business Report: for broadcast Monday, December 29, 2003

A Budgetary Chimera

The late nineties saw federal revenues rose rapidly while a tight lid was kept on spending, producing the federal surpluses of the late 1990s. In truth, few (Treasury Secretaries Robert Rubin and Lawrence Summers and those of us who carried spears for them come to mind) really wanted the surpluses. Most Democrats wished for expanded domestic spending and bigger social-insurance programs, but preferred surpluses to large tax cuts for the $200,000-and-more a year crowd. Most Republicans wished for tax cuts, but preferred surpluses to bigger social insurance programs. In the late 1990s both parties looked forward to the year-2000 election: each side thought that it would win, and would then shift towards its preferred version of the federal government.

In the strange 2000 election, more voters cast ballots the Democratic vision, but George W. Bush emerged in control of the government. George W. Bush and his Congress have since acted as though they are Republicans on taxes and Democrats on spending. Revenues as a share of GDP are down--secondarily because of the depressed state of the business cycle, but primarily because of tax cuts. Spending as a share of GDP is up--secondarily because of our post-September 11 military buildup, but primarily because the Clinton-era focus on keeping a lid on domestic spending has been ditched.

If you had told me in the summer of 2000 what taxes was going to be, I would have been sure that George W. Bush was going to win the 2000 presidential election. But if you had told me what spending would be, I would have been sure that it was Al Gore.

I like donkeys. I am not terribly averse to moderate, respectable elephants. But an animal with the forequarters of a pachyderm and the hindquarters of an ass...

I'm Brad DeLong.

Posted by DeLong at December 18, 2003 12:01 PM | TrackBack

Comments

Are you on crack, DeLong?

The Republicans spent like Republicans. Did you pay any attention to the Reagan presidency? There was never any serious effort to control spending - not even under 41.

Yeah, it makes for a cute analogy, but the animal you are looking at is 100% elephant.

To imply that the Republicans, by showing their fiscal irresponsibility have changed into Democrats does a disservice to people who care about fiscal responsibility.

Posted by: Retrogrouch on December 18, 2003 12:13 PM

____

Could not agree more!!!

Posted by: lise on December 18, 2003 12:50 PM

____

Brad, you gotta put these on your blog the day they are going to be broadcast. At the very least put up a reminder the day of the broadcast, possibly with a link back to the post with the script. It would be really helpful.

Posted by: Mitch Schindler on December 18, 2003 01:21 PM

____

Why is the choice between surpluses and tax cuts for the $200000+ crowd? What happened to the idea of tax cuts for those under $50000?

Posted by: Andrew Boucher on December 18, 2003 02:03 PM

____

"In truth, few ... really wanted the surpluses ... In the late 1990s both parties looked forward to the year-2000 election: each side thought that it would win, and would then be able to shift away from surpluses towards its preferred version of the federal government."

Sounds like an endorsement of Bruce Bartlett's view that budgetary restraint back then actually resulted from each party controlling part of the government and so being able to block the other's priorities -- and that true deficit hawks should root for divided government to arrive again.

Posted by: Jim Glass on December 18, 2003 02:23 PM

____

"What happened to the idea of tax cuts for those under $50000?"

They've already had their taxes cut to the point where you can't cut 'em much more -- which is what makes tax cuts for anyone else unfair, of course. E.g, a typical married couple with about $50k of positive income and just the standard deduction (no mortgage, 401(k) contributons, or other serious deductions) would pay roughly $4k federal income tax, under 10%. With positive income under $30k many will pay $0.

Of course these folk do incur larger amounts in payroll taxes. But to cut those taxes would only accelerate the insolvency of Social Security and Medicare -- unless one wants to open the door to restructuring their finances in a way that fundamentally changes the way they have always been run. Fun there!

Posted by: Jim Glass on December 18, 2003 02:52 PM

____

Of course, Jim, you leave out a big part of the story, which is that those people who pay zero federal taxes usually pay quite a bit in state and local taxes, which are far less progressive (and sometimes actually regressive) than federal taxes. I think there's some evidence in fact, that when you factor in payroll taxes, federal income taxes, state and local taxes, etc., then the tax rate is very close to being absolutely flat.

Jim, of course I'm sure that your oversight is a completely honest mistake, and is in no way motivated by any desire to score ideological points.

Posted by: Keith on December 18, 2003 03:29 PM

____

"What happened to the idea of tax cuts for those under $50000?"

This happened.


Posted by: Max Sawicky on December 18, 2003 03:43 PM

____

Sorry. The link didn't take. Here it is:

http://maxspeak.org/gm/archives/00001652.html

Posted by: Max Sawicky on December 18, 2003 03:46 PM

____

But an animal with the forequarters of a pachyderm and the hindquarters of an ass?

I'm Brad DeLong.

You might not want those two sentences one after the other in your final draft.

Posted by: dmm on December 18, 2003 04:21 PM

____

State tax and budget issues don't figure in your chimera, and that constitutes a hole in it, as I gather from some of the comments here.

But the bigger hole in budget picture you propose, I think, is that it fails to address the relationships between productivity level, structure of the economy, demography, and budget.

New Deal was both justified and called for by extremely high agricultural productivity.

Manuf and services are now following suit in terms of productivity.

The industrial revolution is nearing its life cycle in US and Europe. What is going to be next?

Folks in Europe, I think, are much more aware of the relevance of that question than folks in US. (Whether folks in Europe are able to come up with good solutions is a different matter.)

Apparently, Republicans thought all along that the budget surplus of 1990s was hard earned money of 200K plus income crowd, while the Democrats thought that was hard earned money of ordinary folks (my view also). A resolution of that conflict does not appear to be possible without realizing that the industrial revolution is running its course and the notion of labor needs to be re-defined. (In fact Republicans understand that and they are trying to snow the issue out of sight, while the Democrats are still stuck with yesteryears "workers' rights" kind of socialist thinking, but they know it is not valid and they can't produce a new ideology either. So, there...)

Posted by: Bulent Sayin on December 18, 2003 04:59 PM

____

maybe you should check out this cbpp report before you go off on the GOP and domestic spending.

http://www.cbpp.org/12-16-03bud.htm

The GOP is spending alright but is it going to social programs? Paying unemployment bennies is not expanding the social programs. If you look at how the money is being spent, it more closely resembles Reagan than Clinton.

Posted by: bakho on December 18, 2003 08:15 PM

____

"Of course, Jim, you leave out a big part of the story, which is that those people who pay zero federal taxes usually pay quite a bit in state and local taxes"

Well, they sure do here in NYC with sales taxes and all. Yes. However our host's piece is entirely about federal fiscal policy. Are you suggesting it should be federal fiscal policy to have the states reduce their taxes?

"Jim, of course I'm sure that your oversight is a completely honest mistake, and is in no way motivated by any desire to score ideological points."

Oh, no, I'm a rampant ideologue. But it still wasn't an oversight -- I just don't see what federal fiscal policy has to do with reducing state taxes on income under $50k. If you do, I'd say at least one of us is a confused ideologue.

Do the Democrats have a campaign position on having the federal government reduce state taxes that I've missed?

Posted by: Jim Glass on December 18, 2003 09:25 PM

____

My first impression when I thought of the elephant-donkey chimera was "coooool!" Then I actually tried picturing it, and found it kinda unimpressive. Not even as cool as a generic centaur, triton, or gryphon, but ah well.

Anyway, though, far be it from me to question as great a Clintonista as Brad on such matters, but wasn't federal spending restrained during the Clinton administration fairly restrained even during the 1993-1994 period of a Democratic Congress and Democratic administration? Why didn't spending gallop out of control then?

Posted by: Julian Elson on December 18, 2003 11:25 PM

____

As part of his reply to the question:
"What happened to the idea of tax cuts for those under $50000?"

Jim Glass replies, in part:

Of course these folk do incur larger amounts in payroll taxes. But to cut those taxes would only accelerate the insolvency of Social Security and Medicare -- unless one wants to open the door to restructuring their finances in a way that fundamentally changes the way they have always been run. Fun there!

Jim, dollars are fungible. It would be quite easy to e.g. cut payroll taxes and put other revenue into the trust funds, only to pay them out again to cover deficts (as is done now). This was never proposed, despite its obvious efficiency as an economic stimulus. Why is that? Given that a tax cut is to take place, would you be in favor of structuring it that way?

Posted by: Jonathan Goldberg on December 19, 2003 06:54 AM

____

I usually support Jim's positions, without thinking Libs are taking over this forum at all.

The problems, Jon, are in the Left's images. First, SS is supposed to fool people into thinking they are saving their own money, and everybody is forced into the system, but everybody benefits. No means/ needs testing, it is not a redistribution program.

Obviously, if the purpose is merely to have a minimum, decent-poor income for old people before and until they die, it is more efficient to take from the general funds. And do means testing. And stop the New Deal Lie that the SS is saving your own money.

Perhaps the bigger problem is the Lie, in practice, that the mostly middle class Left wants to help the poor. What the Left policies are really all about is taxing the rich, in the name of the poor, with benefits mostly to middle classes. -- which consistently get diverted by the powerful into programs that help selected middle and rich, like farmers and steel company owners.

What the working poor need are more jobs and better education. The Dems and their despicable, in practice, NEA controllers have given is proof that socialist education is terrible for the poor. Half the blacks graduate from HS and can't read. This year, last year, every year since I went to high school 30 years ago (to a high school in South Gate, just east of Watts). And every year the Dems say "more money for teachers, but NO vouchers to let poor parents choose schools". How many years are the Dems gonna keep screwing the blacks on measurable education results?

Well, maybe until 2004 when VP candidate Condi tells them why Dem/NEA control of education has been terrible and a mass of black voters vote Rep?

Maybe Bush will be looking a bit like a big, fat, Zebra, with long pointy tusks.

Posted by: Tom Grey on December 19, 2003 07:32 AM

____

Tom Grey wrote, "This year, last year, every year since I went to high school 30 years ago (to a high school in South Gate, just east of Watts). And every year the Dems say 'more money for teachers, but NO vouchers to let poor parents choose schools'. How many years are the Dems gonna keep screwing the blacks on measurable education results?"

That's not the whole story. In the aftermath of Brown v. Board of Education, there was a Supreme Court decision on whether school integration ought to stop at school district lines. The Court voted (I think it was _Miliken_) that, indeed, integration (but more importantly school financing) should follow school districts, which encouraged white flight to the suburbs.

Now I'd be the first to agree that there needs to be more innovation and more efficient use of money in schools; that many (perhaps most) of the "theory" of education is garbage; and so on. But to say that it has nothing to do with local financing of schools (which not only cuts loose middle class tax dollars, but middle class political advocacy) is, IMHO, shallow.

Posted by: Stephen J Fromm on December 19, 2003 08:44 AM

____

Post a comment
















__