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Peter Orszag has moved from the White House to a contributing columnist position with the New York Times. And in his first effort, he addresses the Bush tax cuts, coming to a conclusion far removed from the standard position at the White House. The President wants to extend all the tax cuts for those making under $250,000 a year, and let the others expire. Orszag, the deficit hawk, would rather let all of them expire, and in order to do so, would strike a bargain of a temporary 2-year extension.
In the face of the dueling deficits, the best approach is a compromise: extend the tax cuts for two years and then end them altogether. Ideally only the middle-class tax cuts would be continued for now. Getting a deal in Congress, though, may require keeping the high-income tax cuts, too. And that would still be worth it.
Why does this combination make sense? The answer is that over the medium term, the tax cuts are simply not affordable. Yet no one wants to make an already stagnating jobs market worse over the next year or two, which is exactly what would happen if the cuts expire as planned.
Higher taxes now would crimp consumer spending, further depressing the already inadequate demand for what firms are capable of producing at full tilt. And since financial markets don’t seem at the moment to view the budget deficit as a problem — take a look at the remarkably low 10-year Treasury bond yield — there is little reason not to extend the tax cuts temporarily.
My first reaction is that Orszag isn’t even a very good deficit hawk. He’s been around Washington long enough to know that a “temporary tax cut extension” is as rare as Bigfoot. These things get rolled over again and again. The R&D tax credit, the alternative minimum tax patch – I could spend the rest of the day naming “temporary tax credits” that get permanently extended year after year. There’s even a vehicle for this every year called the “tax extenders” bill, designed specifically to extend tax cuts.
What’s more, in two years, we will have either a majority of Republicans in the House and Senate, or a very small majority of Democrats. Who would you rather have set fiscal policy on these tax cuts, were you Peter Orszag? Clearly no Republican will allow any tax cut expire when they can demagogue it instead. Orszag responds by saying that any extension of the tax cuts into 2013 “will surely require a presidential veto on any bills to extend them.” I guess he’s looking to deliver Ohio for Barack Obama, then.
On the merits, I would say that the tax rates of the 1990s didn’t bust anybody. However, the extension of the lower-end tax cuts while letting the high-end ones expire, definitely in the short term, seems expedient and would make the tax code more progressive. I contend there are better places to find revenue needed to bring the budget into medium-term balance than out of the hides of working people.
Orszag, incidentally, lets his slip show a little further down this editorial.
How much savings is plausible on the spending side? Medicare, Medicaid and Social Security will account for almost half of spending by 2015. Even if we reform Social Security, which we should, any plausible plan would phase in benefit changes to avoid harming current beneficiaries — and so would generate little savings over the next five years. The health reform act included substantial savings in Medicare and Medicaid, so there aren’t further big reductions available there in our time frame.
Emphasis mine. Orszag is talking about savings to the federal budget, by looking at Social Security, funded separately through FICA. It’s double-speak, designed to arrive at benefit “changes” – read “cuts” – as if the program has anything to do with the deficit.
And of course, that’s not a shock at all – Orszag literally wrote the book on benefit cuts to Social Security.
UPDATE: I should note that the White House wasted no time in rejecting Orszag’s idea:
“The president has been clear about his support for extending tax cuts for the middle class and about ending the tax cuts for the wealthiest 2 percent of Americans, which would cost 700 billion over ten years to extend at a time when we are dealing with a fiscal crisis and the independent CBO has listed as the least effective form of growing the economy,” said spokesperson Jen Psaki.
Lots of good stuff in that article from Sam Stein.
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I just read his editorial in the NYT. makes absolutely no sense @ all. The truth is it’s just another Admin. cave in to the oligarchs dressed up in neo-liberal jibber jabber. Pathetic!
Agree with seaglass. Orszag is just another neoliberal hack. I would note he admits the Administration made big cuts in Medicare and Medicaid as part of its healthcare sellout. With our elites, it is all about the looting. They’ve looted Medicare. The holy grail for them is to loot Social Security.
Another one of Obama’s economic team is exposed as a fiscal moron who serves the whims of corporate CEOs? I am shocked, shocked.
This is what happened as a result of thinking of govt as a corporation. Remember when politicians all wanted to show us how serious and managerial they were by constantly refering to govt as a product?(that always anoyed me to no end) well prodcuts dont get cheaper. Products cost more every year while providing less for your dollar, thats the whole point of products ala american imperialist capitalism. From wal st’s point of view, govt is the new growth industry and as such we are all raw matrerial to be mined. Of course its insane and of course it will end very very very badly, But ive got my mind around the reality that they dont give a shit now. got it. The empire is burning and the eunuchs are looting the plalace store rooms.
Mr. Orszag tells us that “Medicare, Medicaid and Social Security will account for almost half of spending by 2015.”
His proposal for a temporary extension of the Bush tax cuts of 2001 and 2003 until 2012 simply results in two more years of additional unfunded deficits of $300 Billion a year and moves the discussion to the 2012 election. Mr. Orszag’s call for the expiration of all the Bush tax cuts in 2012 is untenable and impossible in a Presidential election year.
He neglects to tell us that the Social Security outlays are matched by incoming Social Security payroll taxes. The current $2.5 Trillion Dollars of U.S. Treasury securities and the payroll taxes can sustain full benefits until 2037, at which point it will reduce payments by approximately 22% – 25%. Of course, increasing the payroll base of $106K/year would eliminate ever running out of sufficient funding.
Medicare outlays are matched substantially by Medicare payroll taxes. President Reagan and the Congress set up Medicare to have part of the expenses paid by Medicare payroll taxes and the rest out of the general revenues coming into the government.
Medicaid was originally created as a welfare program with 50% – 90% coming from the Federal government and the rest coming from the states. Congress gave it to Health and Human Services because of its historically low 3% cost of administration rather than set up a new federal agency.
Ever since its creation, Congress loves to include the Medicaid program funded annually by Congress by general revenues with Social Security and Medicare programs funded by employer and employee payroll taxes as a “whipping boy” even though Medicaid has nothing to do with either program.
While bemoaning the cost of Social Security and Medicare, the U.S. Congress, including the Republicans, gleefully take the surplus revenues of Social Security and Medicare to fund non-Social Security and non-Medicare programs.
We live in a quixotic world. The Republicans hate Social Security which runs a surplus; i.e. it collects more than it pays out, and demand the extension of the unfunded Bush tax cuts of 2001 and 2003 which will increase the deficit approximately $3.1 Trillion Dollars for the next ten years.
The Republicans, along with some Democrats, want to introduce means testing of Social Security and extending the retirement age to 70, while continuing to collect and spend the payroll tax surpluses.
The Republicans, conservatives, and tea party are no more interested in fiscal prudence than Willy Sutton; they simply want to rob the Social Security and Medicare trust funds because that’s where the money is (to once more pay for tax cuts they want, but do not want to fund).
In short, the Bush tax cuts of 2001 and 2003 should be allowed to expire (just the way the Republicans deliberately set them up) and start addressing the Federal deficit now.
Just another former Gold Sacks employee im sure.
My exact thoughts on reading that proposal. What a moran!
The flaw with Government is a corporation is the fundamental purpose of the institution:
Corporations externalize costs to internalize profit.
Government internalize costs and externalize profits (through the commons, eg roads)
Not a fiscal moron. Another greedy thief.
No way! Get over it! Lame! Many more to go with this proposal. Start with getting rid of Rahm where many of these ideas originate.
I think it is generally understood that we have two economies, a paper one and a real one. If I actually wanted to find a rationale for what Orszag is suggesting I would look there. The paper economy is currently experiencing a bubble in stocks and commodities. This bubble was deliberately pumped up by Bernanke via the ZIRP with the enthusiastic backing of Rubin, Summers, and Geithner. It was one of the backdoor vehicles for recapitalizing an essentially insolvent banking sector. But like all bubbles, this one is mostly air and will burst at some point. Indeed markets have been going sideways for months even as they exhibit increased volatility.
I am never exactly sure how Team Obama thinks because I still adhere to principles of basic arithmetic but if I had to guess I would say that neoliberal support for extending Bush tax cuts for the wealthy, even if they do not put it in these terms, is really about more extend and pretend. The idea is to avoid extracting capital from these bubbles which are stalling out and possibly precipitating their bursting.
There’s damn near nothing that comes out of orszag that hasn’t been fed by robber rubin.
Z
When recourse to set right imbalances in the system is denied to the masses, other means of adjustment will emerge. When a super majority of citizens were in favor of a strong PO and a majority favored universal health care and instead we got the Health Insurance bailout; when a large majority of citizens wanted us out of Iraq and then Afghanistan and instead we got surges and escalation; when a supermajority of citizens want the congress to keep its hands off social security and medicare but instead we get the Cat Food Commission and a bipartisan plot to cram cuts down our throats to finance the perpetual war engine; well, then we know that we no longer have a Government of the People, by the People and for the People. The oligarchs will always tread on thin ground in their lust for power and wealth. Sometimes it ends with reform, like during the Depression, and sometimes it ends differently, like in the French Revolution. Obama may have blown our chance for the former, and unless these trends begin to be reversed we are headed for the latter.
The low interest rates for government bonds and the government’s emerging consensus to extend the Bush tax cuts for the filthy rich, which is presented to the public as “Aw shucks, we gotta to keep on trickling down,” puts the lie to the government’s fear mongering about the desperate need to restore investor confidence by cutting social security to reduce the deficit.
Of course, we already knew we were being lied to because social security is self funded. It doesn’t contribute a penny to the deficit and reducing or eliminating it wouldn’t reduce the deficit.
Is it too much to hope for that Obama, his Catfood Commission, the MSM, and its idiot punditocracy now will finally admit the obvious and stop with the bullshit?
Wonder why is it that these people have such disdain for ordinary Americans.
Is there any wonder why we ended up pro corporatist policy from
the WH….look at the people he surrounded himself with….Orzag,Summer Giethner & Rahm……gooosh I have to go barf…absolutely sickening.
“modest adjustments doncha know :D
Great post.
at least most of the comments at NYT call bullshit loud and clear on this elitist nonsense.
The rich need to pay for the credit card wars and give back at least some of the pile they amassed under a decade of tax cuts.
Rich people’s job is spend their money and if they are not spending it, then it can be freely and fairly taxed and put to the use of the commons.
The plutocrats are not looting. To use a term favored by the Mob, they’re “busting out” the country. Taking every scrap of wealth for their own and to hell with everyone else.
Excellent post!
It is probably important to note that Orszag and Rubin put together the Hamilton Project at the Brookings Institution. Pete Peterson was also involved in this. Orszag was its first director 2005-2007. He went for a stint as head of the CBO in 2007-2008. And then Obama named him to head the OMB, a sort of lateral transfer. The CBO is run by Congress, the OMB is in the Executive but their functions are pretty much the same, creating the budget.
My new hypothesis, or rather an old hypothesis shortened up to a 15 sec soundbite, is that O’s econ ‘policy’ is all about looting the U.S. treasury, to the favor of the corps & the wealthy, before he leaves office. Which looks to be 2012, so he’s got to hurry up.
Ideally only the middle-class tax cuts would be continued for now. Getting a deal in Congress, though, may require keeping the high-income tax cuts, too. And that would still be worth it.
that sums up the duck-and-run legislative operation that Ob directs and Rahm runs.
If the Goopers say no, give in.
Where is the bold legislative plan that calls BS on the Goopers and forces them to vote for having higher taxes on the rich and not the bottom 90%?
Let the Bush Tax Cuts expire.
Replace them with the Obama Tax Cuts and put it to a vote before the election.
It would cut taxes beginning Jan 1 for those making less than 150k and couples at less than 250k. Everyone in that “poor cohort” gets the 20% dividend and long-term cap gains cuts, along with marginal rates that match the current rates.
the rich, who arent doing their job by spending, get to pay what they were paying in 1999.
If the goopers want to vote against tax cuts for the middle class, the so-called little people (thank you very much sen. simpson) then let them do it and pay the price.
and let’s stop calling the new tax plan anything to do with Bush.
A huge understatement.
Little people! R U all nothing but bitter ingrates? Have you forgotten those two tax rebates you got during each of Bush’s terms? Those were hundreds and hundreds of dollars in your pockets like windfalls!
I know what you’re thinking: it was a lot cheaper for the treasury to give back all that money than to purchase all the sponges it would take to sop up the rivers of blood in the streets.
I don’t believe for a minute that the White House wants to end the tax cuts for the wealthy. This is just more lies in an attempt to fire up the democratic base. Obama showed his true colors during healthcare and Wall Street reform legislation.
The tax rates should be rolled back to pre-Reagan levels. I don’t recall many millionaires going broke then either.
I agree – Bill Clinton said he regretted listening to Rubin, Citi paid Rubin $120 million for advice that destroyed them, and now Rubin’s disciples will continue to harm us.
Social Security is either a dedicated tax social insurance program that is in good shape, or the payroll tax is just part of the income tax and Social Security payouts are just part of the welfare paid out by the budget and needs to be cut.
Guess which view Obama has and had before the election – but never told us.
But forget Obama’s lies – the Congressional Dems have never told us this was their view – it will be interesting to see if any Dems campaign in 2010 on a rejection of that “Welfare” view.
I’ve come to think of most, if not all, politicians as nothing more than political mobsters. They no longer represent the will of the people but their own plutocratic class. As nothing more than mobsters they are illegitimate representatives of the people at large.
The U.S., along with Singapore and Great Britain, have been found to have the largest inequality of wealth in their respective societies. In the U.S. it started with Reagan, when people were told that everyone could become a billionaire.
Why so cynical, Dave?
Maybe with his call for phased-in “benefits changes,” Oars-Hog simply means double the benefits and temporarily lower the retirement age to 60 until the Jobs Emergency is over.
That’s what other reasonable people propose.
“The repuglicans won’t let us do it” is not only technically inaccurate (the tax cuts expire on their own, they do not require a vote to end them, and the democravens control the presidency so even if the repugs win both houses they still cannot extend them on their own) but undignified as well. One way I know if a person will lose the presidency is if my mom calls him a “wimp” (e.g. Carter, Bush I) and that is how Obamarahmaism is being perceived now.
Another prominent member of the Administration, whose last name begins with Obama, spent part of Labor Day, hypocritically and deceitfully claiming that he would save working Americans from the privatization of Social Security. He neglected to mention that he plans to cut it.
(O’s statements were made at Labor Fest in Milwaukee, at the lakefront festival grounds.)
Everyone of these idiots who’s proclaiming the benefits of cutting social security, should be willing to declare that they could live on what they’re determining for the rest of us. And then, they should have to do it. Otherwise, their words mean absolutely nothing.
Yeah, Sam Stein is great!
Simply lets request Senate & Congress to put itself into grid-lock with anything to do with Social Security. That is the only way they can keep their retirement worry-free and their childrens future secure besides their constituents.
Social Security is the only huge thing left not in the hands of wall street and not subject to their whims. If it goes to wall street the bailout bonanza we saw recently will look trivial in comparision. It is the only thing which will prevent another Depression in the whole world because we are the largest economy in the world by keeping 30% to 40% of the economy humming always. Social Security makes our Economy Depression Proof. That is a fact.
With Progressive Taxes implemented by President Eisenhower (Rep) all the Tea Party agitators will be paying the less taxes than now. It is only the Tea Party sponsors and Mr. Orszag friends who will pay more taxes and still be rich compared to tea party folks and rest of the Americans. That is the only deficit neutral way we can expand the economy and create jobs.
Does anyone really think that Peter Orzag’s oh so helpful suggestion to extend the Bush tax cuts for two more years is anything OTHER THAN the Republican presidential platform of 2012? Really?