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Sunday, November 13, 2011

Does the Middle Class Have to Take the Hit?

Dean Baker says there's no reason for the middle class to take on most of the burden for deficit reduction:

Dealing With the Budget Deficit: Does the Middle Class Have to Take the Hit?, by Dean Baker: Adam Davidson has a piece in the NYT magazine about how the middle class will have to take a hit to deal with the country’s deficit. It’s a bit quick to reach this conclusion.  
First, the piece too quickly dismisses the possibility of getting substantial additional tax revenue from the wealthy. It presents the income share for those earning more than $1 million as $700 billion, saying that if we increase the tax rate on this group by 10 percentage points (from roughly 30 percent to 40 percent), then this yields just $70 billion a year.
However, if we lower our bar slightly and look to the top 1 percent of households, with adjusted gross incomes of more than $400,000..., then we get ... $140 billion a year. ...
There are also other ways to address much of the shortfall. In the case of defense, the baseline projects that military spending will average 4 percent of GDP over the next decade. We had been spending 3 percent of GDP on defense in 2000... If military spending averaged 3 percent of GDP over the next decade, that would save us $2 trillion before interest savings..., it should not be absurd to imagine that we could get by with the same sort of military budget (relative to our economy) that we actually had a decade ago.
Another way in which we could have substantial savings that would be relatively painless is to have the Fed simply keep the bonds that it has purchased as part of its various quantitative easing operations. It currently holds around $3 trillion in bonds. The interest on these bonds is paid to the Fed and then refunded to the Treasury. Last year it refunded close to $80 billion in interest. The projections show that ... if it continued to hold the assets, over the course of a decade it could save the government around $800 billion in interest payments. The Fed might have to take other measures to contain inflation...
Finally, the big story in any serious discussion of the long-term budget is health care. We pay twice as much per person as people do in other wealthy countries. ... If we paid the same amount per person for our health care as people in other wealthy countries, we would be looking at long-term budget surpluses rather than deficits. ...
We can’t keep on this course on either the public or private side. The real question is whether we look to save money by having people get fewer services or we look to save money by paying providers less. The former could mean, for example,... seniors ... will just have to do without some amount of care.
The other route involves restructuring the health care system. This is incredibly difficult politically... Nonetheless, in the long-run serious reform is the only option, since the alternative is that large numbers of people (including very middle class people) will not be able to get decent care. ...
In short, there is little reason to be talking about imposing increased burdens on the middle class any time soon. ...

More from Edge of the American West:

It’s Sunday, Let’s Pick On The New York Times, by silbey: It’s Sunday, let’s pick on the New York Times. ... I thought I would extract one particular article and be mean to it. The article of choice is Adam Davidson’s ... “It’s Not Just About the Millionaires,” which is of the school of Very Serious People. The VSP used to be exclusive to foreign policy, but have branched out, and usually consist of someone (Friedman is a charter member) explaining that the current path picked by the policy experts is the best one despite all the naysayers, as those naysayers Don’t Really Understand How The World Works. Davidson Very Seriously explains why the government’s debt problem can’t be solved by taxing just corporations or rich people, but have to come by taxing the middle class. It finishes with the classic trope of a VSPerson that we have to give up our “fantasy” of raising taxes on businesses and rich people.

Davidson does some math to show that taxing the rich heavily won’t bring in that much money to help cure the debt. I’ll outsource that treatment of the rich to ...[Dean Baker]...

His treatment of businesses is equally shaded. ... “Any serious analyst who isn’t paid by one of the tax-benefiting industries would suggest eliminating most industry-specific loopholes.” Ah, good, one thinks, he’s now going to deal with how much revenue could be generated by improving the corporate tax code... Right? ... “But the problem is that cutting them will not even come close to reviving our economy.” But. Huh? I thought we were talking about debt and revenue issues? Where did “reviving the economy” come from?

And he’s off to the races. No discussion of debt, no discussion of what closing the loopholes would actually raise from corporations, no discussion of how it would affect the revenue picture. Instead, he wanders into cutting Social Security and Medicare,... finally reaching the conclusion that taxing businesses “isn’t the answer.”

Combine that with the sleight-of-hand in treating the rich and you have an article that concludes that raising taxes on the middle class is the only way to go. Davidson’s article ... enters service as a reference piece, to be used as evidence. “Look,” Very Serious People will say “Even a liberal like NPR’s Adam Davidson demonstrates that we can’t tax corporations or the rich!” Never mind Occupy Wall Street; never mind the 99%. They don’t understand.

Only Very Serious People understand.

This trick is used again and again to oppose raising taxes on one interest group or another, but the fact that raising taxes on a particular group won't fully solve the debt problem does not imply that the change in taxes for that group should be zero.

    Posted by on Sunday, November 13, 2011 at 11:07 AM in Budget Deficit, Economics, Taxes | Permalink  Comments (75)


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