Wednesday, April 13, 2011

The best news about Obama's budget plan

Update: I fear this post is wrong -- Krugman seems to me to have been mistaken.

Paul Krugman has unraveled what struck me as the central mystery of Obama's deficit reduction speech -- and revealed the President's plan to be far more progressive than it looks.  My question (#3 in prior post): since Obama pegged the gain from sunsetting the Bush tax cuts for the wealthiest 2% at $1 trillion over 12 years, and also proposed reducing "tax expenditures" (targeted tax breaks) in a comprehensive tax code overall, how did that add up to just $1 trillion in total tax hikes?  Why does 1 + x = 1?*  Krugman:
I don’t want to step too much on the administration’s selling point, but progressives upset by the claim that there are three dollars of spending cuts for every dollar of tax increases should be aware that there’s a bit of creative labeling going on. As I understand it, they’re counting both interest savings and reductions in “tax expenditures” — subsidies through the tax code — as spending cuts. It’s a much more balanced plan if you look at the balance between revenue increases and non-interest outlays.
Just to clarify, the White House fact sheet explicitly counts interest savings in the 3:1 ratio. But counting reduced "tax expenditures" as spending cuts -- that really tips the ratio, and it's brilliant politics as well as a perfectly fair use of the English language.  It's brilliant because a) conservatives occasionally have flirted with the same concept -- Coburn, in a recent tussle with Grover Norquist, struggled to effectively define ending the ethanol tax credit as a spending cut -- and b) protesting that cutting a tax break is not a "spending cut" should tie the GOP in knots, since creating new tax breaks has been a preferred mode of social spending for two decades.

Back in November, conservative commentator Heather MacDonald, in a defense of the Bowles-Simpson preview anticipated the White House's creative linguistic accounting:
It would be refreshing if, instead of exclusively blasting the proposal’s relatively modest tax increases, such as raising the federal gas tax fifteen cents to pay for transportation projects (a legitimate user fee), they supported the proposal’s more audacious cuts, such as reducing the mortgage deduction.   (The commission would eliminate the deduction only for mortgages over $500,000, alas.)  The willingness to take on this middle class subsidy would be stronger proof of iconoclastic independence than pushing for repeal of 17th Amendment, a favorite piece of Tea Party arcana.   Both would be an uphill battle; I’d rather see political capital expended on getting rid of a constitutionally-suspect government hand-out, especially given the contribution of the federal government’s obsession with increasing home ownership to the 2008 fiscal crisis

Arriving in a similar place by via negativa is Tom Coburn, struggling to break Grover Norquist's no-tax-hike-ever deathgrip:
A spokesman for Coburn, however, disputed Norquist’s characterization of the conversation with his boss.

"Grover hears what he wants to hear. Dr. Coburn has been arguing for many years, in word and deed, that the problem is overspending, not under-taxation. That said, he strongly disagrees with ATR's belief that every distortion and corporate welfare subsidy in the tax code, such as that for ethanol, is a 'tax cut' that needs to be preserved,” said John Hart, Coburn’s communications director. 
If a "corporate welfare subsidy" is not a "tax cut," I guess it's...spending?

In any case, though Obama did not specify how much "spending" he expects to cut via tax code reform, assuming any significant action on this front moves his plan way to the left.  No wonder Krugman -- miracle of miracles! -- is happy with Obama for a moment.

Throughout the 2008 campaign, I thought that the chief magic of Obama's campaign rhetoric was to move the center left -- that is, to define a progressive agenda as a restoration of basic fairness and a commitment to shared prosperity. Lately, Democrats have watched in despair as he's seemed to move the center right, caught in the GOP's electoral wake. May this conceptual judo help turn the tide.

* Also apparently left off the tax hike tab: a projected $320 billion from reducing itemized deductions specifically for the wealthiest 2%.  It's unclear how this measure would interact with global tax code reform, which would presumably limit itemized deductions for everyone who claims them.

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