Paul Krugman has taken some rather interesting stances on the fiscal situation here in the U.S. First up is a piece entitled Fiscal Train Wreck from March 2003,

With war looming, it’s time to be prepared. So last week I switched to a fixed-rate mortgage. It means higher monthly payments, but I’m terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits.

[…]

Last week the Congressional Budget Office marked down its estimates yet again. Just two years ago, you may remember, the C.B.O. was projecting a 10-year surplus of $5.6 trillion. Now it projects a 10-year deficit of $1.8 trillion.

And that’s way too optimistic. The Congressional Budget Office operates under ground rules that force it to wear rose-colored lenses. If you take into account ? as the C.B.O. cannot ? the effects of likely changes in the alternative minimum tax, include realistic estimates of future spending and allow for the cost of war and reconstruction, it’s clear that the 10-year deficit will be at least $3 trillion.

[…]

That may sound alarmist: right now the deficit, while huge in absolute terms, is only 2 ? make that 3, O.K., maybe 4 ? percent of G.D.P. But that misses the point. “Think of the federal government as a gigantic insurance company (with a sideline business in national defense and homeland security), which does its accounting on a cash basis, only counting premiums and payouts as they go in and out the door. An insurance company with cash accounting . . . is an accident waiting to happen.” So says the Treasury under secretary Peter Fisher; his point is that because of the future liabilities of Social Security and Medicare, the true budget picture is much worse than the conventional deficit numbers suggest.

What does he say today (well at least in August 2009)? Well, lets take a look,

I respect Jim Hamilton a lot, so I take his criticism seriously — and he raises questions that others raise too about my relatively sanguine assessment of the debt situation. Yet I think that he and others are quite wrong, on several counts.

[…]

But let’s take a slightly later start date: in 1950, federal debt in the hands of the public was 80 percent of GDP, which is in the ballpark of what we’re looking at for 2019. By 1960 it was down to 46 percent — and I haven’t heard that anyone considered America a debt-crippled nation when JFK took office.

So how was that possible? Was it through drastic cuts in defense spending? On the contrary: we’re talking about the height of the Cold War (with a hot war in Korea along the way), and federal spending actually rose as a share of GDP. So yes, it wasn’t entitlement programs, but it wasn’t exactly discretionary either.

How, then, did America pay down its debt? Actually, it didn’t: federal debt rose from $219 billion in 1950 to $237 billion in 1960. But the economy grew, so the ratio of debt to GDP fell, and everything worked out fiscally.

[…]

Jim gets scary numbers about the debt burden by assuming that we’ll have to pay off the debt in 10 years. But why would we have to do that? Again, the lesson of the 1950s — or, if you like, the lesson of Belgium and Italy, which brought their debt-GDP ratios down from early 90s levels — is that you need to stabilize debt, not pay it off; economic growth will do the rest. In fact, I’d argue, all you really need to do is stabilize debt in real terms.

Note that in 2003 Krugman was just fine looking at the 10 year budget predictions. Now, why that’s silly we just need to alter our perspective. And the new post mentions nothing about Social Security and Medicare whose fiscal/actuarial position has not changed appreciably since 2003.

Now some might argue, and indeed in the comments to other posts people have argued, that during the fat years you trim the deficits or best of all run surpluses and in the lean years run the deficits. Sure, that is a some what simplified version of Keynesian fiscal stimulus. My response is lets make a list of the two situations,

View from 2003:

1. The economy was in recovery.
2. The fiscal outlook was a $1.8 trillion deficit.
3. Social Security and Medicare were in serious actuarial imbalance (tens of trillions of dollars).

View from 2009:

1. The economy is in recession.
2. The fiscal outlook is $9 trillion deficit.
3. Social Security and Medicare were in serious actuarial imbalance (tens of trillions of dollars).

The view in 2003 terrified Krugman, so much so that he took personal action regarding his own finances. Switch to 2009 and, meh guys like Prof. Hamilton are just being alarmists. The view from 2009 is pretty much worse than it was in 2003, and it seems to me that yes, if one was worried about the fiscal outlook in 2003, then in 2009 it is even more worrisome. I agree with James Hamilton,

If the government tries to double taxes on people like me, it’s in real political trouble. If it doesn’t try to double taxes on people like me, it’s in real solvency trouble.

It looks like we may have a problem here.

Thanks to Scrivner.net for the links, and their article is also well worth reading. And yes, I know that this stuff is rather old, but…well Krugman is basically saying the samethings today he did in August, “No worries, we’ll grow our way out of it.”

Ezra Klein points to a new ABC/WaPo poll showing a solid majority support “a law that requires all Americans to have health insurance, either getting it from work, buying it on their own, or through eligibility for Medicare or Medicaid.” Further, the same poll finds a third of those who oppose would switch sides “if the government gave financial assistance in getting health insurance to people with incomes below about 40-thousand dollars for an individual, and below 88-thousand dollars for a family of four.”

Kevin Drum is intrigued and guesses the phenomenon likely pretty common.

I’m pretty sure you could quote a couple of lines from Jabberwocky, ask an “in that case” followup question, and get a fair number of people to change their minds.  So what I’d like to know is: what’s the average flip rate?

He thinks figuring this out would be a useful project for political scientists, adding yet another data point to Dan Drezner’s suspicion that those of our ilk are becoming more policy-relevant.

I’m sure Kevin’s right that there’s a flip factor.  Partly, people just want to seem agreeable and reasonable.  Mostly, though, adding a lot of caveats just makes poll questions more confusing.

And the ones Ezra cites above are, frankly, pretty damned confusing.  The initial question is beyond double barreled, throwing so many things into the pot that I’m surprised they found 41% to oppose.  A “law that requires all Americans to have health insurance” sounds pretty good on the surface and talk about the employer or Medicare paying for it obscures the actual policy choice.  If, on the other hand, the question were phrased, “Would you support or oppose a law forcing Americans who do not have health insurance through their employer or the government to pay for it out of their own pocket or go to jail?” support would go down tremendously!

Similarly, if the follow-up were phrased, “Would you be willing to pay more in taxes so individuals making under $40,000 a year — or  $88,000 for families– could get free health insurance from the government?” I’m guessing it wouldn’t do so well.

James Capretta does a back of the envelope calculation on the Baucus health care reform bill and concludes that it would be like having a 70% marginal tax rate on the low income.

According to CBO, family coverage in 2016 is likely to cost about $14,400 under the so-called “silver option” in the health-care reform plan sponsored by Senate Finance Committee Chairman Max Baucus. In the Baucus plan, a family of four at the poverty line (about $24,000 in 2016) would have pay to about $1,400 toward coverage, with the federal government paying the other $13,000 on their behalf. In addition, the government would also provide $3,500 to reduce the family’s deductible and co-payment costs for health services. Thus, the new entitlement provided by the Baucus bill would be worth a whopping $16,500 for a family at the poverty line.

As incomes rise, however, the Baucus bill cuts the value of the entitlement. A family with an income at twice the poverty line, or $48,000 in 2016, would get $9,072 in federal assistance for coverage — still a substantial sum. But it’s $7,400 less than the family would get if they earned half as much. The Baucus plan thus imposes an implicit marginal tax rate of about 30 percent ($7,400/$24,000) on wages earned by families in this income range.

And that would come on top of the high implicit taxes already built into current law. Low-wage families with children also get the Earned Income Tax Credit (EITC). The EITC boosts incomes for those with the very lowest wages, but it is also phased-out as incomes rise. Past a certain threshold (about $21,400 in 2016), the EITC is reduced by $0.21 for every additional $1 earned. Throw in the individual income tax rate (15 percent) and payroll taxes (7.65 percent), and the effective, implicit tax rate for workers between 100 and 200 percent of the federal poverty line would quickly approach 70 percent — not even counting food stamps and housing vouchers.

That is a substantial marginal tax rate, and would serve as a disincentive towards working towards getting higher paying jobs. I also agree it would be a good idea if the CBO were to do a much more thorough analysis of this bill to verify these calculations.

Update: Via Greg Mankiw I see that the CBO has released some analysis on incomes, premiums, and so forth under the Baucus bill, and for the upper incomes there are marginal tax increases, not sure about low income earners. Also, if you are single you will get hit pretty hard even when your income goes from $26,500 to $32,400, the implicit marginal tax rate on that income due to the change in premiums is 24%. Then add on for payroll taxes, income taxes and so forth.

There is also this CBO policy brief that discusses the issue,

New subsidies might be created to cover the costs of private health insurance, and they could be gradually reduced over a specified income range in a variety of ways—with different implications for marginal tax rates and work incentives. Those subsidies could be gradually reduced at a uniform rate, causing implicit marginal tax rates to rise by the same amount for all recipients in the phase-out range. For example, a proposal might provide families whose income was at the federal poverty level (roughly $23,000 for a family of four in 2013, the year in which many proposals would take effect) with fully subsidized health insurance valued at $15,000. That subsidy might be gradually reduced as income increased, and families whose income was above 400 percent of the poverty level ($92,000) might be ineligible for any subsidy. In that case, marginal tax rates would go up by about 22 percentage points for all families whose income was between 100 percent and 400 percent of the poverty level.

A 22% marginal tax rate on households with income between 100% to 400% of the poverty level could reduce incentives for those households to decision on how much to work. If taking on a new job means less leisure time as well as a higher marginal tax rate a person might decide not to take the job even if the pay is higher.

And as Greg Mankiw points out, if people respond to these implicit changes in the marginal tax rates by working less, then it is possible that in the future GDP is lower and that payroll taxes are also lower. Thus exacerbating our already serious problems with Social Security and Medicare.

Yesterday, somewhere between “tens of thousands” and “two million” people flooded the nation’s capital to protest somethingoranother.

Thousands Rally in Capital to Protest Big Government (Jeff Zeleny, NYT)

Amanda Lucidon for The New York Times

A sea of protesters filled the west lawn of the Capitol and spilled onto the National Mall on Saturday in the largest rally against President Obama since he took office, a culmination of a summer-long season of protests that began with opposition to a health care overhaul and grew into a broader dissatisfaction with government.

On a cloudy and cool day, the demonstrators came from all corners of the country, waving American flags and handwritten signs explaining the root of their frustrations. Their anger stretched well beyond the health care legislation moving through Congress, with shouts of support for gun rights, lower taxes and a smaller government.

But as they sang verse after verse of patriotic hymns like “God Bless America,” sharp words of profane and political criticism were aimed at Mr. Obama and Congress.

Dick Armey, a former House Republican leader whose group Freedomworks helped organize the protest, stood before the crowd and led the rallying cries in nearly the same spot where Mr. Obama took his oath of office eight months ago. “He pledged a commitment of fidelity to the United States Constitution,” Mr. Armey said, suggesting that Mr. Obama was in violation of what the founding fathers intended the size and scope of the government to be.

“Liar! Liar! Liar! Liar!” the crowd shouted back, echoing the accusation that Representative Joe Wilson, Republican of South Carolina, hurled at the president three days earlier during his address to Congress.

The demonstrators numbered well into the tens of thousands, though the police declined to estimate the size of the crowd. Many came on their own and were not part of an organization or group. But the magnitude of the rally took the authorities by surprise, with throngs of people streaming from the White House to Capitol Hill for more than three hours.

Lashing Out at the Capitol – Tens of Thousands Protest Obama Initiatives and Government Spending (Emma Brown, James Hohmann and Perry Bacon Jr. – WaPo)

Tens of thousands of conservative protesters, many complaining that the nation is racing toward socialism, massed outside the U.S. Capitol on Saturday, angrily denouncing President Obama’s health-care plan and other initiatives as threats to the Constitution.

The crowd — loud, animated and sprawling — gathered at the West Front of the Capitol after a march along Pennsylvania Avenue NW from Freedom Plaza. Invocations of God and former president Ronald Reagan by an array of speakers drew loud cheers that echoed across the Mall. On a windy, overcast afternoon, hundreds of yellow “Don’t Tread on Me” flags flapped in the breeze.

“Hell hath no fury like a taxpayer ignored,” declared Andrew Moylan, head of government affairs for the National Taxpayers Union, urging protesters to call their representatives. The demonstrators roared their approval. “We own the dome!” they chanted, pointing at the Capitol.

The demonstrators are part of a loose-knit movement that is galvanizing anti-Obama sentiment across the country, stoking a populist dimension to the Republican Party, which has struggled to find its voice since the 2008 elections.

Tea Party Protesters March on Washington – Thousands March to U.S. Capitol to Protest Government Spending, Health Care; Many Chanted ‘You Lie’ (Russell Goldman, ABC)

Thousands of conservative protesters from across the country converged on the Capitol Saturday morning to demonstrate against President Obama’s proposals for health care reform and voicing opposition to big government, what they say is over-the-top spending.

Carrying signs depicting President Obama as Adolf Hitler and the Joker, and chanting slogans such as “‘No big government” and “Obamacare makes me sick,” approximately 60,000 to 70,000 people flooded Pennsylvania Ave, according to the Washington DC Fire Department.

Organized by FreedomWorks, a conservative activist group led by former House Majority Leader Dick Armey, many of the protestors were affiliated with the Tea Party movement, grassroots demonstrations that began across the country last spring to protest Democratic tax policies, and government bailouts of the banking and auto industries.

The big blogospheric debate seems to be over crowd size. FreedomWorks apparently quoted ABC News as reporting the crowd size at “1 million to 1.5 million” and others claimed as much as 2 million. ABC issued a report denying that it ever said anything of the sort: “At no time did ABC News, or its affiliates, report a number anywhere near as large. ABCNews.com reported an approximate figure of 60,000 to 70,000 protesters, attributed to the Washington, D.C., fire department. In its reports, ABC News Radio described the crowd as “tens of thousands.” The fact of the matter is that nobody ever has a very good idea how many people attended these things and, since the fiasco of the “Million Man March,” the Capitol Police have wisely stopped providing estimates.

Suffice it to say: A whole lot of people showed up. Michelle Malkin has crowd photos and there’s no refuting that the turnout was simply massive.

What’s more interesting to me is not how many but Why? Matt Yglesias does what pretty much everybody does when there’s a big protest from the other side: Point to the yahoos.

I wouldn’t want to tell you that the majority of the people I saw at this morning’s tea party were such hard-core patriots that they felt the need to walk around waving flags of treason and slavery:

Still it did strike me as noteworthy that your basic tea party crowd isn’t the sort of crowd in which a Confederate flag is unwelcome. I feel like if you’d tried to bring this to a health care rally, folks would have gotten upset. But the tea parties, like a lot of big time conservative events, are a very racism friendly environment. This guy, for example, clearly isn’t so much the type to march with a racist shirt on as he is the kind of guy who’d march with a shirt ridiculing the idea of anti-racism:

As was the case with the bulk of the protesters, there was very little sense that anyone had any actual specific complaint with Obama’s health care proposals. That one woman loves the confederacy. This guy thinks guns are great and diversity is stupid. Many protesters feel that abortion is murder and/or that Barack Obama is in league with terrorists. But nobody had a sign urging the president to adopt more stringent cost control measures, or slamming the concept of regulations to require insurers to cover people with pre-existing medical conditions.

Now, as a Southerner, I tend to have a more benign view of people waving Confederate flags or wearing pro-gun T-shirts. Some of them are racist yahoos, to be sure, but most of them are just decent folks taking pride in a way of life they feel is under assault.

Regardless, however, Matt’s right about the last part:  There’s not one single thing motivating all these people.  They likely have vastly different policy preferences even on the central issue that supposedly ties them together: opposition to Big Government, whose era is not in fact over.  I would simply add that this is true of all mass protest movements.

We on the Right have always made fun of these protestors — which have, until now, been almost exclusively the province of the Left — because, frankly, there are always a lot of yahoos in the crowd.   There are always plenty of signs and t-shirts and epithets shouted that would make the organizers cringe because they take away from the intended message and make the protest seem less serious.  (Matt Welch, who is very sympathetic to the Tea Party cause, points to a man carrying a sign saying “Stop spending our tacos. I love tacos.”  I have no idea what inspired that but it’s epic.)

On the Left, there seem to be a solid cohort who will show up to protest anything; they’re damned near professional protesters.    With the Tea Party protests, we may finally be seeing their analog on the Right.

It’s unfair, regardless of the loose cause that motivates them to show up, to criticize the “movement” because individual protesters seem unable to articulate why they’re there.  Most people really can’t do that.  And people who show up to protest are usually motivated by emotion rather than cold logic.  They’re simply angry at the direction they think they’re country’s going and want to vent their frustrations and show that they’re not alone.  Welch nails it:

Political rallies are no place to seek the subtle truth, nor feel particularly glowing about your countrymen, and today was no different in that regard for me. But the meta-fact about a huge anti-Obamanomics protest eight months into his term is certainly significant, and very little of what I saw made me fear that Alex Pareene will be blown to smithereens by a suicide hijacker from Arkansas.

Malkin’s got my favorite photo:

Not only is the sign defiantly funny — and decidedly not Astroturfed — but it’s a great crowd shot of a bunch of regular Americans getting together to express their displeasure with their government in a civilized manner.  Protest rallies aren’t, so to speak, my cup of tea.  But there are worse outlet valves for the inevitable frustrations of a huge and incredibly diverse country.

That is what Matt Welch and Nick Gillespie argue in their Washington Post article.

Barely six months into his presidency, Barack Obama seems to be driving south into that political speed trap known as Carter Country: a sad-sack landscape in which every major initiative meets not just with failure but with scorn from political allies and foes alike. According to a July 13 CBS News poll, the once-unassailable president’s approval rating now stands at 57 percent, down 11 points from April. Half of Americans think the recession will last an additional two years or more, 52 percent think Obama is trying to “accomplish too much,” and 57 percent think the country is on the “wrong track.”

[...]

…Obama must be furtively reviewing the history of recent Democratic administrations for some kind of road map out of his post-100-days ditch.

So far, he seems to be skipping the chapter on Bill Clinton and his generally free-market economic policies and instead flipping back to the themes and comportment of Jimmy Carter. Like the 39th president, Obama has inherited an awful economy, dizzying budget deficits and a geopolitical situation as promising as Kim Jong Il’s health. Like Carter, Obama is smart, moralistic and enamored of alternative energy schemes that were nonstarters back when America’s best-known peanut farmer was installing solar panels at 1600 Pennsylvania Ave. Like Carter, Obama faces as much effective opposition from his own party’s left wing as he does from an ardent but diminished GOP.

Or is it President Bush 2.0?

The key to understanding Obama’s predicament is to realize that while he ran convincingly as a repudiation of Bush, he is in fact doubling down on his predecessor’s big-government policies and perpetual crisis-mongering. From the indefinite detention of alleged terrorists to gays in the military to bailing out industries large and small, Obama has been little more than the keeper of the Bush flame. Indeed, it took the two of them to create the disaster that is the 2009 budget, racking up a deficit that has already crossed the historic $1 trillion mark with almost three months left in the fiscal year.

Beyond pushing the “emergency” $787 billion stimulus package (even while acknowledging that the vast majority of funds would be released in 2010 and beyond), Obama signed a $410 billion omnibus spending bill and a $106 billion supplemental spending bill to cover “emergency” expenses in Iraq and Afghanistan (and, improbably, a “cash for clunkers” program). Despite pledges to achieve a “net spending cut” by targeting earmarks and wasteful spending, Obama rubber-stamped more than 9,000 earmarks and asked government agencies to trim a paltry $100 million in spending this year, 0.003 percent of the federal budget.

In the same way that Bush claimed to be cutting government even while increasing real spending by more than 70 percent, Obama seems to believe that saying one thing, while doing another, somehow makes it so. His first budget was titled “A New Era of Fiscal Responsibility,” even as his own projections showed a decade’s worth of historically high deficits. He vowed no new taxes on 95 percent of Americans, then jacked up cigarette taxes and indicated a willingness to consider new health-care taxes as part of his reform package. He said he didn’t want to take over General Motors on the day that he took over General Motors.

Such is the extent of Obama’s magical realism that he can promise to post all bills on the Internet five days before signing them, serially break that promise and then, when announcing that he wouldn’t even try anymore, have a spokesman present the move as yet another example of “providing the American people more transparency in government.”

And we find out that President Obama is invoking the Dick Cheney/Bush Administration argument about not telling which health industry executives they’ve meet with…a position Senator Obama found rather distasteful.

But maybe there is hope,

Finally, it’s time to connect the poster boy for hope to the original Man From Hope. After Bill Clinton bit off more domestic policy than even he could chew, leading to a Republican rout in the midterm elections of 1994, the 42nd president refocused his political intelligence on keeping his ambitions and, as a result, the size of government growth, limited. Though there is much to complain about in his record, the broad prosperity and mostly sound economic policy under his watch aren’t included.

Indeed. We desperately need health care reform, but the legislation in the House and the Senate right now are not going to provide solutions. If anything it looks very much like they will make the situation worse, and at the worst possible time. Right now sending strong signals of higher taxes, even higher spending, deficits and debt that are threatening to spiral out of control are all bad things to do when also trying to turn the economy around. If the economy continues to be mired in recession and health care reform passes and taxes start going up, it is going to give ammunition to the GOP. They’ll point to unemployment, the budget deficits, the higher taxes, and then point to the guy in charge who wants to take the credit if things go good. Don’t laugh, it worked for Clinton when he ran against George H. W. Bush, and that was a much milder recession that was already over by the time of the election. In the next election President Obama wont be running for re-election, but he probably would like to keep the majorities the Democrats have in the House and Senate. Lose those, and his entire domestic agenda might need a substantial reset.

AP Photo

Conor Clarke has devised the following chart of the federal effective tax rate paid by the wealthiest 1% over the last 15 years:

While he doesn’t “love the idea,” he think it justifies paying for health care for the poor by taxing the rich.  Kevin Drum agrees, adding,

The basic story is simple: As their incomes have gotten ever higher, their tax rates have gotten ever lower.  So if tax rates on the rich are raised to help pay for healthcare reform, as some Democrats are proposing, it would just return us to the rates of the early 90s, not some hellish confiscatory dystopia.

I’d note that the curve is wildly exaggerated because the Y axis starts at 28 percent. All the variation is between 31.5 percent and 36.1 percent or so; the drop has hardly been precipitous. In addition to the Bush tax cuts, most of the difference is lowered capital gains taxes.

E.D. Kain agrees and actually took the time to replot it:

Quite the difference, no?

Via Catherine Campbell, here are the effective rates by quintile over time as calculated by CBO and plotted using a more conventional starting point of zero:

Not only are those in the top 1% paying more than twice the effective rate of the middle quintile but they’re paying substantially more than those in the top quintile.  And, of course, they’d get zero benefit from the new health care plan whereas those in the bottom quintile.

UPDATE: To be clear, I don’t think that a return to Clinton-level rates wreck the economy or that doing so would be tantamount to socialism.  (See, “Class Warfare: Framing the Debate” for a much longer distillation of my views on that.)   I’m just pointing out that the top 1% has had only a modest cut and still pays a disproportionate share.  It’s one thing to argue that the rich have an ability to pay more and another entirely to argue they have a duty.

In a sidebar discussion via email, Bernard Finel reminds me of a quotation from the fictional Sam on “West Wing” that I’ve used before (See, “Tax Burdens by Quintile” and “Middle Class Tax Cuts“):

Henry, last fall, every time your boss got on the stump, and said, ‘It’s time for the rich to pay their fair share,’ I hid under a couch and changed my name. I left Gage Whitney making $400,000 a year, which means I paid twenty-seven times the national average in income tax. I paid my fair share, and the fair share of twenty-six other people. And, I’m happy to, ’cause that’s the only way it’s gonna work, and it’s in my best interest that everybody be able to go to schools and drive on roads, but I don’t get twenty-seven votes on election day. The fire department doesn’t come to my house twenty-seven times faster and the water doesn’t come out of my faucet twenty-seven times hotter. The top one percent of wage earners in this country pay for twenty-two percent of this country. Let’s not call them names while they’re doing it, is all I’m saying.

While the fictional Sam is more liberal than the actual James, that’s pretty close to where I am as well.  I’d demur on the “happy to” but concede “that’s the only way it’s gonna work, and it’s in my best interest that everybody be able to go to schools and drive on roads.”

Willie Sutton famously remarked that he robbed banks because “that’s where the money is.”  I much prefer that rationale to one dressed up in moral obligation.

NOTE: The addition of E.D. Kain’s chart was momentarily UPDATE 2 but I thought it made better sense to insert it directly into the narrative.

Mickey Kaus calls Ezra Klein a “concern troll” for his “unsettling thought” that:

[H]ealth-care reform isn’t simply suffering because the public is overly opposed to some of its revenue raisers. It’s suffering because the public is insufficiently supportive of its core. … [snip]

[I]t’s not obvious what health-care reform will do for the average American. I could give you a long answer about delivery system reforms and so forth because it’s my job to know these things. But it would have to be a long answer …. [snip]

Higher taxes aren’t buying them obvious benefits. Instead, they seem to be paying the health-care bills of poorer Americans. … [snip]  [emphases and snips all Kaus']

First, I’d note that Kaus is incorrectly applying the “concern troll” concept.  Ezra genuinely wants major reform in the health care system and is legitimately worried that it may not come to pass.

Second, it strikes me that Ezra is making the same argument I did, albeit from the other side, in my health care debate’s ecological fallacy post.   People are ultimately concerned about how any prospective reform will impact them personally, not whether the entire health care system will be improved.  A lot of people are correctly coming to the conclusion that the proposed reforms are simply another entitlement program that they’ll have to pay for.   Kaus restates the problem aptly:  “Obama is running into political difficulty because he’s selling the middle class a pain sandwich–more taxes in exchange for more health care cuts.”

Kaus has an elegant solution:   “It would have been smarter to sell universal health care as offering Medicare-like security for all. (It’s not too late! And it fits on a bumper sticker.)”   I tend to agree.  That, and some sort of easy portability of insurance between employers, would go a long way to solving the deficiencies in the system that most Americans worry about.

None of it, unfortunately, solves the larger problem:  Health care is too expensive and the costs are rising at an unsustainable rate.

Capricia Penavic Marshall, President Obama’s nominee for chief of protocol at State (an ambassadorial position) failed to file taxes in 2005 and 2006.  She filed late in November, citing various excuses that are ever-so-slightly plausible.

Marshall joins Timothy Geithner, Tom Daschle, Nancy Killefer, and others.  (And eventually-to-be Senator Al Franken got a jump on all of them.) [UPDATE: It's noteworthy, as explained later in the article, that, unlike the other figures, Marshall was actually owed $37,259 in refunds!]

Previously, I wondered whether Democratic politicos are especially prone to tax issues, the Obama vetting process is simply bad, or some combination.

But Obama’s not a slow learner.  After so many instances, there has to be method to this madness.  Perhaps this is his plan for ending the budget deficit?

As an aside, in hindsight, this is clearly a post he should have filled earlier, what with the various DVD, iPod, and reset button gaffes.

Penny Payton, far right, had waited more than 1½ hours at the Center Point satellite courthouse Friday to buy her car tag and still had more than 20 people in line in front of her. The office is one of the satellite courthouses the Jefferson County Commission is set to discuss closing to save money. (Jeff Roberts, Birmingham News)

A court decision striking down Jefferson County, Alabama’s commuter tax — combined with an impasse in the state legislature — has led to the shutdown of significant government services, Bloomberg reports.

Alabama’s most populous county is preparing to stop road maintenance, close courthouses and shutter services for the elderly after a court struck down taxes that pay for about 35 percent of its budget.

Jefferson County, which includes Birmingham, released a plan to cut $52 million from its budget as it appeals the ruling against its business and occupational taxes to the Alabama Supreme Court. Without that revenue, the county has said it is at risk of running out of money as soon as this month.

The loss of the tax money was another blow to a county that has been struggling to avoid bankruptcy since last year, when Wall Street’s financial crisis caused its interest bills to soar on more than $3 billion of bonds. The challenged taxes provided about $75 million in the fiscal year ended Sept. 30 to the county, which is forced to balance its budget under state law.

“I’m not expecting that this is going to go easy into the night, but I’m abiding by the law,” county Commission President Bettye Fine Collins, a Republican, told reporters in Birmingham. “People who thought this was some kind of game are finding out this reality.”

The proposed cuts, outlined in a series of proposed resolutions released today by Collins, would slash deeply into the government’s services and include closing a nursing home for the indigent, declaring a moratorium on enforcing zoning and littering laws, and scrapping local development contracts. They would also bring a halt to the enforcement of building codes, close the county’s laundry, and shut down the agency that assists senior citizens.

Rob Port notes the tendency of local officials faced with revenue to “immediately threaten to cut back on some of the things government does that the taxpayers value most” even though “there’s more than enough fat to be cut from government budgets without resorting to things like closing down firehouses.”  That certainly happens.  I can think of several occasions where Friday night football was threatened with cancelation when school boards were piqued at failed bond initiatives.

That doesn’t seem to be the case here, though.  The Birmingham News account of the cuts notes, “The list does not include cuts to the sheriff’s office, Environmental Services Department or Cooper Green Mercy Hospital. County officials said they wanted to avoid eliminating essential services in the first round of cuts.”  Further,

The budget reductions — which total $51,761,563 — range from closing all satellite courthouses at an estimated saving of $8.3 million to abolishing the county’s employee tuition reimbursement program at an estimated saving of $68,847. Many of the cost-saving measures have been discussed for months, since commissioners learned they might lose the occupational tax.

What we’ve got here is a county government that is simultaneously providing services that votes want but unable to raise taxes because voters don’t want to pay for them.  They tried the common solution in these cases — extracting the taxes from people who can’t vote in the jurisdiction in question — and succeeded until a judge ruled that they had to quit.  This of course exacerbates the original problem because, in the interim, people got used to even more services that were, in essence, free.

Jon Henke Twitters: “The California referendum proves that what voters want to spend is not well-connected with what voters are willing to pay.”

Quite right.  Californian Kevin Drum takes as a given that his state is “broken” but sees no solution in sight.  While he’s in favor of Governor Schwarzenegger’s idea of a constitutional convention to fix some of the institutional flaws that has the Golden State in this mess, he notes that the same institutions likely preclude said convention from working:

[I]n order to even hold a constitutional convention, it has to be put on the ballot and approved by a majority of the electorate.  And how does the question get put on the ballot?  It has to be approved by two-thirds of the legislature.  But this is the problem we’re trying to solve in the first place: to pass a budget or raise taxes takes a two-thirds vote of the legislature, and Republicans have enough votes to stop that from happening.  Votes that they use regularly.  So why wouldn’t they also stand in the way of a constitutional convention whose main purpose would almost certainly be to remove the two-thirds requirements for passing a budget and raising taxes?

No reason, really.

George Will is one of the few elite outlyers on this one, calling the rejection of the various ballot measures designed to cope with the present economic crisis “sensible,” noting that each Proposition had rather serious flaws (Drum calls them “mostly gimmicks“).  Still, even Will concedes that,

California’s voters are complicit in their state’s collapse. They elect and reelect the legislators off whom public employees unions batten. Also, voters have promiscuously used their state’s plebiscitary devices to control and fatten the budget. In November, as the dark fiscal clouds lowered, they authorized $9.95 billion more in debt as a down payment on a perhaps $75 billion high-speed-rail project linking San Francisco and Los Angeles — a delight California cannot afford.

Matthew Shugart notes that, while the needed measures managed to garner a mere one third of the vote, “the stupid one” passed “with nearly three fourths of the vote.”  He suggests that furloughs — i.e., simply sending state employees home without pay — is a likely consequence.  Megan McArdle, meanwhile, thinks California may be “too big to fail” and get a federal bailout.

Update (Steve Verdon): Just thought it is worth pointing out that if California had limited its budget increases to inflation plus rate of population growth the state would either have a much, much smaller deficit or even a surplus. When people complain about not being able to raise taxes they ignore the spending side of the equation. The implicit assumption is that the spending is just fine and not out of control, and it most certainly is out of control. For example, take former Los Angeles Police Chief Benard Parks.¹ He currently collects a salary of about $179,000 as a member of the City Council. However Parks also collects about $265,000 from his pension for being the police chief. That is a total annual income of around $444,000, and pension plans are generally considered “off the table” when it comes to looking at balancing the budget.

The California problem is the problem in with government that has tremendous discretionary powers: there is little in the way to ensure the state behaves in a responsible manner. Add to the mix special interest groups and rent seeking and you have the potential for big problems. Yes it is in part the fault of the voters for going down this road. But at the same time there are politicians and special interest groups that have been sucking up vast amounts of money too.
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¹Yes, as the former LA Police Chief and member of the LA City Council those are all Los Angeles issues, not state issues. However, Los Angeles is very much a microcosm of what is wrong with the State. Los Angeles is running a deficit, with few options in terms of raising revenues. There are powerful unions that have tremendous influence with the City Council and the Mayor. Los Angeles problems can be laid primarily at the feet of unrestrained spending. Sound familiar? It should, that is California writ large.

USA Today reports on a proposal circulating in the Senate Finance Committee to fund health care through sin taxes on booze.

Beer taxes would go up by 48 cents a six-pack, wine taxes would rise by 49 cents per bottle, and the tax on hard liquor would increase by 40 cents per fifth. Proceeds from the new taxes would help cover an estimated 50 million uninsured Americans.

Matt Yglesias finds this proposal “pretty attractive,” even while acknowledging that the direct public health benefits from reduced alcohol consumption would be minimal.   He notes that this would be a “return to the level of taxation that existed a few decades ago” so it “would not be an unprecedented burden on the American consumer.”

That’s probably right, although it strikes me as highly regressive.  A flat rate based on the category of beverage is especially bizarre.  Why should someone buying a bottle of “Two Buck Chuck” pay the same tax as someone buying a $50 bottle of pinot noir?  Matt suggests that we should instead charge based on alcohol content, which would make sense if the aim was mostly to deter excessive drinking.  But, since we’re trying to fund a health care system, it would make more sense to tax based on price.

Matt asserts “universal health care is highly desirable and has to be paid for somehow.”  I agree with the former, if by “universal health care” we mean that all Americans can afford to get treatment when they’re sick or injured, and the latter necessarily follows.   It’s not at all clear, though, why the “somehow” ought to apply to those of us who use a legal, harmless-if-used-responsibly product.

Matt counters that “the incidence would fall overwhelmingly on a relatively small number of problem drinkers (rather than the broad mass of people who drink moderately on social occasions)” but that’s simply not true.  Sure, a “problem drinker” is likely to consume more booze than a “social drinker.”  But the latter vastly overwhelm the former in number and all of us would pay the tax.

[UPDATE:  In a subsequent post, Matt points to Igor Volsky's recitation of junk science haven Center for Science in the Public Interest data showing that moderate drinkers would pay almost no taxes -- and 35 percent would pay nothing at all! -- whilst the top 5% would pay $215 a year.   I have no data to offer in rebuttal but personal observation makes me exceedingly skeptical of the distribution.]

Given that we’re likely going to have some sort of taxpayer-funded health program passed during Obama’s run, why not simply impose a consumption tax, perhaps excluding food and medicine, instead? It would be less regressive and wouldn’t single out a single activity for punitive treatment.

Photo by Flickr user zsenya under Creative Commons license.

I mentioned Newt Gingrich’s article “Are You an Obama Winner? Or an Obama Loser?” at the tail end of Wednesday’s episode of OTB Radio (”Republican Party, RIP?“) but never got around to blogging it.  It is both a classic Frank Luntz-inspired use of obnoxious language to paint a dire picture of the Democrats — and thereby quite amusing — and yet a pretty decent argument against some of Obama’s policies.

The boldface Winners/Losers are very much the former.  Some examples.

Winners: The People Who Are Evading Responsibility for Chrysler’s Bankruptcy
Losers: Consumers Who Want to Buy Good American Cars

Winners:  Terrorists and Anti-Americanism Worldwide
Losers:  The New Neighbors of Terrorists and The American Tax-Payers

Winners:  Anyone the President Deems Deserving of Judicial “Empathy”
Losers:  Everyone Else

Winners:  Government Favored “Green Industries”
Losers:  Anyone Who Heats a Home, Drives a Car or Has a Job

The last is my favorite.  It’s hyperbolic to the point of absurdity.  But he follows this with an explanation that’s more reasonable:

I’m in favor of doing all we can to protect our environment, but I have a fundamental difference with Democrats on Capitol Hill and in the White House:  I believe in incentivizing Americans to produce the innovations that will protect our environment, not punishing Americans with taxes, regulation and litigation.

The Administration’s cap and trade legislation makes losers of the American people by imposing a $1 trillion-$2 trillion energy tax on an already struggling economy.  And the winners?  They’re the lobbyists for favored special interests and “green” industries who are already lining up in Washington to collect the spoils.

A little sketchy on the public policy prescription angle, to be sure, but the outline of a counter-argument.

In my New Atlanticist piece, “British Revolt of the Artists,” I take a slightly tongue-in-cheek look at the threats of  Michael Caine and Andrew LLoyd Webber to leave the UK if a Labour plan to raise taxes goes through.

While refraining from gratuitous Alec Baldwin references, I do point out that, “Rich artists are perhaps not best spokesmen for this cause, as they both have the appearance of speaking for their own interest and seem to some to make an extraordinary amount of money for relatively little work.”

I also note that there aren’t a lot of great options for Brits seeking lower-tax states.

A Gallup poll showing that 48% of Americans believe their federal income tax burden is “about right,” and 46% saying it’s “too high” has naturally generated some conversation.

Both Dave Schuler and Kevin Drum, though, looked behind the numbers and realized the 48% figure isn’t so impressive once you factor in the fact that somewhere between 40% and 50% of Americans pay zero federal income taxes.  (To be sure, most of them pay some sort of taxes, including other federal taxes like FICA; but the poll question is specifically about federal income taxes.)

Of course, most Americans probably have no idea how much federal income tax they’re actually paying.  Our withholding based system makes it seem like most people are paying more than they actually are.  And that refund check at the end of the year just seems like a bonus.

Ari Fleischer’s WSJ column “It’s Bad for Our Democracy to Exempt Half the Country From Income Taxes” is attracting widespread commentary, mostly along predictable party lines.

While I agree with the basic premises (see, for example, “Class Warfare: Framing the Debate“) I am rather dubious of his actual programmatic prescription:

I favor the abolition of all Social Security, Medicare and estate taxes. In their place, we should create a simple income tax system that has no deductions or credits at all. The result would be a progressive, multitiered income tax in which everyone pays.

Abolishing the separate Social Security and Medicare taxes probably makes sense. He’s right: the idea that these are set-asides rather than simply paid out of general revenues is a fiction.

But, surely, we don’t actually want to have everyone pay taxes based on gross income with “no deductions or credits at all“?

That would be devastating, indeed, for those of us who declare income as sole proprietors of businesses.  While there’s room for quibbling on implementation, it’s almost unfathomable to tax “income” that is paid out for legitimate business expenses.  For many, this would quite literally leave them owing more in tax than they earned.