Wingnut Watch: A Fair Tax?

One of the more exotic policy tendencies of Wingnut World is a history of strong and pervasive support for replacing income taxes with higher consumption taxes. Many conservatives support this step on grounds that it will promote savings and investment, which is another way of saying that they believe capital should not be taxed at all. Others like the idea of getting rid of the compliance costs and “bureaucracy” associated with income taxes, and still others are attracted to the “flat” nature of consumption taxes, which do not vary based on the taxpayer’s personal circumstances (whether it’s income, or the various characteristics that earn deductions and credits against income tax liability).

The so-called “Fair Tax”—the general term used for any number of schemes for shifting from federal income to consumption taxes—has been a hardy perennial for years among conservative activists and talk show hosts. Among the latter was Herman Cain, whose so-called 9-9-9 (replacing current federal income, capital gains and estate taxes with a 9 percent national sales tax, a 9 percent VAT on corporations, and a 9 percent income tax with no deductions or credits) plan is explicitly advertised as an intermediate step towards a “Fair Tax.” Like the “Fair Tax,” Cain’s plan seems to have great curb appeal for rank-and-file conservatives, but less so for opinion-leaders.

Cain’s recent surge in the polls as a presidential candidate has suddenly put 9-9-9 and the broader movement to get rid of progressive income taxes under a microscope. On the eve of Tuesday night’s candidates’ debate in Las Vegas, the Urban Institute/Brookings Tax Policy Center published an analysis of the distributional implications of Cain’s proposal that immediately became fodder for his rivals and for critics generally. Faced with claims that 9-9-9 would boost total taxes for most American households with annual income under $200,000, Cain was reduced to repetitive denials without much in the way of explanation. Even among conservatives who are not troubled morally or politically by the idea of making federal taxes massively more regressive, the argument that 9-9-9 would give Uncle Sam a new instrument for confiscating private dollars (the national sales tax) is getting some traction. One of 9-9-9’s designers, the ubiquitous Steven Moore, is already urging Cain to replace the sales tax proposal with a 9 percent payroll tax.

There is virtually no broad-based polling of 9-9-9 available (figuring out how to describe it in a survey question is a real challenge, particularly since Cain and his advisers are not always very precise). But a new HuffPo/Patch survey of activist leaders in early caucus and primary states (whom they call “Power Outsiders”) shows lukewarm support at best.

The timing of the intra-party assault on Cain’s signature domestic policy proposal is no coincidence. It is based on the belief that he is a flash-in-the-pan phenomenon whose lofty support levels represent a “parking place” for conservatives who don’t like Mitt Romney but haven’t been sold on any of his competitors, and find Cain interesting and refreshing, not to mention his usefulness as an all-purpose antidote to suspicions that conservative hatred of Obama is at least partially racial in origin.

Tuesday night’s debate represents a transition point from a six-week stretch of frequent debates, to the run-up to actual voting events. Earlier this week another important piece of the nominating contest puzzle fell into place when Iowa set a firm date of January 3 for its “First-in-the-Nation Caucus.” There remains a not-insignificant chance that New Hampshire will schedule its primary for early in December in order to avoid too-close proximity to Nevada Caucuses currently planned for January 14, though it’s more likely that Nevada will move a few days in order to let NH have its event on January 10. Any way you slice it, though, candidates have a relatively brief window of time to get their act together before voters in the early states begin to become distracted by the holidays, which will also make negative campaigning problematic on grounds that it conflicts with the “spirit of the season.”

With Mitt Romney presumed to have a commanding lead in two of the five January events (NH and Nevada), developments in Iowa, South Carolina and Florida are of particular interest at this juncture. New NBC/Marist polls in SC and FL show Cain and Romney basically tied with just under a third of the vote each, with Perry mired in the high single-digits. This state of affairs is close to where the most recent polling in Iowa has placed the race there as well. If, as the conventional wisdom suggests, Cain soon begins to lose support because of attacks on 9-9-9, his lack of policy sophistication generally, or simply the fading novelty of his candidacy, the big question is whether those votes go back to Rick Perry, are scattered among various candidates, or even go in significant numbers to Mitt Romney. In any event (barring a December NH primary), media coverage of the campaign will now focus ever-increasingly on Iowa, where the picture is complicated by the relative importance of the “ground game” and Romney’s decision so far not to seriously compete in the state. Cain’s organizational weakness in Iowa is perhaps best illustrated by the fact that his former state director (who quit because her candidate seemed to be ignoring the state) just signed up for a less elevated job with Rick Santorum. So in the place where the 2012 nominating contest formally begins in less than eleven weeks, the two front-runners in that state and nationally are not really running at all. Something’s got to give, and soon.

Photo Credit: Gage Skidmore

Policy Brief: HomeK Accounts: A Down Payment on Homeownership and Retirement

Two years after the meltdown in the nation’s housing market, housing re- mains weak. Home prices fell to a new low in the first quarter of this year— confirming a feared “double-dip” in the market. Prices are now down nearly 33 percent from their high five years ago.

With housing and its related industries—construction, home retail, etc.— constituting almost 19 percent of the nation’s economy over the last 40 years,2 restoring the housing market will be essential to a sustained eco- nomic recovery. And key to this will be ensuring a robust market for first- time home sales.

Yet, even with home prices as low as they currently are, many potential homebuyers may face more—not fewer—obstacles in their path to home- ownership. In the aftermath of the crisis, credit is tighter, as are down pay- ment requirements. At the same time, the stresses of the economy have meant that potential homebuyers are in worse shape financially than they once were.

The creation of a new, tax-preferred mechanism for down payment sav- ings—a “HomeK”—could help first-time homebuyers navigate these new hurdles while also promoting more savings. And if structured as a carve-out from existing retirement planning mechanisms, not as a new type of ac- count, the HomeK would have the added benefit of promoting retirement savings and will not contribute to further tax code complexity.

Read the entire brief.

Wingnut Watch: Lost in Wingnut World

Bloomberg-Washington Post DebateAt a time when we are constantly being told that no one in America cares about anything other than the economy, one of Wingnut World’s most durable forums for people who intensely care about cultural issues was held this last weekend. The Value Voters Summit, sponsored by the Family Research Council, attracted every significant GOP presidential candidate other than Jon Hunstman. But as has often been the case, the controversial nature of the event’s sponsors and speakers overshadowed anything the candidates had to say.

Most notably, Robert Jeffress, a Southern Baptist minister from Dallas who was asked by conference sponsors to introduce Rick Perry (he’s a long-standing supporter of his governor and one was one of the pillars of Perry’s big prayer event back in August), made big waves by going out of his way to tell reports he regarded Mitt Romney’s LDS church as a “cult.” This is an old refrain for Jeffress, but casting the Republican presidential nominating contest as a war of religious identity in which Christians should follow Perry was sure to grab headlines. Moreover, one of the main speakers at the event was Bryan Fischer of the American Family Association (a major Value Voters Summit co-sponsor), who lived down to his reputation as a purveyor of all sorts of bigotry, mainly aimed at gays, Muslims and Mormons. Romney, who preceded Fischer at the podium, was driven to an indirect swipe at him for “crossing a line,” which of course just gave Fischer a new excuse to whine about being persecuted.

The whole series of events led some commentators to wonder if a sustained attack on Romney’s religion, with or without the complicity of Rick Perry, had been launched to stiffen resistance to the 2012 front-runner among white conservative evangelicals.

The presidential candidate who was most successful in cutting through all the distractions at the Value Voters Summit was Herman Cain, whose stock speech is still blowing the doors off in conservative gatherings. He got a lot of standing ovations, but perhaps the biggest greeted his assurance that he and other African-Americans had nothing to be angry about thanks to the opportunities they’d received as Americans.

On a more formal level, Ron Paul registered at the event by winning its Straw Poll by a comfortable margin. The ability of his supporters to routinely dominate straw polls (except for those like August event in Iowa that attracted many thousands of attendees, or the P5 straw poll in Florida where voters were delegates elected months earlier) simply by flooding the room has seriously eroded the news values of his wins.

As the presidential candidates prepared for another debate on Tuesday, polls continued to document an ongoing collapse in support for Rick Perry and a corresponding surge for Herman Cain—not just in national surveys, but in the states that play an early role in the nominating contest. In Iowa, where no public polls were released during September, and late August polls showed Perry romping into an immediate lead, two surveys from NBC-Marist and Public Policy Polling came out this week documenting Perry’s slide into fourth or fifth place, and Cain’s rise to a position rivaling Mitt Romney. Since the Iowa Caucuses require both grassroots support and a strong organization to bring it out on a cold winter night, Cain’s weak organization in the state makes actual success in the caucuses more problematic (conversely, Perry is thought to have a very good Iowa organization). Aside from the Perry-Cain dynamic, the new numbers from Iowa show how tempting it is becoming for Mitt Romney to leap into Iowa (which he’s largely avoided, no doubt because of the high cost he paid for losing Iowa in an upset in 2008) and pursue an early knockout with a run through Iowa, New Hampshire and Nevada, the first three stops on the primary trail.

When the candidates assembled in New Hampshire on October 11 for a Bloomberg/WaPo debate focused on the economy, most attention was devoted to Cain, who predictably drew criticism of his signature 9-9-9 tax proposal; Romney, who had emerged from the ashes of Perry’s early ascendency to regain front-runner status (a trend punctuated by an early endorsement from Chris Christie); and Rick Perry, who needed a gaffe-free debate and some renewed sense of attachment to the hard-core conservatives who had been abandoning him for Herman Cain. The general take is that Romney cruised (getting in an extended crowd-pleasing attack on China’s commercial policies and taking a shot at Perry’s indifference to the plight of the uninsured in Texas). Cain did well but opened himself to further trouble on the details of 9-9-9 (Santorum drew some blood pointing out that the plan’s new national sales tax would not be popular in NH). Perry made no mistakes, but made no gains; RedState’s Erick Erickson concluded he was “rapidly becoming the Fred Thompson of the campaign season,” a deadly comparison given Thompson’s high potential and quick fade in 2008.

Aside from the debate’s horse-race nature, it reinforced once again how far the entire field has drifted from what used to be considered the mainstream of political discourse. All the candidates agreed the housing and financial crises of 2008-2009 were entirely created by the federal government, not the financial sector, and most implied excessive lending to the poor and minorities was a big part of the problem. All the candidates appear to favor deliberate deflationary monetary policies. All the candidates who spoke on the topic rejected any budget compromise that involved either tax increases or defense cuts. Two candidate, Michele Bachmann and Newt Gingrich, told egregious lies about the relationship between “ObamaCare” and Medicare, pursuing the old “death panel” meme with renewed vigor. And to cap it all off, when Rick Perry was asked a direct question about income inequality, he didn’t seem to grasp the problem at all.

It looks like the eventual winner will have to bring a translator along when it’s time to debate the president. Many Americans don’t speak wingnut.

WEBCAST: New Solutions for America’s Housing Crisis

New Solutions for America’s Housing Crisis
Event Webcast — October 4, 2011

 

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Agenda
Welcome and Keynote Address
8:30 a.m. – 9:00 a.m.

  • Will Marshall, President, PPI
  • Sen. Jeff Merkley (D-Ore.)

Panel I: Housing and the Recovery: Current Challenges
9:00 a.m. – 10:15 a.m.
This panel will provide an overview of the current state of the housing market and its impact and importance to the overall economy. Experts will also discuss specific problems within the housing market including: (1) “underwater” mortgages and loss of equity; (2) weak housing demand despite low prices; (3) foreclosures, mortgage modifications and servicer concerns; (4) the role of government in the housing market and GSE reform; (5) “shadow” inventory and REO properties; and (6) impacts on consumer confidence and middle-class wealth.

  • Rep. Dennis Cardoza (D-Cal.)
  • Stan Humphries, Chief Economist, Zillow
  • Ron Phipps, President, National Association of Realtors
  • Phillip L. Swagel, Professor of International Economic Policy, University of Maryland
  • Moderator: Don Lee, Los Angeles Times

Panel II: Jumpstarting the Housing Market: Innovative Solutions
10:30 a.m. – 11:45 a.m.
Leading academics, industry representatives and advocates will describe and debate their unique solutions to stabilize and restart the housing market in the near- and medium-term. Among the proposals to be presented: (1) help for underwater borrowers; (2) solutions to the foreclosure crisis and mortgage modifications; (2) ideas for managing the vast supply of REO properties; and (3) options for jumpstarting sidelined consumer demand for housing, particularly among first-time buyers.

  • Richard Smith, President and Chief Executive Officer, Realogy Corporation
  • David Stevens, President and Chief Executive Officer, Mortgage Bankers Association
  • Kevin Schneider, President and Chief Executive Officer, Mortgage Insurance-U.S., Genworth Financial
  • Ellen Schloemer, Executive Vice President, Center for Responsible Lending
  • Moderator: Jim Tankersley, National Journal

Keynote Address
11:45 a.m. – 12:15 p.m.

  • Sen. Johnny Isakson (R-Ga.)

Luncheon Keynote Discussion: The Government’s Role in Housing—Too Little, Too Much or Just Right?
12:30 p.m. – 1:30 p.m.

  • Douglas Holtz-Eakin, President, American Action Forum
  • Michael Mandel, Chief Economic Strategist, PPI
  • Moderator: David Wessel, The Wall Street Journal

Panel III: Housing, Tax Policy and Deficits
1:30 p.m. – 2:30 p.m.
Reducing the nation’s mounting debt and deficit has become an issue of paramount concern for both policymakers and the public. As the recently-formed deficit-reduction “supercommittee” wrestles with what are certain to be difficult choices, tax policies that encourage homeownership—chief among them the mortgage interest deduction— are increasingly the topic of debate. This panel will provide a balanced look at the costs and benefits of using tax policy as a means of promoting homeownership in the broader context of the push toward deficit reduction.

  • Lawrence Yun, Chief Economist, National Association of Realtors
  • Donald Marron, Director, Urban-Brookings Tax Policy Center
  • Stan Humphries, Chief Economist, Zillow
  • Moderator: Michael Mandel, Chief Economic Strategist, PPI

Drop Taxes, Not Calls

Have you checked your wireless bill lately? You’ll see a hefty set of extra taxes on mobile service—taxes that are not imposed on any other good or service. These excise taxes represent a toll that state and local governments impose on their population of phone users. It is very tempting, at this time of tight budgets, to keep raising and raising the excise tax on wireless. After all, no one really wants to give up using their iPhone.

It is time to remove that temptation.

Congress is finally considering a bill that makes good economic and social sense – the Wireless Tax Fairness Act (WTFA). The WTFA will prohibit state and local governments from imposing any new discriminatory tax on or with respect to mobile services, mobile service providers, or mobile service property for five years from the date of its enactment. Currently, wireless tax rates average 16.3 percent nationally, two times the national sales tax rate, according to Scott Mackey, an economist who works on wireless tax policy. These taxes are paid by us, 300 million everyday consumers, and each of us pays an average $7.84 a month in wireless taxes, fees, and government surcharges.

Wireless taxes are a perfect example of how excise taxes can lead to distortions in the market, hurting consumers. In fact, wireless taxes are more distortionary than other taxes, because of how narrow they are in scope, explicitly targeting wireless services (and therefore explicitly targeting the people who rely on wireless services). Further, demand for wireless services have been found to be rather sensitive to price, causing consumers to drop service as wireless taxes creep ever higher. This means that as taxes on wireless services increase, people will consume less – less of a service integral to everyday activities.

Worse, the market distortion caused by wireless taxes is particularly hard on poor and middle-income families. Studies by the Pew Foundation show wireless taxes are “regressive” in that they negatively affect poor and middle-income families more than the wealthy, as poorer families rely more heavily on wireless services for internet and phone access. So, not only do wireless taxes impose distortions on the entire population of wireless users, but they more negatively affect the people who struggle the most to pay for it.

Wireless taxes, unlike other “sin” taxes on alcohol and cigarettes, are simply a means for states and local governments to collect money for general funds with no other intended purpose. In other words, states and local governments are not imposing wireless taxes as a way to encourage less wireless use. Yet that is exactly what wireless taxes do.

Dissenters say states and local governments won’t be able to pay for basic public goods and services if the WFTA goes into effect. They argue states need all the money they can get in these tough economic times. But state and local government budget gaps should not be resolved at the cost of people’s ability to access wireless services. The idea of taxing people’s connection to the information economy, which allows people to be more productive and make larger economic contributions to society, makes no sense. It is in these tough economic times Congress should implement policies that encourage more wireless use, and more participation in the information economy of the future, not less.

Photo Credit: Jonathon Moreau

Taxing Rich is No Fiscal Panacea

Class WarfarePresident Obama’s tax offensive may be aimed at energizing his despondent base, but it’s also touching a nerve with the broader public. A new Gallup poll finds that Americans overwhelmingly (66 percent) back the president’s call to raise taxes on families making more than $250,000 and individuals making more than $200,000.

Evidently, you don’t have to be a European-style social democrat to believe that the rich should chip in more to help get federal deficits under control. Grover Norquist take note: We are all class warriors now.

Official statistics on incomes explain why. According to the Congressional Budget Office (CBO), the top 10 percent of earners on average have seen their income grow a whopping 106 percent since 1979. Over the same period, those in the middle and lowest quintile have experienced meager income growth of just 15 percent and 6 percent, respectively.

Moreover, IRS data show that the top 10 percent have received 42 percent of the total share of adjusted gross income earned between 1986 and 2008. Conservatives lament that high earners are also paying a higher share of their earnings in taxes. That’s true, but their income is growing faster than their tax burden. The share of income taxes paid by the top 10 percent increased by 28 percent from 1986 to 2008. (IRS tables)

In short, income gains over the past generation have been dramatically concentrated at the top. Modest increases in the tax burden borne by the top 1 or 2 percent of Americans will still leave them very well off compared to the rest of us. As President Obama has said, this isn’t class warfare so much as math.

But the math doesn’t tell us the best way to raise more revenue from the most affluent Americans. In thinking about this, progressives should keep two imperatives in mind. One is the need to make the tax code more pro-growth as well as more fair. The other is to make sure that tax reform advances the cause of debt reduction.

President Obama proposed on Sept. 19 to raise $1.5 trillion in new revenue as part of his plan to cut deficits by $3.3 trillion (not including the Iraq and Afghanistan draw down) over the next 10 years. His tax initiative has two main parts. First, it would cap the benefit from itemized deductions from 35 percent, the top marginal tax rate, to 28 percent for families with income of over $250,000 (200,000 for single-filers). This is not exactly a crushing new burden on the hapless rich. In fact, it would take us back to President Reagan’s 1986 tax reform, which dropped the top rate to 28 percent. The White House says limiting deductions in this way would raise $410 billion for closing federal deficits.

Second, the President’s plan would raise an additional $866 billion by allowing the Bush tax cuts to expire for high earners at the end of the year, while preserving them for middle class and low income families.

Both ideas are defensible on fairness grounds. But it’s not so clear that increasing income tax rates is the best place to look right now for more revenue. Politically, increases in marginal rates are probably a non-starter with most Congressional Republicans, who still genuflect to the supply side shrine. Even some Democrats, however, are leery about raising personal income tax rates in the midst of the current jobs crisis.

The alternative is the road taken by President Obama’s own Fiscal Commission. Its “modified zero plan” (analysed by Paul Weinstein and Marc Goldwein here) would raise $1.1 trillion over 10 years by eliminating or reducing tax expenditures. That’s a smaller number than the President’s. But most economists believe these backdoor spending programs introduce enormous complexity and distortions into the tax code. Curtailing them would promote economic efficiency and growth.

What’s more, the Commission’s plan uses the revenue to “buy down” both corporate and personal income tax rates, and to cut deficits. These rate cuts were crucial to attracting Republican support for a bipartisan compromise that combined tax reform and entitlement reform to reduce the debt by $4.2 trillion over 10 years.

This approach, also endorsed by the Senate’s Gang of Six, has one huge advantage over other tax reform schemes – it’s attracted bipartisan support. The President’s tax plan, on the other hand, seems calculated to embarrass Republicans rather than draw them toward a “grand bargain” on debt reduction.

In any case, the fiscal commission’s plan doesn’t just pinch the rich, although they benefit disproportionately from tax expenditures and loopholes. It also hits many middle class recipients of tax subsidies like the mortgage interest deduction and the exclusion for employer-paid health plans. As appealing as it is to insist that the rich pony up more to solve the debt crisis, there are practical limits from how much we can squeeze from high earners. In truth, our fiscal chasm is so deep that middle class taxpayers will have to up their contribution as well. Otherwise, we will have to make unacceptably deep cuts in domestic and entitlement spending to get the debt under control.

So by all means, let’s ask the wealthy to chip in more. But let’s also keep in mind that soaking the rich, by itself, won’t restore fiscal responsibility in Washington.

Photo credit: outtacontext

Obama Needs New Growth Story

President ObamaThe White House this week is dribbling out new details about Obama’s forthcoming jobs package. Liberals already are complaining that the president is thinking too small, while conservatives dismiss his ideas as just more “stimulus” in drag.

Neither critique gets to the heart of the problem. The U.S. economy is enduring an investment and job drought that began well before the Great Recession hit late in 2007. The public is strikingly pessimistic about the nation’s economic prospects and has lost confidence in the conventional remedies pushed by both parties.

More than a batch of new programs, Americans need a new story about how to regain our economic dynamism. We need a fundamentally new model for economic growth, and the president’s kit-bag of new micro-initiatives doesn’t add up to one.

His proposals mostly seem sensible, but absent a new vision for dealing with the economy’s structural problems, they give off a whiff of spaghetti-against-the-wall desperation. The administration is hoping that something, anything will move the needle on job creation and get unemployment trending down.

Here, according to various media accounts, is what the White House job package is likely to include:

  • A $5,000 tax credit for hew hires.
  • A five percent reduction in payroll taxes on any net increase in wages.
  • $50 billion in new spending on infrastructure.
  • An overhaul of patent laws to encourage faster innovation.
  • A new mortgage refinancing scheme to help “underwater” homeowners avoid foreclosures that are depressing housing prices.

Liberals have a point in arguing that these initiatives are unlikely to have more than a marginal impact on jobs and economic growth. The tax credit and payroll tax reduction will likely expand employment, but they also will reward companies for hiring workers they would have hired in any case. Michael Greenstone, former chief economist for the president’s Council of Economic Advisers, estimates the tax credit will create 900,000 additional jobs at a cost of $30 billion. The United States must create 21 million new jobs over the next decade to return to full employment.

Modernizing America’s antiquated infrastructure is essential, even if the immediate job gains are likely to be modest. While it’s conceivable that $50 billion could leverage large-scale private investment in new infrastructure, there’s a catch: The administration does not envision funneling that money into a truly independent infrastructure bank. That’s likely to scare off private investors, who need assurances that big capital projects will be chosen on economic rather than political grounds.

The real problem, however, isn’t that Obama isn’t spending enough. It’s that this spray of programmatic buckshot won’t deal with structural impediments to economic innovation and growth. As PPI has argued, U.S. policy makers need a new model of economic growth centered on production, not consumption; on saving and investing, not borrowing; and on exports, not imports.

Obama needs to fit his specific initiatives within the broader story of an American economic comeback sparked by a shift from debt-fueled consumption to domestic production. This narrative should explain how overconsumption—by both U.S. households and governments—helped to create the job slowdown, wage stagnation, financial bubbles and exploding debts that have plagued our economy since 2000. It would connect America’s twin economic imperatives: creating jobs and controlling the national debt. It would say: If we don’t curb the unsustainable growth of entitlement spending (mostly for health care consumption), we will squeeze out strategic public investments the nation’s physical, human and knowledge capital—infrastructure, skilled workers, and new technology.

But a “producer society” narrative doesn’t just reinforce progressive demands for more strategic public investment. It also lends weight to conservative calls for policies that create a climate more conducive to innovation, entrepreneurship, and business creation. In fact, it will take a new fusion of liberal and conservative economic prescriptions to get America moving again.

Key elements of such a fusion include a sweeping overhaul of personal and corporate taxes, a light-handed approach to regulating companies that invest heavily in innovation, stronger constraints on Medicare and Medicaid spending, new investments in technical education to supply workers for advanced manufacturing, and the transformation of our archaic K-12 school system by choice and digital learning. And, as I’ve written elsewhere, it also requires a new partnership between U.S. workers and those companies that are investing in creating jobs in the United States.

President Obama’s ideas for spurring job growth are fine as far as they go, but they don’t go nearly far enough. He needs to offer the country a new story of economic success, that once again makes America a dynamo of production and middle class job creation.

Photo credit: OFA

No Bargain for America

When you compromise between a good plan and a bad plan, you get a less good plan. So what happens when you compromise between two bad plans? We’re about to find out, as Congress this week tries to reconcile deficit reduction blueprints drawn up by House Speaker John Boehner and Senate Majority Leader Harry Reid.

That we are now reduced to fallback House and Senate plans reflects the failure of the nation’s political leadership to rise to the occasion and forge a common approach to solving the debt crisis. The road not taken was the “grand bargain” every serious budget analyst knows is substantively and politically the only way to control the debt: trade more tax revenues for cuts in the unsustainable growth of entitlement spending.

While it’s easy to assume a posture of Olympian detachment and blame both sides for this failure of nerve, it’s wrong. The grand bargain died because House Republicans killed it. As President Obama said last night, it was scuttled by the “ideological rigidity” of Tea Party extremists who are trying to dictate national fiscal policy from the House.

Recall that once it was clear that he couldn’t get a “clean” bill raising the debt limit, President Obama decided to go big. That is, he pushed for a big debt reduction package of about $4 trillion, which would stabilize and eventually shrink the debt. That idea appealed to Boehner – at first. But when House GOP freshmen made it clear they would not vote to raise revenues, insisting that our massive deficits be closed through spending cuts alone, Boehner walked away from talks with the President. Not once, but twice.

As liberals ruefully noted, the House GOP’s zero-concessions approach contrasted sharply with Obama’s pliability. First he agreed to trillions of dollars of domestic spending cuts. Then he offered to put entitlements on the table, causing conniptions among the “progressives” who oppose long-overdue reforms in Medicare, Medicaid and Social Security. The president endorsed a package that was 3-1 spending cuts over tax revenues. Rather than accept it and declare victory, conservatives demanded unconditional surrender.

So now the spotlight shifts to the Boehner and Reid plans. Both fall well short of what the country needs. Boehner calls for a two-step process: First, Congress would cap discretionary spending and raise the debt ceiling by $1 trillion. Then a bicameral joint committee would be charged with finding another $1.8 trillion in savings. If Congress approves the second tranche, it would lift the debt ceiling by the same amount.

The Reid bill also would cut discretionary spending by nearly $3 trillion over the next decade, and leave revenues untouched. But as critics have rightly pointed out, that includes savings from military spending as the U.S. interventions in Iraq and Afghanistan wind down that have been accounted for already. Nonetheless, Obama last night endorsed Reid’s approach, which has the virtue of extending the debt ceiling until after the next presidential election.

Neither bill, of course, offers a permanent solution to the debt crisis. It’s not even clear that each could pass its respective House of Congress. It’s not hard to imagine Tea Party types balking because the bill doesn’t cut deeply enough, or because they’d rather force the country into default as a way of defunding federal programs. Some Senate liberals are chafing over Reid’s approach, which does not ask the rich to pay higher taxes or even close tax loopholes, thereby putting the entire burden of debt reduction on domestic spending.

In the end, as everyone expects, some kind of package will be cobbled together to avoid a prolonged default. But that means the whole sorry spectacle, replete with dogmatic posturing and politically evasive behavior will drag on into next year.

Photo Credit: Robert Reed Daly

Welcome Back, Gang of Six

Not a moment too soon, the Gang of Six has resurfaced in the U.S. Senate, breathing new life into hopes for a bipartisan “grand bargain” on deficit reduction.

Even if Eric Cantor were abducted by aliens, there’s no way that Congress could pass the Gang’s elaborate plan to solve the debt crisis before Aug. 2. But the Gang’s resurgence, with growing support from GOP Senators, adds to mounting public pressure on House Republicans to end their self-isolating intransigence on taxes.

Several weeks ago, the Gang looked moribund after a key member, Senator Tom Coburn (R-Okla.) went on walkabout. To their immense credit, however, Gang leaders Mark Warner (D-Va.) and Saxby Chambliss (R-Ga.) persevered, got Coburn back in the fold, and unveiled their new plan before 46 Republican and Democratic Senators this week. President Obama, who has stood strangely aloof from the Gang’s efforts to find common ground, pronounced the new package “consistent” with his views.

The new blueprint, like the original, is based on the Bowles-Simpson fiscal commission plan. It envisions two steps: First, an immediate, $500 billion “down payment” on deficit reduction; followed by more comprehensive reform. Altogether, the Gang calls for $3.7 trillion in debt reduction over the next decade. That’s about what budget experts say is necessary to first stabilize, then start shrinking, the national debt.

Another Gang leader, Sen. Kent Conrad (D-Mont.), said today there is talk on Capitol Hill of using the $500 billion cut to win a short-term extension of the debt limit. That could give lawmakers more time to hammer out a permanent solution to the fiscal crisis that includes both increased tax revenues and entitlement reform.

The Gang’s revised plan proposes deep cuts in Medicare and other health spending, while – sorry Rep. Ryan — apparently maintaining the structure of Medicare and Medicaid. It would achieve about $1 trillion in savings by capping domestic spending, including defense, over the next decade. These cuts are way beyond cosmetic.

The new plan also embraces the fiscal commission’s key proposal on tax reform. It would raise around $1 trillion over the next decade by closing tax loopholes, using the savings both to dramatically lower income and corporate tax rates, and reduce the deficit. Spared are tax credits for low-wage workers and families with children. More affluent taxpayers will welcome the Gang’s call to abolish the Alternative Minimum Tax.

The fiscal commission achieved a political breakthrough when Republicans Senators embraced tax reform, and some Democrats agreed to cut Social Security benefits for affluent retirees and raise the retirement age. Here the new blueprint disappoints. Basically it punts to the Senate Finance Committee, which is charged with drafting a plan to assure Social Security’s solvency over the next 75 years. The Gang also says efforts to reform Social Security should only take place “on a separate track – any savings from the programs must go toward solvency.” This may placate liberals, but could alienate conservatives who suspect Democrats aren’t really serious about entitlement reform.

The big question, of course, is whether the Gang’s plan could ever get through the House. For starters, it violates the Tea Party’s Prime Imperative — that revenues can be raised for no other purpose than cutting tax rates. Moreover, Ezra Klein reports that it also appears to assume the expiration of the Bush tax cuts for the wealthy. If House Republicans won’t yield on taxes, don’t expect House liberals to deal on entitlement reform.

Still, a lot depends on how the debt limit battle plays out. New polls show voters are more likely to see Republicans as standing in the way of compromise than Obama and the Democrats. If things get really ugly – if the federal government can’t pay salaries or mail benefit checks on Aug. 3 – such suspicions could quickly turn into a furious backlash.

In any case, the Gang’s initiative illuminates a growing rift between House and Senate Republicans, both on taxes and negotiating tactics. By saying, in effect, “Hell no” to balanced proposals to cut deficits, House Republicans are forfeiting a rare opportunity to get Democrats to swallow huge, multi-trillion-dollar cuts in federal spending. Apparently, real conservatives prefer big government to tax hikes.

On the other side, progressives aren’t likely to get a better offer than the one Warner and company are offering. No one knows this better than President Obama, who’s been beating his head against the wall of GOP recalcitrance for weeks. And that’s why, once the debt limit is raised, he ought to throw in with the Gang of Six.

Photo Credit: TalkMediaNews

Will Cantor Blow Up the Economy?

The stock market plunged over 150 points yesterday as Republicans hardened their stance in debt reduction talks with the White House. The sharp drop was a timely reminder that a political failure to raise the debt ceiling would be a body blow to America’s already weak economy.

The odds of that happening rose sharply this weekend, as House Speaker John Boehner broke off talks with President Obama because he couldn’t get Republicans to support a fiscal “grand bargain” that would include higher tax revenues. That puts Majority Leader Eric Cantor in charge of GOP negotiating strategy — and on the spot.

Unlike Boehner, who seems to have the quaint idea that voters sent him to Washington to solve problems, Cantor is a faithful medium for channeling the Tea Party’s anti-Washington wrath. Rather than prepare his troops for the compromises and shared sacrifices that reducing America’s debts inevitably will entail, he’s been a zealous enforcer of the GOP’s “zero tolerance” dogma on taxes.

Cantor says Republicans can live with closing tax loopholes, as long as every penny saved goes into lowering tax rates. Meanwhile, most House Republicans last week opposed even modest efforts to trim defense spending. So here in essence is Cantor’s generous offer to President Obama and the Democrats: You agree to cut domestic programs by about $2 trillion now and we’ll vote to raise the debt ceiling by that amount. Oh, and after that, we’ll start whacking entitlement programs.

What a deal! Since no self-respecting Democrat would ever bargain on such one-sided terms, it’s hard to avoid the conclusion that House Republicans actually want to plunge the nation into a new economic crisis. Do they really hate taxes – or Obama – that much? Or maybe in their revolutionary fervor the Tea Party patriots have unwittingly internalized the old Bolshevic slogan: “the worse, the better.”

In any case, the public seems to be in no mood for a politically manufactured crisis on top of the steady drumbeat of bad economic news — and Obama has deftly set up Republicans to take the political fall.

In contrast to the GOP’s truculence on taxes, the president has appeared reasonable, flexible and persistent in trying to get Republicans to “yes.” To the chagrin of many Democrats, he’s offered to cut $3 in federal spending for every $1 in new revenue. Obama is receptive to the idea of lowering tax rates, as long as some revenue is left over for cutting deficits, and last week even gave liberals chilblains by offering to put entitlement reform on the table.

In slapping away the President’s outstretched hand, the GOP seems to be in the grip of not one but two mass delusions.

The first is that Americans are groaning under crushing tax burdens that would make Pharaoh blush. But the federal tax take has sunk to just 15 percent of GDP, far below its usual average of 19 percent.

The second delusion is that failing to raise the debt ceiling might have no repercussions. On Fox News Sunday, Sen. Jim DeMint accused Treasury Secretary Tim Geithner of trying to scare Republicans into making a bad deal. “Secretary Geithner has been irresponsible. He’s playing Chicken Little here. The fact is that we will pay our debts if it’s the last dollar we have… We’re not going to default.”

DeMint’s logic apparently is this: Since tax revenues are sufficient to cover about 55-60 percent of what Washington spends, there will be plenty of money to pay our foreign creditors. There just won’t be nearly enough to finance federal programs but, who’ll miss them? One possible answer: Social Security recipients, whose checks are supposed to be mailed Aug. 3. Others include military personnel, federal employees, and all those families hoping to visit National Parks during their summer vacation.

When the public backlash comes, Republicans won’t be able to say they weren’t warned. Geithner broke it down clearly this weekend on NBC’s Meet the Press:

“Remember…we have to borrow now 40 cents for every dollar we spend…And every week starting the week of August 2, we have to go out and finance roughly $100 billion in maturing obligations of the government. We make 80 million checks a month to Americans, 55 million people on Social Security benefits, millions more Americans on veterans’ benefits, Medicare, Medicaid, people who supply our troops in combat. Eighty million checks a month.”

The imponderable here is the markets’ reaction to a failure to lift the debt ceiling. There’s a serious risk of higher interest rates, plunging confidence in the dollar and an even deeper freeze on job-creating investments in the U.S. economy.

Eric Cantor imagines the public is behind him on taxes. More likely, he’s saddling up to lead a fiscal reprisal of Picketts’ Charge.

Photo Credit: Republican Conference

New CBO Report Highlights Republican Intransigence

Last week, President Obama vented his frustration at Congressional Republicans for storming out of White House budget talks over raising the debt ceiling. Anyone who thinks the president overreacted should look to the Congressional Budget Office’s (CBO) latest budget forecast, which warns that the national debt is poised to spiral out of control.

Released on the same day GOP negotiators abandoned their post at the budget talks, CBO’s “Long-Term Budget Outlook” predicted that the debt will reach 100 percent of GDP in less than a decade, then zoom to twice the size of the U.S. economy by 2037. In other words, we are moving inexorably toward the unsustainable level of debt (about 150 percent of GDP) that has plunged Greece into crisis.

CBO’s grim forecast, said the fiscal hawks at the Committee for a Responsible Federal Budget, “should erase any thoughts of waiting until after the election – or worse, until markets force our hand – to make the needed changes to our budget.” Such warnings, however, have fallen on deaf ears among Republicans, who refuse to even talk about debt reduction if it includes tax hikes.

GOP intransigence boosts the odds that Congress will fail to raise the debt ceiling by the August 2 deadline set by U.S. Treasury Secretary Timothy Geithner. If that happens, the federal government would have to cut government programs drastically, or else risk defaulting debts to foreign creditors — “the first-ever failure by the United States to meet its commitments,” notes Geithner.

But even if the White House and House Republicans somehow strike a deal over the debt ceiling, the larger challenge of closing America’s enormous fiscal gap will remain. Before the Republicans quit the talks, the goal was to cut the debt by as much as $2 trillion over the next decade. The president’s Fiscal Commission, however, concluded that we need to close the gap by closer to $4 trillion. There’s no politically responsible or feasible way to get to that number by cutting government spending alone; that’s why tax revenues have to be on the table.

So do entitlements. The CBO report makes clear that we need a comprehensive deficit reduction plan that not only stabilizes and reduces the debt over the medium term, but also grapples with long-run spending on healthcare and Social Security. The CBO projects that by 2035, health care spending under both the baseline and alternative scenarios will grow 5.1 to 9.2 percent and 8.5 percent of GDP respectively. Similarly, the CBO expects Social Security to grow to from 4.8 to 6.1 percent of GDP under both scenarios.

President Obama is right: With the deadline for raising the debt limit only a month away, it’s time for an outbreak of fiscal sobriety in Washington. In truth, there is neither time nor political will to forge a comprehensive solution to America’s exploding debts before August 2. But lawmakers could put together a reasonable down payment that would include temperate cuts in domestic and defense spending; more tax revenues from closing backdoor spending through the tax code, such as oil and gas subsidies; and adoption of the “chained CPI” something I wrote about earlier, would lower spending growth on big entitlements like Social security, Medicare and Medicaid.

Either way, the debt ceiling must be raised, and a grand bargain on deficit reduction must be struck. So President Obama is right to reject the invitation from Senate Minority Leader Mitch McConnell to come hear Hill Republicans rehearse their undying opposition to raising taxes. We’re in the fiscal red zone now, and the time for posturing is behind us.

Photo Credit: Gage Skidmore

Danger Will Robinson! GOP Actually Not Serious on Defense Cuts.

In the GOP’s Establishment v. Tea Party battle, this round, at least, looks like it was won by the outsiders. And, so it seems, the Establishment looks to be fine with that.

After making a big political show last week of storming out of Vice President Joe Biden’s fiscal negotiations over taxes, Republican Majority Leader Rep. Eric Cantor (R-Va.) appears to have made a decision: cutting the Pentagon’s budget is less sacrosanct to conservatives than raising revenue. Cantor has positioned himself firmly against tax increases while using the Tea Party’s focus on spending cuts as political cover to give the appearance that he’s willing to give ground on Defense spending. “Everything is on the table,” Cantor said when referring to Defense cuts, implicitly endorsing the position of Tea Party-backed freshman Rep. Adam Kinzinger (R-Ill.) who says we “can’t afford” this Republican “sacred cow” anymore.

Not so fast, my friends. Cantor is trying to have his cake and eat it, too, stipulating that any reduction in Defense “belongs in the appropriations process.” This handful of words goes a long way when you parse them. In short, there are two major problems with this caveat:

First, and in English, that means Cantor is willing to give a nod towards reducing Defense spending on paper and in the press, but knows full-well that Republicans in charge of the House Armed Services and Appropriations Committees can fight to reinstate cut programs on a case-by-case basis at a later date.

Second, fixing the problem in the appropriations process focuses solely on weapons systems, which are, after all, the things that get appropriated. But weapons systems are hardly the lone driver of the Defense budget’s exorbitant rise over the last decade. As I’ve detailed in a PPI Policy Memo, personnel costs are the somewhat hidden story of Defense spending, even though Secretary Gates has stated that military health-care costs are “eating the Defense Department alive.”

A serious reduction in the Pentagon’s budget would agree to both reducing personnel costs and making any weapons systems reductions part of a legally-enforceable deal between the parties. Cantor doesn’t seems prepared to do either.

Worse, some Democrats are falling for Cantor’s slight-of-hand. Rep. Barney Frank (D-Mass.) seemed ready to embrace Cantor’s apparent willingness to talk defense cuts, saying, “If we can get $100 billion from reducing unneeded military spending, that’s better than $100 billion in taxation.” The risk is that in Frank’s haste to cut military spending, he is signing up for a deal that the Republicans have no intention of keeping.

We must scrutinize the Defense budget as part of a realistic national deficit reduction plan. But let’s do it the right way: reductions in Defense spending must come from personnel as well as weapons, and be enforceable over the long term. Eric Cantor is disingenuous about serious cuts, and Barney Frank seems too eager to reduce military spending to get a realistic deal from Republicans.

Photo Credit: drp

Wingnut Watch: Pledging Politics

Ideological litmus tests have always been a big feature of Wingnut World, with Americans for Tax Reform chief Grover Norquist’s “pledge” against support for tax increases being the most famous example. Grover’s pledge has been in the news lately, as Senate Republicans grappled with the question of whether a vote to kill tax incentives for ethanol development would run afoul of Norquist, who has always demanded that any revenue-enhancing action to close off a tax loophole be paired with a tax cut to make the action revenue-neutral.

Sen. Tom Coburn (R-Okla.) has been trying to secure Republican support for revenue measures (but not tax rate increases) as part of a deficit deal. In a ploy that was almost certainly a direct challenge to Norquist’s authority in the GOP, Sen. Coburn organized a vote to end ethanol subsidies. With some Democratic support, Coburn prevailed in the Senate. But now House Republicans are dragging their feet on any parallel action on ethanol or other corporate tax subsidies, and Norquist is predicting that Coburn is leading the GOP down the road to out-and-out tax increases.

There’s no question that any Grand Bargain on the deficit will involve provisions opposed by Norquist, whether or not they go beyond “tax reform” proposals that offset revenue measures at least in part by rate cuts. What’s unclear is whether violations of Grover’s pledge will form the basis for primary challenges to violators in the future. The last high-profile backslider on the ATR pledge was George H.W. Bush, who in turn had won the 1988 presidential nomination in no small part because Bob Dole refused to sign it.

A different pledge has also made a splash in Republican politics during the last week: a four-plank oath administered to presidential candidates by the hard-core anti-abortion group, the Susan B. Anthony List. Candidates pledge:

FIRST, to nominate to the U.S. federal bench judges who are committed to restraint and applying the original meaning of the Constitution, not legislating from the bench;

SECOND, to select only pro-life appointees for relevant Cabinet and Executive Branch positions, in particular the head of National Institutes of Health, the Department of Justice, and the Department of Health & Human Services;

THIRD, to advance pro-life legislation to permanently end all taxpayer funding of abortion in all domestic and international spending programs, and defund Planned Parenthood and all other contractors and recipients of federal funds with affiliates that perform or fund abortions;

FOURTH, advance and sign into law a Pain-Capable Unborn Child Protection Act to protect unborn children who are capable of feeling pain from abortion.

The third and fourth planks reflect the current national anti-choice strategy – the fourth promotes a federal version of the laws recently enacted in several states banning abortions after 20 weeks on “fetal pain” grounds.

Five GOP presidential candidates—Michele Bachmann, Newt Gingrich, Ron Paul, Tim Pawlenty and Rick Santorum—immediately signed the SBA pledge. Four—Mitt Romney, Herman Cain, Jon Huntsman and Gary Johnson—pointedly did not. Romney refused to sign on grounds that the planks on funding cutoffs and appointments are too broad. Cain rather strangely argued that no president should be pledged to interfere with congressional prerogatives by “advancing” legislation, while Huntsman seems to object to the whole idea of pledges. Bachmann and Santorum quickly attacked Romney’s failure to sign the pledge as another sign of his lack of commitment to the anti-choice cause, and Santorum has also gone after Huntsman.

Keep in mind that with the exception of minor candidate Gary Johnson, all of the Republican presidential candidates embrace a categorical anti-choice position that favors a total ban on abortions regardless of the stage of pregnancy and removal of the constitutionally-established limit on abortion restrictions involving the health of the pregnant woman. The SBA pledge is interesting in that it requires support for specific strategies to reach the agreed-upon goal of a return to the days when virtually all abortions were illegal, along with restrictions on contraceptive measures that right-to-lifers now consider equivalent to abortion.

Because these distinctions aren’t that well-known outside the ranks of anti-choice activism, it’s unclear what if any impact the SBA Pledge controversy will have on actual voters. But it could matter in those early states, such as Iowa and South Carolina, where social conservatives are especially strong. And the flap will certainly become another talking point in the effort to convince conservatives that Mitt Romney cannot be trusted.

Photo Credit: Gage Skidmore

Rebuilding America Is Job One

Amid the high drama of fiscal brinkmanship in Washington, it’s easy to forget that reducing budget deficits isn’t the biggest economic challenge we face. Even more important is kick-starting the great American job machine and reversing our country’s slide in global competition.

Critical to both goals is shoring up the decaying physical foundations of national prosperity. Without world-class infrastructure, the United States won’t be able to attract private investment, sustain rapid technological innovation and productivity growth, or keep good jobs from going overseas.

According to a new Gallup poll, general economic concerns (35 percent) and unemployment (22 percent) top voters list of worries, with federal deficits and debt a distant third at 12 percent. Fiscal restraint is important, but it must be balanced against the larger imperatives of jobs and global competition. Among other things, this means leaving room for public investment to replenish the nation’s stock of physical capital.

America can’t build a more dynamic and globally competitive economy on the legacy infrastructure of the 20th Century. Thanks to their parents’ far-sighted public investments, baby boomers grew up in a country that set the world standard for modern infrastructure. But after a generation of underinvestment, compounded by politicized spending decisions, we now face a massive infrastructure deficit that exerts a severe drag on U.S. productivity.

Meanwhile, China and other fast-rising countries are building gleaming new airports and bullet trains. To keep from falling farther behind, the United States needs to make large-scale capital investments in repairing decrepit roads and bridges; upgrading air and sea ports; building “intelligent” transportation systems and smart energy grids; modernizing the air traffic control system; speeding up our pokey rail networks; and leading the world in deploying ultra-fast broadband.

But with the government strapped for cash, it’s reasonable to ask where the money to rebuild America will come from. The answer is that we need to look more to the private sector. U.S. companies are sitting on $2 trillion in idle cash, and pension funds, overseas investors and sovereign wealth funds also are looking for places to invest. Although the federal government will have to put up seed capital, its main role should be to leverage private investment in state-of-the-art infrastructure.

That’s why America needs a National Infrastructure Bank. As proposed by the bipartisan trio of Senators John Kerry, Kay Bailey Hutchison and Mark Warner, the bank would use a modest, one-time appropriation of $10 billion to leverage enormous investments — $640 billion over 10 years — for projects with the greatest potential to put Americans to work and enhance U.S. competitiveness.

President Obama has repeatedly endorsed a national infrastructure bank and proposed the idea again in the budget he sent to Congress in February. But the Senate bill (and a separate House proposal championed by Rep. Rosa DeLauro) have decided advantages over President Obama’s proposal. The president’s approach starts with a smart idea to create programs that work more with the private sector to find financing solutions. But unlike the Kerry proposal, it does not focus enough on the most powerful tools for leveraging private investment: loan programs that include a reasonable cap on the federal share of project costs. Obama’s bank would also be housed within the Department of Transportation, whereas the Kerry bill would make the bank an independent, quasi-public entity. That’s an important difference, because to attract hard-headed capitalists who expect a real economic return on their investments, the government’s financing facility must be genuinely free of political interference.

An independent infrastructure bank would select projects based on their ability to generate real economic returns rather than their influential political patrons. As a self-sustaining entity that would not rely on future appropriations from Congress, the bank would not be subject to the pork barreling and earmarking that distorts federal and state infrastructure spending, especially on transportation.

It’s time to get serious about our dilemma: the U.S. economy is creating too few jobs to bring down unemployment to pre-recession levels. For that, we’d need nearly 12 million new jobs, or about 100,000 more on average than the 200,000 the economy is creating each month. Big capital projects would immediately create those jobs where they are most desperately needed–in the hard-hit construction industry, which is still struggling with a 20 percent unemployment rate.

In the short run, a big national push to build modern infrastructure could create high-skill jobs that can’t be exported. In the long run, it will ensure America’s return to being an engine of production, not just a global center for consumption. That’s why, as Congress struggles to contain federal deficits and debt, it needs to make room for a National Infrastructure Bank to rebuild America.

This item is cross-posted at the Huffington Post.

Wingnut Watch: The Tea Party Celebrates Tax Day

The Tax Day (or more accurately, Tax Weekend) observances of the Tea Party movement weren’t as large or well-publicized as in the past, but they did reflect the hardening consensus of conservative activists against both the appropriations deal just agreed to by congressional Republicans, and the coming legislation increasing the public debt limit. This consensus is being reinforced by potential presidential candidates and other opinion leaders who are encouraging the perception that the Beltway GOP is once again “selling out” the conservative movement and its latest Tea Party incarnation.

This snapshot of the mood at New Hampshire Tea Party events by Michael Crowley is illustrative:

The overall picture is one of a restless Republican base that sees defeating Obama as a matter of national survival. Angry conservatives believe Washington is spending the country into oblivion, and that lazy freeloaders are leeching federal money at the expense of ever more squeezed middle-class taxpayers. They also feel that the Washington game is rigged against them: “We’re constantly being lied to,” fumed Dan Dwyer of Nashua at a local GOP confab on Thursday night, still angry that Republicans had “caved” in their budget negotiations with Democrats earlier this month.

At a Wisconsin Tea Party rally, anger at congressional Republicans was fed by none other than Sarah Palin, who “unleashed a withering critique of congressional Republicans Saturday, lambasting them for not cutting spending deeper and faster, and saying the party needs to ‘fight like a girl.’” Meanwhile, Tim Pawlenty, who spoke at a number of Tea Party events, has been urging Republicans to oppose a debt limit increase on the questionable grounds that arrangements could be made to avoid a federal credit default until the autumn.

The superficially confusing aspect of this rhetoric is that the conservatives who are being most vocal about the dire nature of the deficit-and-debt emergency are precisely the same people who are fearful that congressional Republicans might cut some long-term budget deal with Senate Democrats and the administration that leaves increased taxes on the wealthy on the table. That’s why they are linking any approval of a debt limit increase not just to some deficit agreement, but to acceptance of the kind of deep spending cuts and “entitlement reforms” laid out in Paul Ryan’s budget proposal.

Accordingly, we will soon see Tea Party fire concentrate on those Senate Republicans said to be negotiating a deal that would include some tax increases. The Republican point man in the so-called “Gang of Six” of bipartisan senators engaged in these negotiations, Saxby Chambliss of GA, is already drawing unfriendly home-state fire from Red State’s Erick Erickson, who had this to say today:

Senate Republicans are going to support raising the debt ceiling and raising taxes all while refusing to demand passage of a Balanced Budget Amendment. House Republican Leaders will no doubt decide that . . . well . . . Republicans only control one house of one branch of government so . . . .

Bend over America.

This conflict will soon make it more obvious than ever that most conservative activists, including those identified with the Tea Party Movement, are less concerned with deficit reduction than with permanently shrinking the size and reach of the federal government and pushing both radical spending cuts and continued tax cuts.

On another front, there are growing signs that Republican elites have decided to give Donald Trump the same dismissive treatment that was said to have led to Sarah Palin’s steady decline in credibility as a potential presidential candidate. Over the weekend, Karl Rove called Trump a “joke candidate.” Playing his snooty Tory role, George Will called The Donald a “blatherskite,” and warned he could seriously screw up Republican presidential candidate debates. Slate’s Dave Weigel went to the trouble of reading Trump’s 2000 proto-campaign book, and noticed that Trump expressed a fondness for the Canadian single-payer health care system. Surfing off that disclosure, the Club for Growth put out a release calling Trump a “liberal.”

It’s almost certain that this offensive was stimulated by the Public Policy Polling survey of Republicans that was released on Friday showing Trump jumping out into a sizable national lead over the rest of the potential presidential field. Trump’s 26 percent is higher than any proto-candidate has registered in early national polls. And the internals, showing 23 percent of Republicans saying that could not vote for a candidate who believes Barack Obama was born in the United States (and another 39 percent saying they weren’t sure if they could or not), were probably terrifying to beltway GOPers.

As Obama Prepares to Speak, PPI Hosts Tax Reform Forum

Today, President Obama is speaking on long-term deficit reduction. He’s expected to embrace the National Commission on Fiscal Responsibility and Reform’s general framework (also known as Bowles-Simpson).

Yesterday, the Progressive Policy Institute joined forces with the Moment of Truth Project to host an event to discuss what comprehensive tax reform should look like, and what it will take to get it passed. (Moment of Truth was formed by Fiscal Commission co-chairs Erskine Bowles and Sen. Alan Simpson to build momentum behind the commission’s deficit reduction plan.)

Yesterday’s event, at Johns Hopkins University, helped build the momentum for reform. There was wide consensus that tax reform will need to be bipartisan and comprehensive, and will need to scale back most of the $1.1 trillion in tax expenditures. Tax expenditures are at the heart of the “modified zero plan,” which would eliminate or scale them back, and use the savings to cut individual and corporate tax rates, as well as budget deficits.

Coinciding with the event, PPI released a policy memo on the modified zero plan, written by PPI Senior Fellow Paul Weinstein and Marc Goldwein of the Committee for a Responsible Budget, and both formerly of the Commission. Both were on hand.

Yesterday’s forum event featured three Senators who have been leading the charge for reform – Michael Bennet (D-Colo.), Ron Wyden (D-Ore.) and Dan Coats (R-Ind.) – and one CEO and Fiscal Commission member, Dave Cote (CEO of Honeywell). They provided the big picture framing, so I’ll summarize the highlights of their remarks first, and then delve into the two panels of experts second.

Sen. Bennet kicked off the event with stories from the town halls he’d been spending the last two years doing: “In every single meeting, debt and deficit came up,” he said. “There’s a deep skepticism that if we can’t figure out how to pay our bills, it suggests a lack of confidence in our government and our elected leaders, and it’s fairly well-placed.”

Bennet offered three criteria for what a deficit reduction plan would have to accomplish to pass muster with voters. First, it would need to be comprehensive. “People know we can’t fix this overnight, but they want it to be comprehensive.”; Second, sacrifice has to be shared: “They want to know that we’re in this together, and everybody has a share of the burden.”; Third, it has to be bipartisan.

Coats laid out a similar series of principles for the legislation that he has introduced with Senator Wyden. First, he said, echoing Bennet, it has to be bipartisan. Second, it has to be revenue neutral. Third it has to be simple (“Right now we’ve got 71,000 plus pages of tax code, 10,000 plus special preferences and deductions. It’s a nightmare.) Fourth, it has to help out the middle class, and help families to save money for college, and help charitable organizations. And fifth and finally, “this has to be based on a principle of growth…the bottom line is it has to lead to jobs.”

Wyden looked at the problem through the lens of tax simplification, noting that as April 15 approaches, “Americans are going through the 6 billion hours they spend each year filling out tax forms — 690,000 years is what you have in an annual effort going through the water torture of figuring out if line 9 is modifying line 7.”

Wyden also stressed that any tax reform also needed to encourage investment in what he called “red-white-and-blue jobs” – that is, solid American jobs, preferably in manufacturing. Wyden called his bill fundamentally a jobs bill.

Cote, CEO of Honeywell, echoed similar themes in his remarks. “We need a global competitiveness agenda for the U.S.” he began. “Our corporate tax system is globally uncompetitive. We have the highest tax rate in the world, and we’re the only major country with a territorial system that encourages companies to keep their cash overseas. And we give back $1.2 trillion in what is euphemistically named ‘tax expenditures,’ but just another form of spending that’s done through the tax code.”

Echoing the urgency of the Senators, Cote posed the looming crisis this way: “The debt problem can get resolved one of two ways. We can do it now and do it thoughtfully, or the bond market can force us t do it, like Greece and Portugal.”

Moving to the policy substance, the first panel featured Paul Weinstein, PPI Senior Fellow, Diane Rogers of the Concord Coalition, Alan Viard of the American Enterprise Institute, and Howard Gleckman of the Tax Policy Center as moderator

Weinstein gave the quick version and backstory of the “modified zero plan,” which is the subject of a new PPI memo Weinstein co-authored. As the name might suggest, it began as the “zero plan,” which was the name the deficit commission gave the plan that reduced all tax expenditures to zero, saving $1.1 trillion in deductions, credits, and deferrals. The “modified zero plan” put back in only a few consensus tax expenditures, like the EITC, a mortgage deduction, a charitable contribution deduction.

“The rates are lower, it simplifies the tax code to fewer incentives and helps reduce tax avoidance and mistakes,” explained Weinstein. “Obviously the revenue increases get bigger and bigger over time. We estimate $800 billion over ten years.”

Rogers responded favorably to the plan. “I like the approach. There’s something for everyone to love,” she said. “Liberals should like it because it’s progressive and better than having to cut direct spending. Conservatives should like it because it’s an economically efficient way to raise revenues, and it doesn’t raise the size of government. It reduces the size of government.”

Viard gave it two cheers. He called it “Well-specified and thoughtful. This is one of the best approaches you can have with an income-based tax system that includes a separate corporate income tax.” Viard’s stated preference was for a value-added tax (VAT), though the subsequent discussion highlighted how difficult the politics of transitioning to a VAT would be. (Rogers put it this way: “we should work within the existing system first.”)

As the discussion shifted into the politics of policy, there was general agreement that tax reform terminology is confusing to the general public, and any discussion of tax expenditures is going to lead to thousands of interest groups begging to keep their favorites. And again, there was agreement that it needs to be comprehensive. “Tax reform can’t be done unless it’s in the context of deficit reduction,” said Weinstein. “You need to look at the whole apple.”

The second panel featured Leonard Burman of Syracuse University, Marc Goldwein, of the Committee for a Responsible Federal Budget, Joseph Minarik of the Committee for Economic Development and Derek Thompson of The Atlantic as moderator.

Goldwein began by reiterating the consensus: “The current income tax code is a mess. There is a consensus to broaden the base, and reduce the rates, and don’t keep tax expenditures that aren’t worth their cost.”

But how to do that? Burman argued that ending tax expenditures would require not referring to them anymore as tax expenditures. “We need to change the fiscal language. I sometimes call them IRS pork,” he said. “Part of the problem is mischaracterizing tax expenditures. Some people think that by putting new tax expenditures in the code you’re making government smaller, but what you’re doing is just spending more money and making taxes higher to achieve a given level of revenue.”

Minarik, a grizzled veteran of tax fights, highlighted the fact that the inside-the-halls negotiating in Congress is very different from the “outside” formulating that goes on at events like this, and reminded everyone that the simpler the solution, the easier it will be to pass. In that respect, he said, a fifth-best solution that’s simple and straightforward is better than a second-best solution that can lead to more complicated politics.