Differences Between Obama and McCain...

Paul Krugman:

Baselines, shmaselines: Wise words from the Tax Policy Center:

There is an easy way to cut through this palaver. Forget the baseline. Just think about three numbers: How much would either candidate collect in taxes as a share of the Gross Domestic Product? How much is government likely to spend? And, how much would they have to cut that spending to keep the national debt from ballooning.

TPC estimates that in 2013, Obama would collect revenues of 18.2 percent of GDP. McCain would bring in about 17.8 percent. Spending that year would be about 19.5 percent, according to the Congressional Budget Office, assuming the Iraq war will be winding down.

The key point, again: because of all those middle-class tax cuts in the Obama plan, he collects only 0.4% of GDP more in taxes than McCain. The tax collection comes from different people: lower and middle-income Americans would be substantially better off under the Obama plan. But where is the money for health care reform?

This is why I think that Obama ought to be proposing a big oil tax, with substantial parts of it used to pay for people's FICA and extend the EITC phaseout range. This:

• raises revenue, and puts us in a much better position for long-run growth
• improves national security by reducing our long-run dependence on foreign oil from unstable parts of the world
• helps on the global warming front
• makes America a less unequal country

I think that that the Democrats ought to offer America a choice between:

• Paying higher gasoline prices but also paying less in Social Security taxes

• Continuing to leave our national and economic security hostage in the hands of unstable political-military events in the Middle East--which requires that we spend a fortune continuing to project a huge amount of military power into the Persian Gulf for essentially forever.

This seems like a no brainer to me.

Comments

[save_the_rustbelt]

There may be no need to raise oil taxes, it could be done by seeing that the oil companies pay their income taxes without "offshoring" income.

Same for the rest of the Fortune 1000 companies.

Rates may be high enough, if we tax all of the income.

[save_the_rustbelt]

Why do liberals always seem to think we can replace growth in real incomes (for the bottom half) with the EITC?

and

The ultimate irony will occur when energy prices force manufacturers to move plants back to the US. Maybe that will help real incomes.

[Andrew Biggs]

Fund add-on accounts for Social Security with a gas tax and you might have a deal.

[derrida derider]

It doesn't matter how logical it is, it doesn't matter how revenue-neutral it is, as far as electorates go the world over the only good tax is an old tax. They don't trust any politician to be honest about it for a start (perhaps with reason), and swing voters are differentially the more emotional and/or uninformed portion of the populace and so will not be swayed by a complex train of logic. Any tax reform is difficult in a democracy, and new forms of taxation are the most difficult of all.

All the US voters who matter will see is that "politicians" are trying to rip them off and ban their favoured lifestyle. If you couldn't introduce a decent oil tax when the stuff was at $20 a barrel you have no chance when it's at $140 a barrel.

[theCoach]

It is a no brainer ...from an ivory tower. This is political death right now. Additionally, policy wise it is not an optimal policy. Optimally, there would be some allowance for a transition, so everybody knowing that prices will rise in the near future, and then allowing them some amount of time to adjust to that before it takes affect would be better.
For awhile now I have been intrigued with the mechanism of the ratchet down tax in Colorado (terrible policy, but it is an interesting political invention). I have been wondering if a ratchet up gas tax would make sense -- if the price of gas oil spikes to 200, then comes back down to 130, a tax would ratchet up, so that the tax would fill in the rest of the price so that it was always at its highest point. I have no idea of the ramifications, but it seems like a plausible political solution to ht eproblem of enacting a gas tax on top of already high prices.

[bigTom]

Much as I wish derrida is wrong here, I have to confess that I think he is right. For the most part politicians are good at their profession, politics. Politics is about getting people to buy into your stated plans, it is NOT about optimal policy, or anything remotely resembling optimal policy. And they are not offering such a plan, because it is perceived to be politically costly.

[Frank]

Brad:

Excellent idea. I think a progressive politician should propose the following:

1. A vast simplification of the income tax, including the elimination of the mortgage interest deduction.

2. Vastly increasing excise taxes, correlating them tightly to expenditures (gas tax and fees for transportation, food taxes (hopefully on bad food) to pay for USDA, tariffs for Homeland Security, etc.)

3. Eliminating the first $30,000, $50,000 or $70,000 grand from Federal income tax.

A large simplification of the tax code, while making it quite progressive, should be any Democratic politician's priority. It would take this issue off the table for Republicans, infeebling them even more.

[Robert Waldmann]

Of course I agree with your policy proposal.

However, it won't happen. People don't know how much they pay in income taxes and FICA (30% thought that Bill Clinton increased their taxes of whom 1 or 2% (of the population) were right). People won't do the math and figure out they are ahead with something that complicated.

On the other hand, maybe my argument that it won't happen means I believe Obama won't deliver. Cap and trade with auctioned permits is noticibly related to the tax you propose. I note that the TPC doesn't consider those revenues at all.

More importantly, they don't count the Obama donut FICA on personal labor income over $250,000 per year proposal. That would bring in a lot of money (similar in magnitude and opposite in sign that the making work pay income tax cut). The fact that the money officially goes into the social security trust fund means, as we have learned over the past two decades, almost exactly nothing.

As you probably know, one of my obsessions is complaining that Krugman refuses to consider the donut and making work pay two fronts in the same cover class war. For some reason the donut plan is considered to be conceding to the Republicans that there is a social security crisis (not conceded by Obama) and not what it is, soaking the rich and spreading it out thin.

In any case, no one should take the TPC analysis seriously given this omission (they definitely do not count the donut plan I checked at their web site).

[RKKA]

There is no reason Democrats should let themselves be suckered into cleaning up the fiscal messes of the rethuglicans, beyond letting the Bush tax cuts expire. When they do, rethuglicans will scream about how Democrats are raising taxes. When they do, Democrats should point out who wrote the bill and who signed the bill in the first place, and publicize "Rethuglicans raised your taxes!" 24/7. Go on all the political talk shows and repeat this line: "Rethuglicans wrote this tax increase, and a rethuglican president signed this tax increase." Do not budge from this position, and repeat it until it sinks in.

This, and ending the disasterous Iraq war will go quite a ways towards repairing our fiscal and moral credit in the world.

[Peter Wood]

I remember reading that Obama may introduce an emissions trading scheme where all of the emissions permits are auctioned. The money raised from auctioning permits could be transferred to low and middle income earners, or invested in health care reform. This would be more effective at reducing emissions than a big oil tax, or could complement a big oil tax.

[Bruce Webb]

If the definition of 'no brainer' is 'not having really thought through the implications' then I would agree with Brad on offsetting oil taxes with FICA reductions. But then again I have thought through the implications.

Social Security is the result of a carefully crafted policy designed to protect the interests of workers from the demands of capital. If we accept the textbook theory that even the employer match ultimately bears on the employee then what we have is a worker financed insurance plan for the benefit of workers. As long as Social Security income balances Social Security cost the system as a whole owes nothing to capital because it draws nothing from capital. The instant you move it from its current insurance model to being just another government program dependent on the budget/appropriations process is the instant that you burn through its current political/policy insulation. And don't think the privatizers don't understand that full well.

Social Security 'crisis' is simply a bold attempt by the interests of capital and/or the ideological opponents of Social Security (because there is not a lot of daylight between the two) to assert a right to intervene in the outcome. The basic storyline is that since at some point in the future capital might be called upon to bail out a 'bankrupt' Social Security system they have a right to insist on changes now. Changes which normally take the form of workers paying more and accepting less in order to reduce that claim on capital to zero. The much ballyhooed Liebman-MacGuineas-Samwick Non Partisan Social Security Reform Plan (otherwise known as the 'charge workers 5.2% to fix a 1.7% problem and so relieve capital of any demands at all' plan) is just the most blatant of these plans.

The starkest fear of the privatizing crowd is that people will wake up and smell the numbers on Social Security. When pressed to the wall even the most prominant of proponents of Social Security 'reform' admit that even if granted every (overly pessimistic) assumption of the standard Intermediate Cost alternative that Social Security would still return a better real result in 2042 that it does to similarly situated retirees today. Nobody has seriously challenged the equation 78% of 160% = 125%, yet they spin endlessly in an attempt to assert that sticker shock 33 years out means me sacrificing 18 years of benefits between 2023 (when I turn 66 1/2) and 2041.

People who have always opposed Social Security on principle understand that the only way to maintain any sense of crisis in the face of the actual numbers is to starve it of revenues going forward. Which is why they jump at any economic proposal that suggests offsetting its impact on workers by giving them a reduction in FICA. It is all bait and switch with the goal of achieving their seventy-two year dream of pissing on FDRs grave. Progressives should not buy in to the crocodile tears and think these proposals really have workers' interests at heart by cutting FICA, because what they are really about is cutting the heart out of the New Deal.

[Lee A. Arnold]

It is political suicide to talk about higher oil taxes when gas may go up over $5 a gallon before the election. IF and WHEN gas comes down, wait until a gallon is down two dollars, then put on a 50-cent tax.

This takes advantage of the fact that the higher prices already caused people to rethink their habits. And the new revenue should be earmarked to energy policy.

Voters will be least unhappy with taxes that are earmarked to spending that is related to the reason for the tax. Any carbon taxes should go to subsidies and R&D for alternative energy and suburban-urban rail transport, etc.

(In fact, I think dedicated taxes should be used much more, as a way to keep the voters' (and politicians') scarce attentions focused on the REASONS why things are happening.)

I agree with Bruce Webb. Social Security should be off the table, left alone. It is financially solvent and politically strong. In fact, Republicans should be bashed over the head with it, every chance that comes along. Tie privatization to the rest of their disastrous policies.

If you must apply new revenues to something else, make it reform of the medical system. People are very very worried about the rising costs of medical care.

P.S. I think higher gas prices provide an opportunity to see how fast and how well the Pigou Club's solutions can change things in a path-dependent economy. We should be ready NOW to examine the evidence on how and where additional subsidies and R&D are indicated.

[Movie Guy]

I can't believe that you proposed this idea, Brad.

What a disaster it would be for the Democratic Party in November 2008.

---