Z: **Inactive:** Brad DeLong--Economics Only

"Fixing Social Security" Is the Only Regressive Tax Increase on the Menu

Josh Marshall makes a very good point: much lf the enthusiasm for "fixing" Social Security (rather than tackling any of the much more serious long-run fiscal problems we have that the Bush administration has done so much to worsen) springs from the fact that "fixing" Social Security by raising the payroll tax is the only regressive tax increase that might be politically palatable:

Talking Points Memo | Stop Saving Social Security: The problem on the political side of the equation is that the enemies of Social Security have spent a couple decades arguing that the Trust Fund doesn't exist or that it is simply a bookkeeping device with no true financial meaning. If that's true, it means that American workers have spent the last twenty-five years using their payroll taxes to subsidize general revenues and make it easier to float big tax cuts for upper-income earners without getting anything in return.

If we start pumping a lot more money into Social Security coffers now it will by definition go into more government bonds, which is another way of saying that it will go toward funding our current deficit spending. In fact it will enable more deficit spending and probably more upper-income tax cuts because it will make the consequences of both easier to hide....

[T]he window of time we had to seriously pare down the national debt to prepare for the retirement of the baby-boomers is close to over... our best way of ensuring the future health of Social Security is to stop running up the national debt now. So I'm very reluctant to put more payroll taxes in the pot while we're still running big deficits because of the Bush tax cuts. The money will just go to subsidizing that irresponsible fiscal policy. If there is any sense in which the 'Trust Fund' is not 'real' it is that it must be paid back from general revenues. And that will only be harder the more other debt we're running up. So rather than solving the problem, I think we're actually enabling it...

Why Oh Why Are We Ruled by These [BLANKS]?

David Wessel of the Wall Street Journal sees eerie parallels between the Bushies foreign and domestic policy misadventures:

Capital - WSJ.com: Bush's Course on Budget Parallels Iraq: The numbers in President Bush's budget add up -- arithmetically... if Iraq and Afghanistan cost only $50 billion in 2009 and nothing thereafter; if the president and Congress hold growth in annually appropriated domestic spending well below inflation; if they let the alternative minimum tax reach deeper into the middle class or raise taxes on others to prevent that; if Congress squeezes $66 billion (4%) from Medicare over five years.... If former Republican Treasury Secretary James A. Baker III and former Democratic Rep. Lee Hamilton led a budget commission like their Iraq Study Group, what would they say?...

They would hardly need to rewrite their cover letter. "There is no magic formula.... However, there are actions that can be taken to improve the situation and protect American interests," they said in the Iraq report. "Many Americans are dissatisfied, not just with the situation... but with the state of our political debate.... Our country deserves a debate that prizes substance over rhetoric, and a policy that is adequately funded and sustainable."

William Gale of the Brookings Institution.... "The Bush administration's two signature policies have been the war in Iraq and consistent pressure for tax cuts," he argues. "On the surface, they look quite different and were advocated by different parts of the administration. Look a little deeper and some common patterns emerge -- so maybe this says something about the principles or management style of the Bush administration."... "[F]alsely rosy scenarios" about the post-Saddam landscape... unrealistic hope that the budget surplus was large enough to cut taxes without creating deficits... contingency planning was regarded by the Bush White House as a sign of weakness.... Smart critics... disregarded and shunned.... Only true believers remained to give the president advice. Eventually, Mr. Bush changed his team--hiring new secretaries of defense and Treasury--but too late to get credit from the public or to forge bipartisan consensus in Congress.

Imagine what might have happened differently had Mr. Bush installed Josh Bolten as chief of staff, Rob Portman as budget director and Hank Paulson as Treasury secretary at the start of his second term, instead of waiting two years. Might the conversation on Mr. Bush's ideas for limiting tax breaks for health insurance be bearing fruit, not just taking shape?...

OK. Take a breath. The U.S. economy is not Iraq, and today's headlines are upbeat... [thanks to] the unabated willingness of foreigners to lend to the U.S. is keeping interest rates down. But look ahead, and there is an unwelcome parallel between Iraq and the budget. Current policy is unsustainable, but there is no easy way out.... Baker and Hamilton had little apparent effect on the president's Iraq policy. Maybe they would have better luck on economics.

My view--which may be wrong--is that David Wessel is way optimistic when he hopes that Bolten, Portman, and Paulson will rebase the Bush administration's economic policies in reality. Bolten's tenure at OMB was unimpressive, and now Bolten appears to be reduced to wandering around Washington saying that he does too have power, and pointing to his ability to fire Harriet Miers as evidence of his strength. Portman's tenure at USTR was similarly unimpressive, and there are no signs that his influence was able to make the current Bush budget more of a policy and less of a propaganda department. And Cheney appears to have cut Paulson off at the knees and killed Paulson's back-channel Social Security negotiations--with no effective response from Paulson: there has been no statement from Bush that Paulson is Bush's chief economic policy adviser and speaks for him on economic policy issues.

In short, things are worse inside the Bush administration than David Wessel believes.