The REAL Budget battle is not over money

As usual Simon gets it right - the budget debate is not about money, its a mask for social policy and worldview:

The real issue is how much relatively rich people are willing to pay and on what basis in the form of transfers to relatively poor people – and how rising healthcare costs should affect those transfers.

The consensus for Hamilton, Jefferson, Madison and their contemporaries was simple: No significant social spending was administered by the federal government. Lindert estimates social spending (including on “poor relief” and public education) in the United States even by 1850 was less than 0.5 percent of GDP.

We’ve come a long way since 1792, but the question is: How far exactly? And are we willing now to debate the real issues: taxes, healthcare costs, and what kind of redistribution we think is fair and sustainable?

So if Mr. Bin Laden's death is "major action" by the U.S. then did someone do NEPA?

So if Osama Bin Laden is really dead, how much will it really change things? I am pretty sure the answer will be - Not Much. There will be a new enemy,

S7P downgrades the U.S. debt outlook. that's not a supply side problem, but I bet all the solutions will be!

The words of babes . . . or Congressmen - Why Paul Ryan thinks competition will save the federal budget

I'll give Paul Ryan this - when it come to the free market, he is a true believer that competition is ALWAYS best, even when it doesn't achieve the best societal end or the most efficient process (Emphasis mine):

SIEGEL: Congressman Ryan, critics of your idea say that the cost of insurance for members of Congress has actually gone up faster with the element of choice than the cost of Medicare has. Well, why would you - if it turned out that indeed the government-run program was more cost-efficient, would you favor it, or is it in fact an ideological preference for the market even if the market is less efficient?

Rep. RYAN: The point I'm trying to make - and there is a difference of just, I think, philosophy here or of what works best - we don't believe surrendering more of the health care system over to government is an effective solution to lowering health care costs. It simply results in rationing, in price controlling. So, we do believe that the current health care system is broken and needs to be fixed.

SIEGEL: So, even - but you're saying, even if the Medicare system were to be comparably more efficient in controlling cost, the way in which it's arriving at that, you say the...

Rep. RYAN: It's competition.

SIEGEL: ...the government way - if it's not competitive, you'd prefer what might be conceivably a more expensive system if it involves free market competition.

Rep. RYAN: Actually, no, we don't believe that at all. We believe that it will be a less expensive system. But believe you me, we need to do more in the health care system to get the consumer more power in the health care system so that the patient and their doctor have the real power in the health care system so that all providers - health insurance companies, doctors, hospitals - have to compete against each other for the health insurance beneficiary's business.

credit where it's due- Paul Ryan just said on NPR that top income earners in the US enjoy the benefits of most income tax loopholes. never heard that before!

The Debt Crisis and Deficit Elimination - raising tax rates is not a bad idea!

From the Congressional Quarterly (CQ) Daily Briefing email I got this morning:

“The three biggest tax expenditures, though, are presumably politically untouchable: The exclusion for employer-paid medical insurance, the exclusion for retirement savings and the deduction for mortgage interest. Combined, they result in almost $500 billion a year in lost IRS revenue.”

This talk about possible reduction or elimination of so-called Tax Expenditures (i.e. personal deductions, corporate tax breaks, and general loop-holes) has figured prominently in a series of comment back and forth that Mike and I have been engaged at over in Ames’ corner of the world. Like many conservatives, Mike doesn’t want to raise taxes on the wealthy, unless we raise EVERYOBNE’s taxes or close EVERYONE’s loopholes. Unlike most conservative and Republican Politicians (Tea Party and not) Mike is willing to acknowledge that revenue is a part of the problem.

I mention this, because one part of our discussion that I have thrown on the table is Effective Tax Rates. Simply put, through 2007 (which is the latest year the IRS has data for publically available) the top 400 income earners in the nation paid . . . 16.5% in federal income taxes. They did that because they generally have a lopsided compensation/income portfolio that leans toward investment income, which as “capital gains” is taxed at 15%. What’s really interesting to me is that the “typical American” earning $50,000 only pays slightly more in effective federal taxes at 17.5%.

“Salaries and wages, the source of income taxed at the blue line, represented only 6.5 percent of these filers’ income. Nearly two-thirds of their income comes from capital gains, and this is why you see a much tighter coupling between the orange and red lines.”

Emphasis mine.

So, when you hear conservatives say that raising taxes will eliminate our national economic growth, or that it is unfair to the rich, remember – if you have a median (i.e. 50% below you and 50% above you ) income in the U.S. you are probably paying a higher effective rate then the rich. As the Motley Fool puts it:

“

If your income moves into a higher tax bracket, Uncle Sam will take a bigger slice of all of your taxable earnings, right? Wrong.”

What does this mean for the current debate about both the 2012 federal budget and the debt limit increase? Simply this, if you do, in fact, raise the top marginal tax rate to 39% from its current 35% - where it was during the Clinton years – not only will you gain more revenue, you will in fact do so without real damage to those at the top because they do not pay 35% on their total income. That means you will still have plenty of money in their hands (the top 1% of income earners in the U.S. control 40% of the wealth) should they choose to invest it in American businesses and therefore create American jobs.

Will it raise as much money as getting rid of the three biggest loopholes mentioned by CQ above? Probably not, but recent economic studies indicate that if you raise the capital gains tax rate from 15% to 20.6% (therefore actually taxing the money that Americans richest people receive) you will raise revenues by 3% of GDP. Since U.S. GDP in 2011 is around $14.119 Trillion that would equal a $423 Billion increase in tax revenue, all the while leaving a TON of cash lying around for the Republicans much loved but factually implausible “Trickle Down Economics.”

Problem is, that won’t really solve the battle, which as Harold Meyerson pointed out today, is about whether the Southern or Northern economic model will ultimately guide America.