December 19, 2012

WSJ: ‘A Bad Budget Deal’ (Update: Erickson — ‘Excuse Me While I Go Vomit’)

Filed under: Economy,Taxes & Government — Tom @ 8:38 am

Looking at the bright side (this is gallows humor, for those who don’t catch it): Unlike last year’s debt-limit battle, those of use who don’t like what John Boehner is doing won’t get called “Hobbitts” by the Wall Street Journal’s editorial board.

That’s about the only positive thing one can say about what John Boehner is trying to push on the Republicans and conservatives. An editorial in the Journal today calls out the pathetic GOP fiscal cliff proposal quite nicely:

It’s clear by now that the budget talks are drifting in a drearily familiar Washington direction: Tax and spending increases now, in return for the promise of spending cuts and tax and entitlement reform later. This is a bad deal for everyone except the politicians who want more money to spend.

Consider the tax increase now being touted as a sign of “compromise.” Speaker John Boehner has moved from opposing higher tax rates to offering higher rates for incomes above $1 million a year. While that’s better than the scheduled increase on incomes above $200,000 a year (for singles), it would still put the GOP on record as endorsing a tax increase, in particular on small businesses that file individual returns.

President Obama has countered with a ceiling of $400,000. If they compromise at $500,000, we are all supposed to thank the two sides for their reasonableness. Yet both parties will have declared that raising tax rates is no big economic deal. This will hurt the economy, and it further advances Mr. Obama’s political goal of separating the middle class from the affluent on tax policy.

What about tax reform next year? A final judgment on this prospect depends on the fine print, but it’s already looking grim. The GOP has prepared the ground for a genuine tax reform, on the Simpson-Bowles model, that lowers rates in return for fewer deductions. In what is shaping up as this budget deal’s prototype, tax reform looks like it means both higher rates and fewer deductions.

This isn’t reform. It’s another tax increase next year disguised as reform. The Fortune 500 CEOs who are lobbying Republicans don’t mind because they hope to get a cut in the corporate tax rate. But small businesses will be stuck with a huge immediate tax increase, at least until their owners can scramble to reorganize as corporations instead of Subchapter S companies or LLCs.

As for spending cuts or entitlement reform, these look notional at best. The only tangible agreement that has been leaked so far is to calculate future tax brackets and entitlement benefits based on “chain-weighted CPI.” This is a more accurate measure of inflation than is currently used and we support it, but it is a small change worth perhaps $270 billion over 10 years.

… None of this is anywhere close to the reforms that might slow the pace of health-care spending, which everyone agrees is the biggest fiscal problem. Look for Mr. Obama to pocket the immediate tax increases, then next year demand another tax increase in return for token entitlement reforms.

The biggest insult to the public’s intelligence is Mr. Obama’s demand for more spending now. We thought this exercise was about deficit reduction.

Thinking micro for the moment — Tax brackets should be indexed to inflation. Entitlement benefits should be indexed to CPI.

The reason should be obvious. While you’re working, you are among other things trying to get your living standard, which in a decent economy (if one ever arrives again) would gradually rise over time. Indexing the tax brackets to inflation effectively keeps the tax system from automatically taking more as a percentage of the median living standard.

But once you’re receiving entitlement benefits paid for by everyone else — at least the retirement-related ones, where the big momney is — your living standard should be considered to be set right where it is for the rest of your life. If you want to improve it, you can always work more, but if you can’t, you’re not being denied anything to which you have any kind of moral claim.

Thinking macro, let’s get back to the editorial:

We think they (Republicans) have more leverage than they believe if they are willing to fight on taxes into next year. But if they’re not, at least they shouldn’t associate themselves with a deal that increases spending and taxes with little or nothing tangible in return.

Let Mr. Obama own the tax increase and its measly 7.5% annual reduction in a $1.1 trillion deficit. Let the sequester take effect as planned, which at least means some spending restraint. Then engage Mr. Obama next year in trench warfare over spending and the debt limit as voters figure out that soaking the rich doesn’t begin to solve the problem. A bad budget deal is worse than no deal at all.

I’m not optimistic that there’s any fight left in the Romneyesque remains of the GOP leadership.


UPDATE: Erick Erickson

The spin from Speaker Boehner’s Office on the plan shows you every single reason why this plan is embarrassing and Republicans should be ashamed to support it.

The first bullet point is that “Plan B” “does not raise taxes.” Really? How then does that reconcile with the second bullet point that notes, “Plan B” “permanently extends income tax rate cuts for Americans making less than $1 million, which protects 99.81 percent of all taxpayers”?

Only among the mendacious cast of clowns in Washington can those two bullet points be reconciled together. John Boehner’s plan does raise taxes. But it only does so on people who earn one million dollars or more. He obfuscates this because taxes are set to automatically go up in January. Therefore, by preventing taxes from going up on 99.81% of Americans and letting a tax increase happen anyway, he can claim his plan “does not raise taxes.”

That type of mendacity got us to this point.

The most significant thing John Boehner’s plan does is absolutely nothing on spending. Republicans will raise taxes and lie to the American public about it while doing absolutely nothing on entitlements, spending, or anything else. Oh, but John Boehner notes his plan:

Does not include anything on the debt limit or other non-tax policy items. Remember, Speaker Boehner’s rule on the debt limit still applies: spending cuts must exceed any debt limit increase.

Excuse me while I go vomit.

I hope you have a barf bag, Erick, because the line to use the bathroom is really long.


1 Comment

  1. That’s not the only tax increase the middle class isn’t going to avoid plus the one I mentioned yesterday about having your employer’s contribution for health insurance as taxable income.

    On top of that $1000+ tax increase will be a second devastating one for those who are laboring under a heavy load of annual medical bills. The 7.5% AGI medical deduction is going up in 2013 to 10%. So for a family making $100k AGI, that’s $2500 more that’s disallowed for those with large medical bills.

    That’s another significant screw you tax from Obama.

    Comment by dscott — December 19, 2012 @ 3:02 pm

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