A murky front-page explanation!


Concerning those dueling tax rates: Jonathan Chait has been explaining a certain state of affairs for at least the past year. E. J. Dionne cited Chait’s work in this area just last week.

Here goes. This isn’t complex:

The Bush tax rates are scheduled to expire at the end of 2012. If nothing is done by the Congress, the nation will return at that time to the Clinton-era tax rates and policies.

If we return to the Clinton-era tax rates, projected deficits shrink by a large factor. Our projected debt-and-deficit "crisis" suddenly disappears.

We’re not saying that it’s a good idea to return to the Clinton-era tax rates. But these simple facts should have been explained to the public long ago.

Sadly, we live in an idiocracy. Few things ever get explained.

This morning, as everyone runs for the airports and highways, Binyamin Applebaum finally explains these basic facts on the front page of the New York Times. Or does he? We’d call his work extremely murky, and limited besides.

But then, this is the New York Times. Do they know how to explain?


  1. Applebaum and the rest at the New York Times have been absolutely incompetent in stating the simple fact that returning to the Clinton-era rates would produce between $3.7 to $3.8 TRILLION to the country over 10 years. This exceeds any of the proposals that either the Democrats or the GOP proposed, which suggests that in the cases of both parties, they are doing all they can to preserve the Bush tax cuts and, as the extreme right-wing Pennsylvania Pat Toomey openly stated, make them "permanent."

    With the Clinton rates automatically kicking in come January 2013, and with the ridiculous "sequestration" cuts that the GOP rammed down the country's throat, the "deficit" will shrink automatically and dramatically, but the country will be thrown into a recession. But this is the result of terrible, failed GOP policy, so I guess that means that people will again rush out to put these incompetents, and their Democratic lackeys, back in office, and we'll have people like the reliable propagandist David in Cal to defend them, or at least repeat whatever has been brayed and bruited about ("Solyndra!" "Fannie Mae!" etc.) on Faux News, Rupert Murdoch's US neoconservative disinformation channel!

  2. Nice link. I'm glad for the good news, but it's an overstatement to say our debt-and-deficit 'crisis' disappears.

    Our debt remains an enormous $15 trillion and rapidly growing. This money will have be paid back. Or, if we keep rolling the debt over, we pay a bigger and bigger annual interest. And, there's the ever-present danger that the world's bankers will jack up the interest rates they charge on this debt, as they redently did for Italy.

    Under the projection described in the Times, "the deficit would shrink to $510 billion from $1.3 trillion by 2013." Of course, that would be a big improvement. But, a $510 billion deficit is still huge. When President Bush was running $400 billion deficits, Paul Krugman excoriated him, and rightly so. E.g., speaking of Bush's $400 billion deficit, Krugman said:

    Well, basically we have a world-class budget deficit not just as in absolute terms of course - it's the biggest budget deficit in the history of the world - but it's a budget deficit that as a share of GDP is right up there.

    It's comparable to the worst we've ever seen in this country.

    It's biggest than Argentina in 2001.

    In short, even if the government goes back to the Clinton tax rates and even if they go back to traditional Social Security assessment rates, I'm afraid we will still be in a debt and deficit crisis.

  3. Anonymous, it seems to me that, in general, liberals think government spending is good for the economy while conservatives think government spending is bad for the economy. I expect this difference of opinion to be one of the biggest issues in the 2012 election.

  4. Which is why the government should go back to Eisenhower tax rates-- on both high "earners" and corporations.

  5. Often it's not what we don't know; it's what we know but forgot. Who can keep up. Bush tax cuts temporary and extended? Oh, yeah. Extension ends 2012? OH... YEAH! But by doing nothing, Republicans have a tax hike to put on Obama and Dems.

    Ed DeVere

  6. Some talking head on CBS this morning (I was just walking through the room and don't know who it was) said something to the effect that if the Bush tax cuts aren't renewed, the bad news is that everyone's taxes will go up. No further comment than that.

  7. But "spending is bad for the economy" is objectively false, as there'd be little to no 'economy' at all were it not for spending.

  8. It's not a simple as government spending is good for the economy (or not).
    When demand is lagging from high unemployment and low wages, money is tied up in casinos (Wall Street) instead of startup investments, the discount rate is effectively zero, and corporations and millionaires are paying low taxes, THEN government deficit spending is good, as it helps stimulate the economy.
    If all these factors are in good order, government deficit spending exerts inflationary pressure.
    If all these factors are in good order, paying down debt will contract the economy and relieve inflationary pressure, so paying off debt must be done so as not to slow growth too much.
    Normally government should not cut spending during a recession, and should not raise taxes.
    Times are not normal, however. Raising taxes on corporations and the very wealthy, especially when tax rates are very low, as they are, will encourage expansion and growth investment instead of insider gambling. As unemployment goes down and wages go up, demand will return, and the economy will expand, allowing some budget surplus and debt repayment.

  9. Matt, I said conservatives generally believe that government spending is bad for the economy. Recent experience supports this POV. The federal government is now spending twice as much as when Clinton was President. And, the economy has been lousy for most of this period.

    gravymeister -- I disagree with one of your points. The US corporate income tax rate of 35% is one of the highest in the world. Most economists, even liberal ones, think that cutting the corporate income tax rate would be good for the economy. Even President Obama says he backs a cut the top U.S. corporate tax rate.

  10. Solyndra failed because their cylindrical technology was superior to flat panel design. It captured more energy for a longer time during the day.
    The tubes were more expensive to produce than flat panels, but they had advantages in efficiency, weight, and wind resistance.
    The essential material in solar panels is so expensive that panel makers needed to squeeze every milliamp possible out of their panels.
    Solyndra failed because of a huge price drop in the main component of solar panels, silicon.

    Silicon is essentially sand. The Earth’s crust is 28% silicon. Sand is virtually free, and the supply, for all practical purposes, is inexhaustible. We will never run out. But silicon must be 99.99% pure to work in solar panels, and much purer to work in electronics, and it is expensive to purify silicon to that level.
    Solar-grade silicon cost $24.00 a Kg in 2004, but worldwide demand for solar panels, computers, and smart phones drove the price to $450.00 per Kg by 2008. Predictions were that this would remain unchanged until at least 2012. Instead, the high price of pure silicon caused massive increases in production and the price has fallen dramatically.

    The Chinese government helped the development of cheaper panels by pumping not $535 million, but billions of dollars into production companies, which are selling purified silicon and solar panels internationally.
    China subsidized far more development then did the US, and we are paying the price. China produces 27 times more pure silicon than the US, and the gap is getting wider every day. China and Germany lead the world in solar panel production.

    When the cost of pure silicon dropped to $50.00 a kilogram, an 89% drop in price, with an almost certainty of lower prices to come, the marginal efficiency of the costlier cylindrical cells became irrelevant overnight. Solyndra made the right choice by suspending all production.
    You don’t keep making a better buggy whip when it is abundantly clear that everyone is switching to automobiles.

    How does Congress respond? By attacking the Obama administration and demanding all green energy subsidies be stopped. By attacking subsidies funded during the Obama administration. There was no mention of subsidies on oil, natural gas, or coal, industries that are already so profitable (and ecologically damaging) that they need not, and should not be supported by taxpayers. The Chinese couldn’t have wished for a better response.

  11. What is happening to solar energy development is the result of technological breakthrough and intelligent planning, not some law of economics that decrees government subsidy of business will always fail, as Republicans have insisted.
    The energy producers measure the efficiency of energy in dollars per Kilowatt, and by that measure coal, oil, and natural gas win out over solar power, which is why fossil fuel industries use that yardstick. Quite soon, solar panels will reach that level of cost effectiveness, without releasing carbon into the environment. Fossil fuels, on the other hand must always release billions and billion of tons of carbon annually, and steady increases in pollution are unavoidable.

    But they are leaving out human and environmental costs, which must be paid in human misery and taxpayer money later. In effect, the carbon polluters are getting a massive tax-funded subsidy. As a result, solar power in the United States is left in the dark.
    I don’t think it is necessary for me to explain why many of our elected officials are trying to suppress solar power, and instead subsidize coal, oil, and natural gas. Most Americans realize that corporations are supplying the lion’s share of political campaign money. It’s not even a conspiracy; they’re doing it in broad daylight.

    The true motive behind these attacks is to discredit the Obama administration by any means possible. Almost all negative articles about Solyndra come from biased sources such as the Washington Times, Bloomberg News, News Corp (The Wall Street Journal, and Fox News), The Washington Post, and other right wing outlets such as American for Prosperity, (Aka Americans for the Prosperity of the Koch Brothers)
    Republican politicians are scrambling to put a negative spin on this bankruptcy to prove cronyism, embezzlement, lack of oversight, and presumably, that President Obama is clueless and incompetent.
    The Solyndra loan guarantee was not in essence a stimulus project; it was an energy policy project. But since it was in the stimulus bill, the money was rushed to the company.

  12. David in Cal.
    C'mon, even you know they don't pay that rate. Be honest.
    As I write this, I am waiting to get through to GE to replace the magnetron in my microwave for the second time in 9 years. It will cost almost $300.00, maybe more, that's the 2009 price.
    By the way, GE pays no corporate taxes, and they aren't the only ones. Wise up.
    Don't spend your afternoon Googling a rebuttal answer.

  13. Yes, gravymeister, a lot of big, international corporations don't pay the full 35% rate. They have batteries of tax accountants and lawyers to find loopholes. I'm not arguing that we should have sympathy for GE.

    However, smaller corporations don't have all the advantages that GE has, so, they do pay 35%. Or, they don't start up at all in this country. Or, they move away.

    A lot of economic growth typically comes from smaller and startup companies. Our high corporate income tax rate is a significant drag on the American economy and costs us a lot of jobs.

  14. It is true that smaller companies do not have the legal and accounting talent on retainer to escape their tax obligations.
    It is also true that they are more heavily burdened with state, county, and municipal taxes and regulations that large corporations can bribe their way out of.
    The Obama administration knows this, which is why they give them a tax break on raw materials and expanding payrolls.
    These smaller companies are hiring here, and buying raw materials here.
    Large corporations are effectively turning the United States into an imperial colony of China, India, Indonesia, etc. They should be billed for this.

  15. Here's another reason to be pessimistic about our debt-and-deficit crisis disappearing:

    Senate Democrats ready to move $400 billion in new legislation

    After failing to reach a deal to reduce the deficit, the Senate will move next month to take up legislation that could add more than $400 billion to the deficit.

  16. wow, david in cal cites a two year old article, which itself has been proven wrong since it was published, to support his position? this article, purporting to show that dr. krugman was being "dishonest" when discussing the nation's deficit issues, is, itself, dishonest. dishonest and intellectually bereft.

    david, let me see if can explain basic keynesian economic theory, in simple terms that even you can understand:

    1. capitalism is a "demand" economy.
    2. if demand from the private (us "little people") sector isn't sufficient to absorb available supply, recession follows, as companies shed excess operating assets (employees). this causes even less demand.
    3. the federal government, able to borrow money, can help increase demand, by spending money to help spur job creation. it does so by building/repairing public infrastructure (bridges, for example), reducing tax rates, so those still employed have more money in their pocket to spend, etc.
    4. as normal demand increases, companies expand production to meet it. they hire new employees and acquire new plant/equipment. this also helps to increase demand, as new employees now have money to spend.
    5. as the economy expands, government is able to reduce excess spending, and start paying down the debt, from increased tax revenues.

    truly, that's about as simple as i can make it. government austerity, during periods of great economic stress, simply amplifies that stress. that is the historical record.

  17. cpinva, yes that's the theory. However, it doesn't seem to work in today's world.

    Keynesians say deficit spending is supposed to be good for the economy. But, Bush presided over eight years of huge deficit spending. And Obama has presided over three years of stupendous deficit spending. Yet, here we are, stuck at 9% unemployment.

    Incidentally, stimulus hurts the economy in the long run, according to the Congressional Budget Office.

    The Congressional Budget Office on Tuesday downgraded its estimate of the benefits of President Obama’s 2009 stimulus package, saying it may have sustained as few as 700,000 jobs at its peak last year and that over the long run it will actually be a net drag on the economy.

    CBO said that while the Recovery Act boosted the economy in the short run, the extra debt that the stimulus piled up “crowds out” private investment and “will reduce output slightly in the long run — by between 0 and 0.2 percent after 2016.”

    I'm afraid we got the worst of both worlds. President Obama's Stimulus was supposed to fix the economy, but it didn't. Yet, all the borrowing will be a drag on the economy for many years to come.

  18. Obama's stimulus didn't "fix" the economy because it didn't fix the root cause. The failure of the "Job Creaters" to create jobs.

    Bush's spending did not go into the economy, it went into the trading accounts and offshore bank accounts of the wealthy.
    It went into the coffers of huge multinational corporations that were rewarded for moving jobs out of the US with even bigger tax breaks.
    It went into obscene bonuses for executives who did nothing but line their own pockets.
    If you want to blame Bill Clinton for this instead of Bush, be my guest. Clinton deserves a lot of the blame.
    But the fact remains the problem is still income inequality.
    As to how that works, go back about nine letters, where I spelled it out.
    Your objections strengthen the case for taxing the wealthy, and for good reason, that is a necessary part of the "fix".

  19. gravymeister, I agree that that the root cause of the bad economy is the failure of the "Job Creaters" to create jobs. And, I agree that corporations have been rewarded for moving jobs out of the US to locations with lower taxes. Also, new businesses that might have started up in the US have been started up in jurisdictions with lower taxes.

    However, I don't see how increasing the taxes levied on Job Creaters will induce them to create more jobs here. ISTM that higher US taxes will make them even more eager to move their businesses abroad and to start up new businesses abroad.

  20. You aren't raising taxes, you're ending what proved to to be a fiscal deadend for the US economy. That return will go a long way towards deficit reduction… it will take us much furter than anything proffered by the conservative/libertarian machine and will lessen the chances of anything radically stoopid being done to Social Security and Medicaid.

  21. Damn, David. You're right! Lowering taxes on the rich will free up trillions of dollars for investment and growth!
    Billionaires will be falling all over themselves starting businesses to create a consumer class that will spur the economy to giddy heights! Corporations will hire and grow. Executives will refuse bonuses so they can raise worker's pay!
    The economy will boom, revenues will shoot up, all will be well with the world!
    How could liberals have not seen that? The proof is all around us.
    Hell, we should eliminate all taxes on millionaires, then hang on as the economy goes through the roof.

  22. A happy Thanksgiving to all. And, thank you Bob, for posting.

  23. His good wishes notwithstanding, I have a hard time believing that David in Cal is an actual person -- the substance of his posts suggests a propaganda project by people paid to do such work, though why anyone would bother here is a mystery -- but since he admires Paul Krugman so very much, he want to refer to recent Krugman blog posts which speculate on the ideal marginal rate for high earners, with respect to efficiency -- at what point does the economy get the biggest bang.

    Needless to say, the theory argues for far higher rates than currently prevail, and of course our greatest prosperity was enjoyed during a period when rates were roughly double what they are now, for the richest among us. And of course this money paid for the infrastructure and industrial development (not to mention public universities and the arts) which made us what we once were.

    These days, however, the richest among us are determined not to offer subsequent generations the same opportunities. Their generosity and foresight is only matched by their business acumen, if you know what I mean....

  24. You make some good points, Anonymous. Here's the problem, as I and many conservatives see it:

    We'd be in favor of balancing the budget by some combination of tax increases and spending cuts. Note that this would require an action ten times as big as what the supercommittee failed to accomplish. However, there seems to be no way to actually cut total spending and maintain those cuts. Even if Congress passed a real spending cut, they'd be out the next day with all kinds of spending increases. Every Congressman and Senator is pushing some pet project. Every powerful special interest wants more, not less. Our President has been unwilling to embody any specific spending reductions. On the contrary, he continues to advocate new spending, regardless of the size of the deficit.

    In short, for every dime Washington takes in, I think they will continue to spend 15 cents. If we give them more money in taxes, they will spend that much more. Given Washington's irresponsibility, the only hope of controlling spending seems to be controlling taxes. Of course, that means the continuation of an unsustainable deficit.

    If you say that this game of chicken must lead to financial disaster, I agree. OTOH higher taxes, inevitably accompanied by higher spending, would also lead to financial disaster.

    The only hope IMHO would be a total change of the culture. Elected politicians, media, academia, interest groups and ordinary people must come to believe that the number one goal of government is to reduce spending in every possible area. That's more or less happening right now in the state of Cal, because Cal isn't allowed to issue debt. Unfortunately, I don't see any evidence that the country's attitude toward federal spending will change in this way.

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