Arithmetic

I've bee thinking how the case for adequate federal stimulus spending could have been made back in 2011, when the Democrats' made their wrongheaded pivot to austerity.

Here's how I think the case could have been presented in terms everyone can understand:

If you have a total sum made up of three parts,and two of the parts drop, the way you keep the total the same is to raise the other part.  That's simple arithmetic.
Our economy has three parts:  consumers, business, government.  We're in a situation now where consumers are spending less because so many are out of work, businesses aren't investing and hiring because folks aren't buying, so two parts of our total economy are down.  So simple arithmetic tells us that the third part of the economy, government, needs to step in to raise the total to where it was before the downturn.
Now there are some who say that by reducing government, we will magically increase the other two parts.  Sorry, I don;t believe in magic, I believe in arithmetic.  If we start cutting government - laying off people, buying less from businesses so they get smaller and lay off people, then the situation gets worse.  all three parts of our economy shrink even further. That's also simple arithmetic.
So let's apply that simple arithmetic and bring our economy back up to its potential.  Some more government spending now, and cutting it back when we're at full employment and businesses are once again thriving.

Seize the Moment!

Now that the consequences of sequestration are hitting home, this is the time for President Obama to point out forcefully that the Republicans' insistence on cutting spending in a depressed economy is a really bad idea, and that people can see for  themselves what cutting spending means for jobs and economic growth.  He should be calling loudly and often for outright repeal of the sequestration legislation - not going along with the Republicans' call for a "deal" that involves spending cuts.

Regrettably, we're seeing no inclination on the president's part to seize the moment to turn the national dialogue away from deficit cutting to job creation - and to point out that just as cutting spending means job losses, increasing spending (temporarily) means job creation.

David Frum: Why Romney Lost

Yes, there are sane Republicans.

The Supremes

I'm always puzzled when the post of Chief Justice of the Supreme Court falls vacant, and a judge new to the court is nominated as replacement Chief Justice.

Wouldn't it make more sense when a Chief Justice retires for whichever of the remaining eight judges has served the longest to step up to become Chief Justice, and for the newly confirmed member of the Court to be the new low person on the totem pole?

We don't have a spending problem!

Contrary to what you will hear from the Villagers in D.C., we don't have a spending problem:  we have a revenue problem - one that began with the Reagan tax cuts.  Those tax cuts, along with foolish spending on  boondoggles like "Star Wars", began the large annual deficits and increase in debt that we've seen since the beginning of Reagan's term, and which were exacerbated by the Bush tax cuts and needless wars he began.

You may think that the slight increase in tax rates in the Clinton years was adequate because we began running surpluses at the end of his term, but the growth of the economy in the late 1990s and concomitant government revenue was a result of the tech bubble, and not an indicator of what tax rates would be appropriate in a healthy economy.

The argument is made that higher tax rates choke off enterprise, and drag the economy down.  I call BS on that claim.  If someone has an idea for a business and thinks s/he can make a bundle on it, the tax rate may be an irritation, but not a deal-breaker.  For instance, in 1957 the top marginal tax rate of 91% did not dissuade Ken Olson and Harlan Anderson from starting the very successful Digital Equipment Company (DEC).  And a top marginal rate of 70% did not dissuade the young Bill Gates and Paul Allen from founding Microsoft in 1975.  So the claims that raising top marginal rates to a modest 40% will destroy incentives and depress the economy are - well - BS.

Diamond and Saez have shown that a top marginal rate of  50-70% will maximise revenue while not depressing growth.  Indeed, if one looks back to see how growth correlates with tax rates, then period of higher growth came in times when tax rates were higher.  So - do lower tax rates on high incomes stimulate the economy? No!

I've been looking back at growth rates in the sixties:

In 1965 and 1966 the top marginal rate on a couple filing jointly was 70% on income over $1,500,000 in today's dollars, yet growth was a healthy 8%+ in 1966.  Clearly a 70% top marginal rate is not an impediment to growth.

We do have a worryingly large deficit and accumulated debt, but it's not the result of spending:  it's the result of the rash lowering of tax rates in the Reagan and Bush years, along with the foolish wars started by George W. Bush, and the economic crash resulting from poor oversight of the banking industry.

Attacking the deficit by reducing spending is self-defeating:  more people are put out of work, reducing tax revenue and increasing outlays on safety net support, as the British are finding out.  Attacking the deficit by raising taxes on lower income earners who live from pay check to paycheck is similarly self-defeating: these individuals will have to cut spending, so depressing the economy, with jobs lost and the same lost revenue and increased safety net outlays.

But raising rates on those whose income allows them to comfortably meet their material needs and then some would not have the same depressing effect on the economy, as their spending needs are satisfied.  And the present tax increase recently passed of top rate of 39.6% on income over $400,000 is woefully inadequate to meet our revenue needs.  Here are the kind of marginal tax rates I believe we should be working towards, simultaneously lowering rates on lower incomes and raising rates on higher incomes, so we may ultimately meet current revenue needs as well as start paying down our accumulated debt:

(Suggested marginal rates for married filing jointly - halve the income ranges for singles. The top marginal rate is the same as in 1965-66.)

10%            $0 - 25,000
15%            $25,000 - 75,000
25%            $75,000 - 150,000
35%            $150,000 - 325,000
50%            $325,000 - 650,000
60%            $650,000 - 1,500,000
70%            Over $1,500,000

Compare these rates to our present (2013) tax rates for married filing jointly:

10%             $0 - 17,850
15%             $17,850 - 72,500
25%             $72,500 - 146,400
28%             $146,400 - 223,050
33%             $223,050 - 398,350
35%             $398,350 - 450,000
39.6%          Over $450,000

As you can see, I'm proposing more progressive rates,  with considerably higher revenue producing rates on those most able to afford to support their country, and lower taxes on those making $150,000 or less.

Ah, if only they'd asked me....

The Sequester

Just repeal the damn law that established the sequester!

What's so hard about that?

Worth Reading

Smart young Ezra Klein.

Money quote:

And there is a quite real risk that efforts to cut the deficit could be counterproductive in bringing down the debt burden. Britain has been implementing deficit-reduction measures for the past three years, and while it has succeeded in cutting deficits, its economy has been stagnant as austerity sucks the wind out of growth. As a result, its debt to GDP ratio has been rising! (By the IMF’s numbers, Britain’s deficit has fallen from almost 9 percent of GDP in 2008 to 5.6 percent in 2012—yet in that span its debt level has risen from 61 percent to 84 percent).