Taxes and Spending

Via Kevin Drum, two lovely charts that show our budgetary realities. Above, Federal spending as a percentage of GNP. Below, Federal taxes as a percentage of GNP. You can see that measured this way spending has been basically flat while taxes have gone down quite a bit. The uptick in the spending graph around 2009-2011 was mainly due to economic contraction, not increased spending; spending went up only a little. The debt is certainly rising but that is basically because nobody cares; Obama worked hard to make an increase taxes/cut spending deal, but really neither Republicans nor Democrats wanted it and since he left the scene everybody has said damn the debt, full speed ahead on spending increases and tax cuts.

Tax Plans

Analysis from the Tax Policy Center shows the effects of the tax plans proposed by the top Republican candidates and Hillary Clinton. Pretty big difference, no? The Republican plans all give huge tax breaks to the top 1% and blow up the deficit; Clinton's raises taxes on the 1% and brings the deficit down. For wholly irrational reasons, voters who say they are worried about the deficit still believe that Republicans will work harder to bring it down, even though that has been completely untrue since 1980.

Drug Price Shenanigans

American drug manufacturers continue to operate their scam on the public:

Drugs used to treat multiple sclerosis are of particular concern. A recent study by researchers in Oregon found that first-generation drugs that came on the market in the 1990s ranged in price from $8,000 to $11,000 a year. Prices for those drugs rose even though new drugs entered the market, theoretically providing competition. One drug that first cost $8,700 now costs $62,400 a year.

There are no multiple sclerosis drugs available in the United States with a list price below $50,000 a year, the researchers say, which is two to three times more than the list prices in Canada, Australia or Britain. . . .

A recent report in The Wall Street Journal described how Valeant Pharmaceuticals International, based in Canada, bought the rights to two lifesaving heart drugs on Feb. 10 and raised their prices the same day. The list price for a one-milliliter vial of Isuprel, used to treat abnormal heart rhythms, rose to $1,347 from $215. The price for a two-milliliter vial of Nitropress, for dangerously high blood pressure and acute heart failure, increased to $806 from $258. The Journal cites similar increases for Ofirmev pain injections and Vimovo pain tablets after new companies acquired the rights.

So much for the argument that the high prices are needed to pay for development and testing. The companies are just charging as much as they think they can get away with, and under our current system that is a lot. If Republicans were actually interested in reducing government spending and balancing the budget they would support Obama in repealing the law that forbids Medicare from negotiating prices for drugs. That would save billions without reducing benefits for anyone -- except, of course, the executives and owners of pharmaceutical companies.

Tax Cuts and Dynamic Scoring, or, Modeling vs. History

Lots of chatter this winter about the “dynamic scoring” of tax bills in Congress. Republicans insist that ordinary accounting of tax bills is wrong, because cutting taxes spurs economic growth, which leads to more tax revenue. But how to estimate this effect? Both politicians and economists are fixated on economic modeling as the right tool. Thus the Tax Foundation just released a report arguing that the immense tax cuts proposed by Senators Marco Rubio and Mike Lee would more than pay for themselves, because they would add 15 percent to gross domestic product and 13 percent to wages. The craziest part of this calculation is the Tax Foundation's estimate that

Rubio-Lee would add nearly 50 percent to the business capital stock inside a decade, over and above how much it would have grown absent any change in tax cuts. In other words, if businesses would own two of something under current policy — airplanes, buildings, machines, whatever — they would, on average, go out and buy a third one because of the investment tax cuts in Rubio-Lee.

Madness, say other economists, who counter with their own models showing much smaller effects.

But why are we using models at all? We don't need economic models to estimate the effect of tax cuts on the economy, because we have good data showing these relationships going back to World War II, not just for the US but for dozens of other countries. What does that data show?

“Tax rate cuts in the past have not spurred much if any growth,” said William Gale, co-director at the Urban-Brookings Tax Policy Center and a former staff member at the Council of Economic Advisers under George H.W. Bush.

And there you have it. Why are we arguing about models when we have the data, and it shows no consistent effect? Why is it “conservative” to rely on ideologically charged predictions about the future instead of the actual record of the past?

In a Republican Congress, Defense Hawks vs. Budget Hawks

One of the complaints that Republicans long made about Congress when Democrats ran it is that the Congress never passed a budget blueprint. This document has no legal standing, but it is supposed to guide the committees that draw up the actual departmental budgets and minimize the last-minute haggling over gigantic omnibus spending bills that truly has been the hallmark of Congressional budgeting for decades.

But Republicans cannot agree among themselves. President Obama's budget proposal just ignores the legal limits on spending set by the Budget Control Act, aka the Sequester. His budget raises spending for both military and civilian programs well above sequester levels, inviting Congress to repeal the law. But many Republicans reject that, saying Congress must adhere to those limits and shrink the deficit. Republican defense hawks like John McCain and Lindsay Graham are saying that if they can't find Republican support for raising defense spending they will make a deal with Democrats to do so, even if that means agreeing to raising spending on non-defense programs as well.

I find myself feeling detached and ambivalent. I think the notion that defense spending "must" rise is appalling; a weird sort of logic that requires America to spend more on its military than all the world's other powerful nations combined. The Pentagon is saying that unless they get more money they will have to let tens  of thousands of soldiers, sailors and airmen go. To that I say, if you're short on money how about you get rid of gigantic boondoggles like missile defense and the F-35?

On the other hand I think concern about the deficit is silly when millions of Americans are still out of work and wages are still stagnant, and I would very much like to see domestic spending rise. So I'm going to sit this one out and wait to see which of my dreams gets gutted.

I'm also going to make the bold prediction that Hillary will have no position on these questions.

NASA's Budget and the Europa Clipper

One of the good things that happened while the Bush and Obama administrations were resolutely not caring about the budget deficit was that NASA got plenty of money. The Cassini mission to Saturn, the Mars rovers, the new space telescope -- all very expensive, and all well funded during the profligate 2000's. Now that a new breed of Republican has come to Congress, determined to rein in government spending, that is changing. The sequester cut $2 billion off NASA's budget, and next year will see another cut. At the moment NASA's budget doesn't even include money to keep the hugely successful Cassini and Curiosity missions going past September 30. Most likely the money will be found to keep them alive, but proposed future missions are seeing at least delays and maybe cancellations.

The future mission that I care about goes by the name of the Europa Clipper. Europa is a large moon of Jupiter that seems to have an enormous ocean of water underneath thin crust of ice. Recent observations by the Hubble Space telescope (above) showed that Europa is surrounded by variable clouds of water vapor, and the only explanation anyone can think of for this is that Europa must have geysers that blast some of its ocean water into space, just like those that Cassini photographed at Saturn's moon Enceladus. This opens up the possibility of an affordable mission to study that deeply buried ocean:

Europa is covered with a shell of ice. It has an internal source of heat from the tidal forces exerted by Jupiter. Europa races around Jupiter in an elliptical, 3.5-day orbit. When the moon is farthest from Jupiter and the gravitational squeeze of the giant planet eases up, the icy shell decompresses just enough to let subsurface water find a path to the surface and vent into space, scientists believe. They say the subsurface ocean could be 50 miles deep at least, containing more water than in all the oceans on Earth.

The geysers are squirting not only water into space, but also whatever else is in that subsurface ocean. Landing on Europa is too expensive, as is sending a probe down through the ice into the water below, but a spacecraft can learn much about the planet through high-resolution stereo imagery, ice-penetrating radar and other instruments. It also could fly through the plumes and, with an instrument called a mass spectrometer, analyze the ejected material.

“This is huge,” said JPL’s Robert Pappalardo, who has worked on plans for the Europa Clipper. “It now means that we could effectively sample Europa’s interior from flybys.”

Jupiter's neighborhood is what NASA engineers call a "challenging environment," because of its powerful gravitational field, the perturbations induced by its four large moons, and the intense radiation it emits The initial cost estimate for a Europa orbiter was $4.7 billion, or NASA's whole planetary science budget for four years. So they are talking about cheaper scenarios:

Rather than orbiting Europa, the spacecraft would go into an orbit around Jupiter, spending most of its time outside the planet’s radiation field, and then swoop in repeatedly, with 34 flybys of Europa and nine of the moon Ganymede.

I think this should be our top priority in space exploration, far above the dismal International Space Station or the fantasy of a manned mission to Mars. But right now the "budget environment" is even more challenging than the environs of Jupiter, and the Europa Clipper may not fly for decades.

The Budget Deal, or Paul Ryan Talks like a Real Conservative

After three years of grandstanding, government by crisis, and nonsensical carp about socialism, Paul Ryan introduced the new budget deal by talking like an actual conservative:

In divided government, you don't always get what you want. We eliminate waste. We stop sending checks to criminals. We cut corporate welfare. We start making real changes to these autopilot programs that are the real drivers of our debt. . . .  As a conservative, I deal with the situation as it exists. I deal with the way things are, not the way I may want them to be. I'm not going to go a mile in the direction I want to go, but I'll take a few steps.

Now wasn't that a pleasant change? No fuming about how the deficit is going to bring about the end of civilization, no threats to shut down anything, just tough negotiating and then a candid admission that in America right now conservatives can't have their way in everything.

I'm not very happy with the budget, either, since I think it is silly to worry about the deficit when unemployment has been high for five years and we can borrow money for a real rate of less than 1 percent. But better a deal like this that at least restores a little of the sequester cut than another round of manic doom-mongering and Congressional malpractice.

Economic Change and Washington Gridlock

Robert Samuelson thinks the standoff in Washington is a sign, not just of Republican dysfunction, but of fundamental economic change:

When the history is written, I suspect the brutal budget battle transfixing the nation will be seen as much more than a spectacular partisan showdown. Careful historians will, I think, cast it as a symbolic turning point for post-World War II institutions — mainly the welfare state and the consumer credit complex — that depended on strong economic growth that has now, sadly, gone missing. The story behind the story is that prolonged slow growth threatens to upend our political and social order.

 Economic growth is a wondrous potion. It encourages lending because borrowers can repay debts from rising incomes. It supports bigger government because a growing economy expands the tax base and makes modest deficits bearable. Despite recessions, it buoys public optimism because people are getting ahead. The presumption of strong economic growth supported the spirit and organizational structures of postwar America.

The belief that we are doomed to a future of lower economic growth has become conventional wisdom in some quarters, backed up by a slew of recent studies; I wrote back in July about the work of Robert Gordon, one of the leaders of this school. The result of the economic slowdown, says Samuelson, is to make all our political choices tougher:

What looms — it’s already occurred in Europe — is a more contentious future. Economic growth serves as social glue that neutralizes other differences. Without it, economic and political competition becomes a game of musical chairs, where “one person’s gain is another’s loss,” [economist Stephen] King writes. There’s a “breakdown of trust,” as expectations are continually disappointed. It’s an often-ugly process that is convincingly confirmed by Washington’s current political firestorm.

Well, maybe. Samuelson is a conservative in the sense he never thinks we have the money to do the things liberals want to do, like educate poor children; he didn't think we could afford such things back in the 90s, during the last boom, so of course he doesn't think we can afford them now. But if we restored tax rates to where they were under Clinton, we would have plenty of money for all our expenditures; or, failing that, we could slash the defense budget and stop fighting dubious wars. We don't do that for simple political reasons, because many Americans don't want to do them.

Our choices are hard because big choices are always hard.

Nor do we really know that we are in for a future of slowing economic growth. I have read such predictions during every recession of the past 35 years, and yet somehow we forge on. Who knows what emerging technologies like genetic engineering and cheap solar power may do for us? What if we succeed in controlling fusion power? The future is unpredictable, but one thing I would not expect is that it will be just what you would get from drawing all current trend lines out to infinity.

The Shutdown Hits Antarctica

Ridiculous:

The US National Science Foundation (NSF) is recalling staff and scientists from Antarctica due to the ongoing US government shutdown. Nearly all science at the three US bases will grind to a halt. The agency’s decision, posted today, could spell the end of this year’s Antarctic field season at McMurdo, Amundsen-Scott and Palmer stations, depending on the duration of the shutdown, which began on 1 October and shows no signs of ending. The NSF said it would work to restore the research season “to the maximum extent possible” once funding is restored. The agency said, however, that some activities could not be restarted once the evacuation was complete and the seasonal windows for research and operations had passed.

A Note on Budget Madness

Right now the attention is all being directed at last-minute maneuvering in the House and Senate, ahead of a midnight government shutdown. But let's not forget that what they are debating is not the budget. No, all of this name-calling is about a continuing resolution to extend last year's spending bills through November 15. It is highly unlikely that the twelve main budget bills will be ready for a vote in six weeks, considering that the House has not passed a single one of them. Not even the defense bill has yet come up for a vote, even though it was effectively complete last month and defense is the one part of the government Republicans claim to care about. They haven't even finished committee markups of the rest.

When the government operates under a continuing resolution, its spending directives haven't changed from the year before. So say that last year an agency needed to buy a thousand computers or a thousand Hellfire missiles, but this year it wants to buy desks or smart bombs. It can't, because it is still operating under a budget law that allocates money for Hellfire missiles and computers. It can only keep buying what it was directed to buy last year. It's a crazy way to run anything, let alone the most powerful institution in the world.

So even if a continuing resolution is passed after a long or brief shutdown, that will not end the problem:

“I’m expecting the federal budget bedlam to last through the fall and into next winter,” said Stan Collender, a partner at Qorvis Communications and a former staffer to both the House and Senate budget committees.

No doubt this is amusing to government-hating millionaires in Texas, but my crew is going to be laid off next week because the national parks will be closed. They don't think this is funny.

Incidentally, the reason the House hasn't marked up the spending bills is that the Republican committee chairs are finding that they can't comply with the spending limits set by the Paul Ryan budget plan that they all voted for. Democrats said that the spending cuts in the budget were unreasonable, and now all of the Republican committee chairs agree with them. But the leadership is trying to insist that the committees comply with the overall budget. Hence, no bills.

I understand tough negotiating over the budget, and I wouldn't expect the Republicans in the House to meekly accept all of the President's spending requests. But this isn't about the budget, because the House hasn't passed a budget, and they haven't even done committee markups of most of the bills. This is about staging a fit and demanding lots of "concessions" because they haven't done their jobs.

And then there's the debt limit ceiling. . . .

The Budget Debate in One Slide

From Doug Elmendorf, head of the Congressional Budget Office:

And there you have it. Hardly the Socialists vs. the Social Darwinists. I think cutting discretionary spending by a third would be terrible, but life as we know it would not cease, and I can't see how the Democratic plan would end personal responsibility or the free enterprise system.

How Obama wants to Raise Taxes

Obama's budget does not ask for any increases in tax rates; he promised he wouldn't try that again as part of the deal made in December. But there are several "revenue enhancing" measures. The four biggest:

1. Increase the cigarette tax from $1.01 per pack to $1.95
2. Cap itemized deducations at 28% of income
3. Cap IRA's at $3 million per person (the "Romney rule")
4. The "Buffet Rule", a minimum income tax of 30% on incomes over $400,000, no matter how the money is earned

I think number 2 is an especially good idea. Ezra Klein:

You remember that guy in high school who kept asking that one girl to prom, even though she said no every single year? That’s the Obama administration on capping itemized deductions. This has been in every single one of their budgets since they came into office. It hasn’t passed. But they keep trying. They just love it that much. It’s also the policy that nets them most of their revenue. And while it hasn’t cleared Congress yet, it also makes political sense.

“Everybody runs around this town saying I’m for broadening the base and lowering the rates, but they’re terrified to identify particular loopholes,” says Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities who formerly served as Vice President Joe Biden’s chief economist. “The deduction cap gets around that by proportionately whacking everything. It’s an efficient way of broadening the base without invoking specific interest group rage.”

Which isn’t to say there’ll be no rage. About 90 percent of the itemized deductions richer taxpayers take are for charitable contributions, the mortgage-interest deduction, or the state and local tax deduction. So this tax change will act as a cap on subsidies for these three activities.