It isn't a "No Brainer," Mr. Brooks
I was extremely hesitant about posting this since I am new to Ricochet but in the end I couldn't help myself. There seems to be a lot of buzz around here and on the net about the David Brooks' latest column, "The Mother of All No Brainers." Brooks chastises the GOP for not taking advantage of the Democratic offer for, as he puts it, "...trillions of dollars in spending cuts in exchange for a few hundred billion dollars of revenue increase."
This may very well be, but what most liberals, some Republicans, and pundits like Brooks seem to forget is that raising any sort of taxes in a recession or recovery period is tantamount to economic suicide. Especially in a recovery as anemic and slow as this one.
However, there is a formula that was already used successfully by Reagan and has been recently recommended by both the Bowles-Simpson Commission and the Debt Reduction Task Force (Rivlin-Domenci): the lowering of the marginal tax rates coupled with reform of tax expenditures (deductions and credits).
According to the Joint Committee on Taxation there is an estimated loss in revenue over a four year period (2010-2014) of roughly $3 trillion due to these expenditures. There is also another $280 billion over the same time frame in corporate deductions. An itemization on page 25 of the JCT report highlights both of these figures. Combining the loss attributed to both individual and corporate deductions, we lose a yearly amount of close to $800 billion.
In Reagan's 1986 tax reform bill he tackled this same problem and did it successfully. Unfortunately succeeding presidents and their accompanying Congresses came along, toadying to special interest and lobbying groups, undoing most of his work.
To account for the additional tax burden that eliminating all or some of these deductions would incur, the Bowles-Simpson commission used the Reagan formula and recommended lowering marginal tax rates to 12, 22, and 28% respectively. This is not to say that we need to be solely looking to eliminating these deductions and credits, but it is a great place to start. However, our options of reforming entitlements, reforming the Pentagon, cuts in unnecessary programs, etc. all need to be on the table.
Conservatives are careful innovators, not boot licks for Progressives and their regressive agendas. It might behoove Mr. Brooks and his ilk to take another look at economic and fiscal history and the Republicans to remember theirs.
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Re: It isn't a "No Brainer," Mr. Brooks
Welcome, Mike! Thanks for your fine post. But please remember: never be hesitant about sharing your thoughts. This is Ricochet. Our entire business model rests on your willingness to chime in! We're glad you did. And welcome...
May '10
Re: It isn't a "No Brainer," Mr. Brooks
If we moved to the Fair Tax, we could change it all over night.
Jun '11
Re: It isn't a "No Brainer," Mr. Brooks
Mike, I share your frustration. Seems like emotions trump what works even with Republicans.
I read a great book on Andrew Mellon a couple of years ago. All you cited are advanced topics based on Mellon's fundamentals. Laffer kind of ripped off Mellon. I say that because nobody ever mentions Mellon. The Bill Gates of his time who lowered himself to be Treasury Secretary.
Mellon set up the great National Gallery of Art in DCA by donating $21 million in paintings. Mellon did not want the National Gallery of Art named after himself because he was a patriot, not a big government statest.
There are alot of Republicans that don't know or care what works in the realm of taxation.
Jun '11
Re: It isn't a "No Brainer," Mr. Brooks
Rob-Thank you very much for your greetings. It's great to be here and I will remember your advice.
Bryan-I like the idea of a Flat Tax. However, are we talking about a flat sales tax or just a flat tax on income?
Terrell-Mellon was a fascinating man. I first read about him in Amity Shlaes's book the "Forgotten Man" and was amazed at how FDR, the patron saint of the Left, ruthlessly attempted to destroy him.
And yes your final statement in your comment is a truism. Just a little reading of men like Mellon or even Reagan put's their legacies in an even better light than the myths we now swim through. We degraded their real accomplishments with propaganda designed to canonize them, not appreciate their talents and wisdom.
Jul '10
Re: It isn't a "No Brainer," Mr. Brooks
Bravo, Mike!
Not only has "quantitative easing" stolen the value of what dollar investments remain in middle American accounts, but more tax increases combined with a weakened dollar will lead foreign investors to reconsider investments in either America or the dollar, suppress spending, and drive the depression deeper.
The CPI has been carefully adjusted over the years so that government checks with COLA ignore the huge spikes we've seen in fuel and food price inflation. Washington knows that recipients of government entitlements neither eat nor travel, so no harm no foul.
David Brooks is blissfully unconcerned about the jobs impact of higher taxes because the Gray Lady will always be the wind in his sails, and the Regime and its media pets have shown a remarkable capacity to instill the despair necessary to shrink the American work force. Fewer Americans working per capita than at any time since Reagan, since prosperity completed the female expansion of the work fores. The Lady just needs to puff Democrat sails up enough to restore the Democrat majorities of the eleventy-first and shazam, that sweet federal money that's been floating CPB & NPR will rain down and float the Lady too!
Mar '11
Re: It isn't a "No Brainer," Mr. Brooks
Mike,
Great first post. I particularly like your empiricism and policy-minded approach.
The Fair Tax and the Flat Tax may or may not be something we can look to as an ideal, but I'm with Patton: a good plan today trumps the perfect plan weeks from now (or, in this case, several electoral cycles from now).
If we could achieve a legislative majority for passage of either Rivlin or Bowles-Simpson's tax proposals, we'd be squandering a chance to enact real reform that would take effect much sooner than anything else and would aid the economy immensely.
It would also show that we are serious about governing, not just stamping our feet about 39% vs. 35% top marginal rates.
Moreover, its not as if passing it into law is therefore the be all and end all of tax reforms and the subject will never come up again and we'll never have another chance. We've had tax adjustments under ever single President for the last 30 years. We will after 2012 again, regardless of who wins.
Mar '11
Re: It isn't a "No Brainer," Mr. Brooks
Sorry, forgot the second half of my sentence above. It was meant to read "we'd be squandering a chance.....if we don't pass the bill".
That is, if Bowles-Simpson's tax proposals came to the floor, pass them.
Mar '11
Re: It isn't a "No Brainer," Mr. Brooks
Mr Brooks still seems to be under the spell of the sharp crease in Mr Obama's pants.
I know almost nothing about Economics, but I do understand the Laffer curve, which I believe was behind Mr Reagan's policies, via Jack Kemp.
Mr Obama likes to compare himself to Mr Reagan, whereas his ideology is the exact opposite (talk about audacity!). His belief in higher tax rates for the rich, and on capital gains, in based on "fairness" rather than economic stimulus - i.e Mr Obama is a Socialist, or maybe a Marxist.
The mother of no-brainers, indeed.
Edited on Jul 6, 2011 at 4:13amAug '10
Re: It isn't a "No Brainer," Mr. Brooks
The recovery is anemic for a single reason, 'regime uncertainty', of which tax policy is a small factor. The larger factors are:
To talk about any fiscal policy without addressing the real problem(s) facing our economy is tantamount to "rearranging the deck chairs on the Titanic" - fascinating to watch in a train-wreck sort of way, but ultimately unproductive.
David Brooks needs to find some different scholars (and intellectuals) to revere.
Dec '10
Re: It isn't a "No Brainer," Mr. Brooks
Leaving Brooks aside, where he belongs, Steven Hayward makes an interesting case. Essentially, although revenues always inrease with tax cuts, spending increases more, so, by all means, this time accept the Democrats' insistence upon some tax increases! Throw us in that briar patch!
Feb '11
Re: It isn't a "No Brainer," Mr. Brooks
Mike Elliot,
By all means look towards fiscal history as you say. You've already stated the history well. A lower tax rate with fewer deductions is passed followed by the inevitable lobbying to put the deductions back into place. In the mean time spending just keeps going up, up, and up. No matter how you slice and dice with the tax code, revenues are a fairly constant percentage of GDP. How has anything changed as a result of the proposed reforms? You can't outlaw lobbying (neither desirable nor constitutional to do so). The problem inevitably lies on the spending side. Something structural must be done to spending if you want a reform that sticks. And I'm not sure you can get it because some judge or group of judges might rule it is unconstitutional.
Edited on Jul 6, 2011 at 7:07amMay '11
Re: It isn't a "No Brainer," Mr. Brooks
With the rise to prominence of the tea party sentiment, which I share, there is no way this is going to happen, but I think we should repeal the entire Bush tax cuts including the earned income tax credit expansion, the lowered middle class rates, every corporate jet deduction, oil company tax break, you name it. Just so Obama will shut up about Bush driving us into the ditch. Then after 2012, there may be an apetite for fundamental tax reform tied to entitlement reform.
May '10
Re: It isn't a "No Brainer," Mr. Brooks
The reason Mr. Brooks, who has had several sensible columns recently until this one, is wrong now is precisely because of Reagan's experience with TEFRA in 1982. We have made comprehensive deficit-reduction deals before, and in every case, the taxes get collected and the spending increases.
This time, cut spending first. Then look at revenues if necessary. The clear reason is this graph at The Economist, which contradicts the point of their post- look at the spending curve, which spikes sharply in 2008 for both the US and the UK. Chop spending first to restore the prior steady slope, and then we can discuss whether the slope is correct or if there is a structural cash accounts deficit- given the downward slope of the revenue line in the US, we may need to look at how we collect taxes; that appears to be a dip due to lost capital gains, and you do not want your revenue streams to be that volatile, relying on boom times.
But fool me twice (1982- Reagan, 1990- GHW Bush), shame on you. Fool me three times, I am a sucker.
Dec '10
Re: It isn't a "No Brainer," Mr. Brooks
OK. Fine. Let's propose tax increases. I am willing to support a confiscatory tax increase that I guarantee will result in an unprecedented period of economic growth.
Don't believe me?
Here it is: Progressive taxes on legal fees.
Now I can anticipate your objections: "Why that would discourage legal activity!"
Exactly.
"Is it even legal?"
Sure. You have to be a member of the bar to be a practicing lawyer, so it's time to learn that a barrier to entry works both ways.
"But half of the Senate and a third of the House are lawyers, they'd never go for it!"
Exactly.
"What about going to a single-payer system for lawyers?"
Now you're talking! I'm sure no progressive lawyer would object.
Mar '11
Re: It isn't a "No Brainer," Mr. Brooks
This is one time the Simpson Bowles commission had a good idea. I would support some increase of revenues if we could simplify the tax code and reduce the marginal rates. The amount we'd save in compliance would offset the increased tax.