Lame duck season reminds me of the old Bugs Bunny cartoons. He tries to convince Elmer Fudd that it’s duck season while Daffy Duck claims it’s rabbit season. Zaniness ensues. It also reminds me of Duck Hunt and the laughing dog when you miss.
This is my lame duck season scorecard. Most topics could be separate posts in and of themselves.
The Good – We’re not getting our taxes increased to start the New Year. The Bush tax rates were extended for two years. Remember, this issue was not about tax cuts. It was about preventing tax increases. We also receive a reduction in social security taxes for a year. I was sad to see the Energy Star credit wasn’t extended for another year. Not simply because I’m putting central air into my house next year, but because it was a great tax credit that encouraged investment. The deal wasn’t perfect, but it was better than the alternative of increased taxes in 2011. I wanted the Energy Star credit, but the social security relief softens that blow. I also wanted to see an extension longer than two years (if not permanent) because making them permanent would’ve created more economic certainty, confidence, and investment. This was a clear victory for Obama. He made himself look like he’s coming back to the center and outplayed the GOP. He got unemployment benefits, social security tax relief, and non-permanent extension of the Bush tax rates in exchange for ceding the estate tax and upper class extensions.
DADT (Don’t Ask, Don’t Tell) was repealed by Congress and Obama despite much GOP opposition. I’ve previously advocated for DADT’s repeal, so I was thrilled here. McCain and the GOP were clearly stalling for time until the next Congress, especially after the Pentagon report showed that repealing DADT would have little meaningful negative impact. Obama was delivering on a campaign promise and it would’ve been much harder to do so with the incoming Congress. The GOP made themselves look obstinate and obstructionist by persisting with their resistance after the Pentagon’s study.
I was also happy to see the DREAM Act fail. The main reason I was happy to see this bill fail is because this issue is far too complicated to be addressed in a lame duck session. In general, I also thought there was a lot more wrong than right with DREAM.
The Bad – New START troubles me deeply. In my view, it is a foreign policy failure and domestic security disaster. The Russians clearly got the better of the Americans during the negotiations. Not only does this treaty substantially hurt our nuclear warfare (both offensive and defensive), but it also hurts our conventional warfare. I think China and Russia (and others) sense weakness on foreign policy and defense in the Obama administration and are rushing to fill the power vacuum.
The Ugly – The 9/11 first responders finally got what they rightly deserved, namely money to help them with their healthcare. These people are heroes who sacrificed so much and we’ve turned our backs on them for way too long. I somehow doubt they dawdled and took a vote before springing into action on 9/11. The great travesty of this issue is that it took nine years to get it done and both parties deserve plenty of scorn for such callousness.
The GOP fought this tooth and nail because of fiscal discipline, yet the GOP is often very quick to trumpet 9/11. The GOP is practically the party of 9/11. I was expecting them to be championing these heroes. Seriously, how often do you hear some republican politician trumpet 9/11? I hear it a lot, and I was baffled by their conduct. Their handling of this issue was absurd, hypocritical, and heartless.
The democrats were even worse. Their handling of the issue was heartless, but also incompetent. From strictly a political strategy perspective, the democrats had a chance to score huge points with everyone in America and simultaneously make the GOP look really bad. All they had to do was champion the 9/11 heroes…and they didn’t. I don’t know why. The GOP served themselves up on a silver platter for the democrats here and the democrats still blew it. This is how you snatch defeat from the jaws of victory, especially when we remember the democrats hold the presidency and majorities in Congress.
The bottom line is I’m absolutely sickened and disgusted with how both parties addressed this issue.
Agree on DADT and 9/11 bill.
ReplyDeleteOn Taxes: How would you reduce the deficit?
Repealing all the tax cuts would not be a good idea right now, but at some point they most likely will have to be.
Ideal world, I would reinstate estate tax (no stimulative effect there), count capital gains as income (hedge fund managers don't deserve better tax treatment) and reinstate 39% tax rate for incomes over $1Million
I disagree on all three tax increases for two main reasons. One, history has shown us that tax policies design to 'soak the rich' are not a good thing because economic activity is greatly reduced as the rich put their money into lower tax (and often lower reward) opportunities like tax-exempt bonds, which greatly reduces tax revenue. Two, higher tax rates do not always translate to higher tax revenue. There's a sweet spot on tax rates that maximizes tax revenue. This is the premise of the Laffer Curve. Generally, in my view, we're at the point where increasing tax rates does not increase tax revenue.
ReplyDeleteYou'll find Burton Folsom Jr.'s "New Deal or Raw Deal: How FDR's Economic Legacy Has Damaged America" discusses this quite nicely. I'm hoping to finish reading and reviewing it this week. Folsom looks at the Roaring 20's, the Great Depression, and the New Deal. The parallels between then and now are eerie.
Debt reduction is a very loaded question. In a nutshell, it needs increased revenue and decreased spending. I think the best way to increase tax revenue is the government creating a business-friendly environment in the USA, rather than raising tax rates. Tax cuts are a part of that, but the government really needs to reduce red tape and stop demonizing business.
Reductions in red tape won't make a material difference in spending because social security, welfare, and medicare account for ~60% of the federal budget, so those are where federal spending cuts need to come from.
If we have a better business climate, unemployment drops and that's more people who not only stop collecting unemployment and get onto private health insurance, but they also increase spending and start paying more income tax, thereby simultaneously decreasing federal spending and increasing tax revenue.
As for social security, the federal government needs to wake up and realize the unsustainability and inefficiency of the defined benefit system (pensions or social security) versus the defined contribution system (401k). Personally, I'd like to see it privatized. It worked well for Chile.
Public sector employee compensation is an important issue, too, but it's a much bigger issue on the state and local levels versus the federal level, in my view.
1) "New Deal or Raw Deal: How FDR's Economic Legacy Has Damaged America" Will add to my reading list
ReplyDelete2) "best way to increase tax revenue is the government creating a business-friendly environment in the USA"
I used to believe this as well until I thought back to 2003-2008. During these years, the US had the lowest taxes ever and least regulation (a kinder gentler SEC). Though one can fully blame the Great Recession on these polices, one thing is for sure is some of these policies (taxes in particular) gave us a lot of debt. Imagine if Bush had continued to use surpluses to pay down national debt?
Also another thing to look at is Ireland. One of the most business friendly countries in the world. Very low corp taxes, etc. Not in a good place now.
3) Social Security / Pensions
I really think all workers should have a 401k plan. This would greatly relieve fiscal pressure on governments in the future. I think we would agree on this point.
However I'm not sure if that would work for Social Security.
First, it's a pay as you go system. Diverting any revenue from it now will create most likely require inflows from general funds.
Second, we were fortunate that the Great Recession didn't create a prolonged stock market slump. However if there was another major stock market drop that lasted 15-20years (can happen) that would be catastrophic for Social Security if it were privatized. The Government would probably have to bail it out. It's too big to fail.
Third, the AARP. They 36 million seniors in their group. If they don't support it (which they don't) it'll never happen.
Happy New Year!!