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Economix Blog: Bruce Bartlett: Gingrich and the Destruction of Congressional Expertise

November 29, 2011 by Leave a Comment

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Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul. He is the author of the coming book “The Benefit and the Burden.”

On Nov. 21, Newt Gingrich, who is leading the race for the Republican presidential nomination in some polls, attacked the Congressional Budget Office. In a speech in New Hampshire, Mr. Gingrich said the C.B.O. “is a reactionary socialist institution which does not believe in economic growth, does not believe in innovation and does not believe in data that it has not internally generated.”

Today’s Economist

Perspectives from expert contributors.

Mr. Gingrich’s charge is complete nonsense. The former C.B.O. director Douglas Holtz-Eakin, now a Republican policy adviser, labeled the description “ludicrous.” Most policy analysts from both sides of the aisle would say the C.B.O. is one of the very few analytical institutions left in government that one can trust implicitly.

It’s precisely its deep reservoir of respect that makes Mr. Gingrich hate the C.B.O., because it has long stood in the way of allowing Republicans to make up numbers to justify whatever they feel like doing.

For example, Republicans frequently assert that tax cuts, especially for the rich, generate so much economic growth that they lose no revenue. This theory has been thoroughly debunked, most recently by the tax cuts of the George W. Bush administration, which, according to C.B.O., reduced revenues by $3 trillion. Nevertheless, conservative groups like the Heritage Foundation (where I worked in the 1980s) still peddle the snake oil that the Bush tax cuts paid for themselves.

Mr. Gingrich has long had special ire for the C.B.O. because it has consistently thrown cold water on his pet health schemes, from which he enriched himself after being forced out as speaker of the House in 1998. In 2005, he wrote an op-ed article in The Washington Times berating the C.B.O., then under the direction of Mr. Holtz-Eakin, saying it had improperly scored some Gingrich-backed proposals. At a debate on Nov. 5, Mr. Gingrich said, “If you are serious about real health reform, you must abolish the Congressional Budget Office because it lies.”

This is typical of Mr. Gingrich’s modus operandi. He has always considered himself to be the smartest guy in the room and long chaffed at being corrected by experts when he cooked up some new plan, over which he may have expended 30 seconds of thought, to completely upend and remake the health, tax or education systems.
 
Because Mr. Gingrich does know more than most politicians, the main obstacles to his grandiose schemes have always been Congress’s professional staff members, many among the leading authorities anywhere in their areas of expertise.

To remove this obstacle, Mr. Gingrich did everything in his power to dismantle Congressional institutions that employed people with the knowledge, training and experience to know a harebrained idea when they saw it. When he became speaker in 1995, Mr. Gingrich moved quickly to slash the budgets and staff of the House committees, which employed thousands of professionals with long and deep institutional memories.

Of course, when party control in Congress changes, many of those employed by the previous majority party expect to lose their jobs. But the Democratic committee staff members that Mr. Gingrich fired in 1995 weren’t replaced by Republicans. In essence, the positions were simply abolished, permanently crippling the committee system and depriving members of Congress of competent and informed advice on issues that they are responsible for overseeing.

Mr. Gingrich sold his committee-neutering as a money-saving measure. How could Congress cut the budgets of federal agencies if it wasn’t willing to cut its own budget, he asked. In the heady days of the first Republican House since 1954, Mr. Gingrich pretty much got whatever he asked for.

In addition to decimating committee budgets, he also abolished two really useful Congressional agencies, the Office of Technology Assessment and the Advisory Commission on Intergovernmental Relations. The former brought high-level scientific expertise to bear on legislative issues and the latter gave state and local governments an important voice in Congressional deliberations.

The amount of money involved was trivial even in terms of Congress’s budget. Mr. Gingrich’s real purpose was to centralize power in the speaker’s office, which was staffed with young right-wing zealots who followed his orders without question. Lacking the staff resources to challenge Mr. Gingrich, the committees could offer no resistance and his agenda was simply rubber-stamped.

Unfortunately, Gingrichism lives on. Republican Congressional leaders continually criticize every Congressional agency that stands in their way. In addition to the C.B.O., one often hears attacks on the Congressional Research Service, the Joint Committee on Taxation and the Government Accountability Office.

Lately, the G.A.O. has been the prime target. Appropriators are cutting its budget by $42 million, forcing furloughs and cutbacks in investigations that identify billions of dollars in savings yearly. So misguided is this effort that Senator Tom Coburn, Republican of Oklahoma and one of the most conservative members of Congress, came to the agency’s defense.

In a report issued by his office on Nov. 16, Senator Coburn pointed out that the G.A.O.’s budget has been cut by 13 percent in real terms since 1992 and its work force reduced by 40 percent — more than 2,000 people. By contrast, Congress’s budget has risen at twice the rate of inflation and nearly doubled to $2.3 billion from $1.2 billion over the last decade.

Mr. Coburn’s report is replete with examples of budget savings recommended by G.A.O. He estimated that cutting its budget would add $3.3 billion a year to government waste, fraud, abuse and inefficiency that will go unidentified.

For good measure, Mr. Coburn included a chapter in his report on how Congressional committees have fallen down in their responsibility to exercise oversight. The number of hearings has fallen sharply in both the House and Senate. Since the beginning of the Gingrich era, they have fallen almost in half, with the biggest decline coming in the 104th Congress (1995-96), his first as speaker.

Brookings InstitutionAfter Newt Gingrich became speaker of the House in the 104th Congress, the number of hearings held there fell far more sharply than in the Senate.

In short, Mr. Gingrich’s unprovoked attack on the C.B.O. is part of a pattern. He disdains the expertise of anyone other than himself and is willing to undercut any institution that stands in his way. Unfortunately, we are still living with the consequences of his foolish actions as speaker.

We could really use the Office of Technology Assessment at a time when Congress desperately needs scientific expertise on a variety of issues in involving health, energy, climate change, homeland security and many others. And given the enormous stress suffered by state and local governments as they are forced by Washington to do more with less, an organization like the Advisory Commission on Intergovernmental Relations would be invaluable.

It is essential that Congress not cripple what is left of its in-house expertise. Gutting the G.A.O. and abolishing the C.B.O. would be acts of nihilism. Any politician recommending such things is unfit for office.

Article source: http://feeds.nytimes.com/click.phdo?i=a7507aa7b68f184d3be08141b882c13c

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Economix Blog: Bruce Bartlett: How to Raise Revenue Without Violating the Tax Pledge

September 13, 2011 by Leave a Comment

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Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul.

The biggest barrier to reducing the budget deficit is the Republican insistence that taxes not be increased by so much as a penny. As we saw in the Republican candidates’ debate on Aug. 11, when asked if they would support a plan with $10 of spending cuts for $1 of tax increase, every candidate declined to support that plan.

Today’s Economist

Perspectives from expert contributors.

But with federal revenues at a 60-year low, every serious budget analyst knows that revenues must be increased to stabilize the nation’s finances, not just in dollar terms, but as a share of gross domestic product.

However, no Republican politician dares to acknowledge this, for fear of excommunication and likely defeat by some Tea Party patriot in the next primary.

Enforcement of Republican tax dogma is handled by Grover Norquist of Americans for Tax Reform, a group that isn’t actually in favor of tax reform because it supports every gimmicky tax cut that comes down the road and likewise opposes eliminating any special-interest tax provision if it would lead to higher taxes on anyone.

For 25 years, Mr. Norquist has demanded that every Republican running for office anywhere sign a no-tax-increase pledge, which every G.O.P. presidential candidate and virtually every Republican member of Congress has done. Allied groups like the Club for Growth will spend whatever it takes to defeat any Republican who violates the pledge or refuses to sign it.

With Republican control of the House of Representatives and enough Republicans in the Senate to filibuster to death any measure deemed by Mr. Norquist to violate the sacred pledge, spending cuts appear to be the only permissible means of reducing the deficit.

There are, however, ways of cutting spending by raising revenue. While this sounds like magic, it is done all the time.

The first thing one needs to know is that not all federal revenues count as revenues. Some are classified as “offsetting receipts” or “offsetting collections.” Such revenues are classified as negative spending rather than as revenues. The classification has no effect on the deficit but does make both federal spending and revenues about $600 billion lower than they actually are.

Details on offsetting receipts can be found in Chapter 16 of the analytical perspectives volume of the federal budget. As it explains, such receipts consist of user fees and other voluntary payments made to the government in exchange for services of various kinds.

There are a wide variety of such receipts, but I want to focus on the one that is probably most familiar to people – premiums paid by beneficiaries for Medicare Part B, which amount to $65 billion this year.

When Medicare was established, it had two parts, A and B. Part A pays for hospitalization and is financed by a payroll tax that all workers pay. Part B pays for doctors’ visits and is voluntary. Its cost is financed by premiums paid by beneficiaries and by general revenues.

Originally, beneficiaries paid for 50 percent of Part B’s benefits. But in 1973, the law was changed and the percentage of benefits covered by premiums fell steadily until 1985, when premiums were fixed at 25 percent of the program’s costs. Thus if beneficiaries still paid as much of Medicare Part B’s costs as they originally were supposed to then federal revenues would be $65 billion higher this year.

And here’s the kicker: higher Part B premiums wouldn’t count as higher revenues, but as lower spending for Medicare. Therefore, it would not be a tax increase, would not violate the sacred pledge and would cut Medicare, which Republicans all say they want to do.

Even libertarians could support higher Part B premiums because the program is voluntary. Anyone who doesn’t want to pay the premiums (or receive the benefits) doesn’t have to. That’s the key reason why Part B premiums aren’t considered to be taxes.

There is really only one good argument against making Medicare beneficiaries pay for more of their benefits – it will be massively unpopular among elderly people. Right now they are getting something for nothing, and they like it. According to a recent Urban Institute study, single people and two-earner couples get back three times as much as they pay into Medicare and single-earner couples get back six times their contributions.

There are many other ways, as well, where the concept of offsetting receipts could be used to reduce federal spending while raising revenues through higher fees and reduced subsidies.

Once upon a time, it was a principle of conservative budget analysis that the federal government ought to impose user fees wherever possible, because it was unfair for taxpayers to subsidize programs that benefited only a limited group of people or businesses.

For example, user fees were a big part of the recommendations put forward by the Grace Commission, established by Ronald Reagan to find ways of reducing federal costs. It published an entire volume detailing opportunities to impose fees and raise those insufficient to cover benefits received by users of government services.

The Wall Street Journal editorial writer Stephen Moore, who was formerly head of the Club for Growth and is a close ally of Mr. Norquist in enforcing the anti-tax orthodoxy among Republicans, once wrote a paper for the conservative Heritage Foundation recommending a variety of new fees to reduce the deficit.

Libertarian groups like the Cato Institute and the Reason Foundation have argued that establishing fees for government services would help make them viable for privatization, which would shrink the size of government.

The Government Accountability Office and the Congressional Budget Office periodically publish reports on user fees that can easily be consulted for ideas on how they can be improved. Budget conventions that treat such fees as reduced spending offer a way out of the budget impasse imposed by the tax pledge. And they could make a major contribution to meeting the $1.5 trillion deficit-reduction target that the Joint Select Committee on Deficit Reduction must meet by Nov. 23.

Article source: http://feeds.nytimes.com/click.phdo?i=8ebcc23d74cc68a2596cbc4f1484b176

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Economix Blog: Bruce Bartlett: The Case Against a Payroll Tax Cut

August 30, 2011 by Leave a Comment

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Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul.

It’s rare for Republicans to find a tax cut they don’t support, but last week The New York Times reported on just such an exotic creature. Many leading Republicans, it seems, are extremely cool to the idea of extending the temporary cut in the Social Security tax that took effect on Jan. 1 and expires on Dec. 31. It has lowered employees’ share of the payroll tax to 4.2 percent, from 6.2 percent.

Today’s Economist

Perspectives from expert contributors.

In theory, the payroll tax cut has positive economic effects on both the demand side and the supply side. By increasing workers’ cash flow, it should encourage additional spending in the economy – something that the economy desperately needs.

It also reduces the tax wedge between what it costs employers to hire a worker and the worker’s after-tax reward. Thus, a cut in the payroll tax should increase economic activity and reduce unemployment.

However, there is no evidence that the lower payroll tax has done much of anything to stimulate either spending or hiring. There are a number of reasons for this.

First, the tax cut only helps those with jobs. While many have low wages and undoubtedly are spending all their additional cash flow, those with the greatest need and most likely to spend any additional income are the unemployed.

Second, the payroll tax cut helps many workers who have no need for it and will only pocket the tax savings.

Third, economic theory and the experience with tax rebates in 2001 and 2008 tell us that people are strongly inclined to save temporary increases in income. People only increase their spending when they perceive an increase in their permanent income.

Fourth, even if one assumes that the cost of employment has declined and employers can somehow  capture some of the payroll tax cut, there’s little sign that labor costs are the principal factor holding back hiring.

The main one is a lack of sales, as monthly surveys by the National Federation of Independent Business document. In the latest survey, 23 percent of businesses said poor sales were their No. 1 problem and only 4 percent cited the cost of labor.

Another issue is whether the Social Security tax is really a tax at all. A case can be made that it is really part of a worker’s compensation, rather than a reduction of it – because the workers generally get back all of their contributions, plus more, in the form of Social Security benefits in retirement.

Although counterintuitive, economic research supports this view of the Social Security tax. In a 1999 paper for the World Bank, Peter Orszag and Joseph Stiglitz argued that Social Security was essentially a forced savings program that doesn’t necessarily reduce labor supply at all. In a 2004 article, Richard Disney supported this argument:

To the extent that pension contributions are perceived as giving individuals rights to future pensions, the behavioral reaction of program participants to contributions will differ from their reactions to other taxes. In fact, they might regard pension contributions as providing an opportunity for retirement saving, in which case contributions should not be deducted from household’s earnings and should not be included in the tax wedge.

To the extent that workers perceive a linkage between the Social Security taxes they pay and the benefits they receive, the Social Security system reinforces work incentives rather than being a tax on work, as is commonly believed. If this is true, then workers may well view a cut in Social Security taxes as diminishing their future benefits, which may cause them to increase their saving rather than spend the additional cash flow.

Thus, a lower Social Security tax could actually be contractionary rather than stimulative.

In my view, the $110 billion cost of the one-year Social Security tax cut would have been far better spent on measures that would actively raise spending in the economy. Public works would be the best way of doing that. Under current economic conditions, all tax cuts are essentially passive and do almost nothing to increase aggregate demand or economic output.

However, economic analysis is not what is driving the Social Security tax debate. Democrats are using the issue mainly as a political ploy. They may also think that some sort of tax cut is the only additional fiscal stimulus Republicans might possibly support.

Although Republican opposition to extending the payroll tax cut may represent little more than knee-jerk opposition to any Democratic initiative, at least some conservatives have long been uncomfortable with cutting the payroll tax without fundamentally restructuring Social Security at the same time.

For example, Andrew Biggs of the American Enterprise Institute has said that a temporary payroll tax cut “is a dubious idea that would give low-wage workers a modest temporary boost, but at the expense of the Social Security program they will depend upon in retirement.”

Liberal groups like the Center on Budget and Policy Priorities have also voiced skepticism about the benefit of temporarily cutting the payroll tax. They are concerned about the possibility that a temporary payroll tax cut will become permanent, undermining Social Security’s long-term finances.

And having the Treasury replace the lost revenue opens the door to general revenue financing for Social Security. A longstanding liberal concern is that this makes Social Security more of a welfare program and less of an earned pension, which undermines its political support.

Although the case for additional fiscal stimulus is overwhelming, it would be much better to find more economically stimulative alternatives to simply extending the temporary payroll tax cut.

Article source: http://feeds.nytimes.com/click.phdo?i=5255982926dd1232fe2d0e374b8f5bbb

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Economix Blog: The Rich Can Afford to Pay More Taxes

August 23, 2011 by Leave a Comment

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Bruce Bartlett held senior policy roles in the administrations of Ronald Reagan and George H.W. Bush and served on the staffs of Representatives Jack Kemp and Ron Paul.

Warren Buffett’s commentary in The New York Times on Aug. 15 has opened a new front in the continuing debate on whether taxes should be raised to reduce projected budget deficits.

Today’s Economist

Perspectives from expert contributors.

Mr. Buffett asserted that the well-to-do could easily shoulder a higher burden. Specifically, he proposed an increase in the current 35 percent top rate for those making more than $1 million and a further increase on those making more than $10 million. He also proposed taxing dividends and capital gains as ordinary income (currently, they are taxed at a maximum rate of 15 percent).

Conservative groups such as the Tax Foundation pooh-pooh the idea of raising tax rates on the rich, asserting that there isn’t enough money available to bother with.

On Friday, however, the respected Tax Policy Center published estimates showing that the potential revenue would have a significant impact on projected deficits. It looked at several options, including a 50 percent top rate on incomes over $1 million and changes to the taxation of dividends and capital gains.

Tax Policy Center, Aug. 19, 2011

As one can see, the revenue potential depends critically on what baseline is assumed. That is because the top tax rate is already scheduled to rise to 39.6 percent on incomes over $380,000 in 2013. Moreover, dividends on corporate stock would go back to being taxed as ordinary income. And capital gains would go back to being taxed at a maximum rate of 20 percent.

The larger question is how much the well-to-do should pay. According to the Internal Revenue Service, in 2008, those in the top 1 percent of the income distribution, with incomes over $380,000, had an effective tax rate of 23.3 percent. In 1986, a year when the real gross domestic product grew a healthy 3.5 percent, their effective tax rate was 33.1 percent. It has been much lower every year since.

If this group were still paying 33.1 percent, federal revenue would have been more than $166 billion higher in 2008 alone. That would be enough to reduce the budget deficit by about 10 percent this year. If the top 1 percent of taxpayers had continued to pay the same effective tax rate they paid in 1986 every year from 1987 to 2008, the federal debt today would be $1.7 trillion lower.

Internal Revenue Service

Of course, these are not hard numbers. If the effective tax rate had stayed at 33.1 percent on the top 1 percent of taxpayers all these years, their behavior would undoubtedly have changed.

And it probably would have been impractical to maintain a higher rate on just the top 1 percent of taxpayers without having had higher rates on many of those below that percentile. But it does show the order of magnitude of how much revenue has been sacrificed from tax cuts on those with very high incomes.

Some will argue that those tax cuts bought higher economic growth, but that is very doubtful. Growth was stronger in the 1990s when the relative revenue loss was small and was dismal during the George W. Bush administration, when two-thirds of the aggregate revenue loss occurred.

It is not class warfare to suggest that the richest 1 percent of people in society pay one-third of their income to the federal government, as they did under Ronald Reagan. Keep in mind that dividends were taxable as ordinary income every year of his administration, and in the Tax Reform Act of 1986 he supported taxing capital gains as ordinary income as well.

Higher effective tax rates on the rich could even be achieved without raising the top tax rate bracket to 50 percent, as it was under President Reagan. There are many tax preferences that largely benefit the well-to-do that could be scaled back to avoid raising marginal rates.

The important thing is for people to accept that we can no longer afford such low effective tax rates on those with the greatest capacity to pay at a time when total revenue as a percentage of G.D.P. are at their lowest level in 60 years and we are facing a debt crisis. The issue is not whether the rich should pay more, but how best to accomplish it.

Article source: http://feeds.nytimes.com/click.phdo?i=7165ea1d9d780ee19cb45202424e83c8

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Economix: The Legend of Margaret Thatcher

July 5, 2011 by Leave a Comment

Today's Economist

Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul.

Former Prime Minister Margaret Thatcher of Britain, here in 2008, is venerated by many conservative Republicans in the United States.Former Prime Minister Margaret Thatcher of Britain, here in 2008, is venerated by many conservative Republicans in the United States.

Republicans have always admired former Prime Minister Margaret Thatcher of Britain. Her 1979 election excited them enormously; Republicans viewed it as proof that their views were on the upswing and greatly increased their confidence that Ronald Reagan would be elected president in 1980 as part of a worldwide conservative trend.

Mrs. Thatcher’s stature among the American right has only increased since she was ousted by her own party in 1990. This is especially true now. Benjy Sarlin of Talking Points Memo says Mrs. Thatcher “has always been a popular figure in Republican circles across the pond, but she seems to have taken on a new relevance in recent years for the party’s leading lights.”

Mr. Sarlin cites a blog post on Mitt Romney’s Web site that draws a parallel between economic conditions in Britain in the late 1970s and those in America today. He reports that Newt Gingrich and Rick Santorum also invoke Thatcher’s name frequently in their quest for the Republican presidential nomination. And last month, Sarah Palin publicly requested a meeting with Thatcher that fell through because of Mrs. Thatcher’s physical condition.

While Mrs. Thatcher is a towering figure in British political history, well deserving of admiration, the conservative legend about her time in power is at odds with the facts. In this legend, she was even more aggressive than Reagan in cutting taxes and the welfare state. But that is not true.

As this table shows, taxes as a share of the gross domestic product in Britain actually increased sharply during Mrs. Thatcher’s first seven years in office before falling in the later years. Even at the end, they were significantly higher than they were when she took office. Spending also rose during her first seven years before falling in Mrs. Thatcher’s later years.

Institute for Fiscal Studies

To those familiar with Mrs. Thatcher’s tax policies, these data are not surprising. Although she cut the top personal income tax rate to 60 percent from 83 percent immediately upon taking office, the basic tax rate was only reduced to 30 percent from 33 percent. And in 1980, the 25 percent lower rate of taxation was eliminated so that 30 percent became the lowest tax rate.

More importantly, Mrs. Thatcher paid for her 1979 tax cut by nearly doubling the value-added tax to 15 percent, from 8 percent. Among those who thought Mrs. Thatcher was making a dreadful mistake was the American economist Arthur Laffer. Writing in The Wall Street Journal on Aug. 20, 1979, he excoriated her for taking with the one hand while giving with the other.

“The Thatcher budget lowers tax rates where they have little economic consequence and raises tax rates where they affect economic activity directly,” he complained.

In the 1982 forward to the British edition of his American best-seller, “Wealth and Poverty,” George Gilder was also highly critical of Mrs. Thatcher for failing to cut either taxes or spending: “The net effect of the Thatcher program has been a substantial increase in taxation on virtually all taxpayers.”

Although Mrs. Thatcher privatized many British industries and businesses that had been nationalized after World War II and sold off much of Britain’s public housing, in which the bulk of the working class lived, she did little to reduce the size of the nation’s welfare state.

In particular, Mrs. Thatcher, like all the members of her party, strongly supported the National Health Service, which provides national health insurance for every Briton.

A review of long-term spending trends in Britain by the Institute for Fiscal Studies shows that Mrs. Thatcher basically flattened a trajectory that had been rising since the war. That took a lot of political effort even though her party controlled Parliament and the prime minister of Britain has far fewer constitutional constraints than an American president. But at the end of the Thatcher era, the welfare state was still intact.

As Martin Wolf, a columnist for The Financial Times, told me, “Like all great politicians, Thatcher was a pragmatist, not an ideologue, who picked her fights carefully. She recognized that any head-on attack on the welfare state would have destroyed the party’s electability.”

Mr. Wolf said Mrs. Thatcher was far more concerned about fiscal stability and deficit reduction than lower taxes, and the idea that a debt default “would have been sensible would, to her, have been insane.”

Mrs. Thatcher, like Reagan, moved her country in a conservative direction. But Mrs. Thatcher’s fiscal accomplishments were much more modest than many of today’s Republicans think.

The lesson they should learn from her is that it is very hard to shrink the size of government even when a strong leader has complete control of the legislature, that it takes many years of arduous work to do so and that at the end of the day it won’t shrink very much.

Article source: http://feeds.nytimes.com/click.phdo?i=b83f58f36d9952196e9a51b162abe40a

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