Saturday, April 18, 2009

Unsent Letter to a Teabag Family

I shouldn't blog at all. I'm always too late to current events. I may be wrong about these numbers below too. To the best of my understanding, this is an accurate general account of the numbers behind taxes, spending, and national debt. This unsent email will remain unsent as this is the state of things in this particular family relationship....

We obviously disagree on a lot of things - philosophically and ethically, in terms of political tendencies and in terms of economic policy, in terms of social policy and foreign policy, and even in terms of what political dialogue should look like. I think that I've always understood your positions even if I've often disagreed with them. It's different now, however. I'm struggling just to understand.

I don't understand your tea-bag event. I know it's based on the Boston Tea Party. That was protesting taxation without representation - taxes by the British Parliament on commodities in the colonies while colonists had no voice in the parliament. I'm not sure what those at the current tea-bag events feel they are protesting. I see the signs against protesting higher taxes, calling Obama a "fascist" or an "idiot," and accusing Obama of indebting the nation through the stimulus package. But I wonder what the teabag people believe is the new tax policy and, with some general understanding of economics, where the national debt came from, and whether there is some kind of proposed alternative to stimulus spending.

Are taxes the main issue? As I understand it, the Obama tax plan returns us to 2000 levels, reducing taxes slightly on lower and middle income households and raising taxes only on the wealthiest of the wealthy. It's expected that middle-income taxpayers, for example, will see their after-tax incomes rise 5% by the year 2012. The average increase in tax payments by the wealthy is apparently about $20K per year. Capital gains tax isn't raised on anyone making less than $250K per year - above that number are about 3% of American households, below it 97-98% of Americans. Nothing here applies to 401ks or IRAs. If one has an income stream that isn't in the top 2-3%, one's individual taxes are going to decrease.

In other words, the Obama tax plan is a modest tax cut for the vast majority of Americans and a modest increase for 2-3% of the population. Is the protest that really wealthy people's taxes are going to increase? It's not as if a marginal tax increase of about 3% on the wealthiest 1% of the population is going to wreck an economy that was already wrecked by 2007. I assume that it's a general protest against taxes in general. But that's another issue not only connected to the Obama presidency, but to pretty much any representative at the federal level throughout the history of the country.

National debt? It increased rapidly over the past eight years, nearly doubling from 2002 to 2008 and is now at about $11 trillion. That's a real problem, I agree. But I haven't heard of teabag parties during the past eight years. Roughly 48% of the total national debt was incurred over the past seven years.

Obama's budget accounting now also includes the cost of the wars and Medicare reimbursements to doctors as well as some AMT wriggling (reversing something of which four decades of administrations and Congresses have been knowingly guilty). Bush's budget accounting excluded these from calculations of the budget and deficit (see here). The wars were funded by mid-year appropriations rather than being built into budgets at the beginning of the year. The Bush budget was thus presented to the public as $2.7 trillion lower than it actually was. The new accounting adds that $2.7 trillion to the real budget deficit. The real debt has increased an average $500 billion per year since 2003. $1 trillion was added to the real debt in 2008 alone (that annual deficit passed the $1 trillion mark for the first time in history). The accounting change came into effect in the budget Obama announced in February. (You can track the debt here). National debt by the end of the Bush 2 presidency: $11 trillion. That's what Obama inherited. It seems unfair and inaccurate to hold Obama responsible for that previously-incurred debt except to the extent that he was a member of Congress. Why have teabaggers just now become concerned and active? Has there been some intrinsic change to the debt?

Since the 1940s the debt has increased as a percentage of GDP during only three presidential administrations (and each term of these three): Reagan, Bush 1, and Bush 2 (and very slightly during Nixon/Ford). GDP growth dropped significantly during the recent Bush administration, so the numbers may be less severe for Bush 2, but at the expense of a slowing economy. If national debt is the critical issue in your protests, then it seems to me that the target should be the policies of these three presidencies. It's not clear to me why conservatives who define themselves as opposed to government spending were mostly uncritical of the largest spenders.

Spending in itself? It's unclear to me why government spending should be a problem inherently since spending can boost an ailing economy, let alone help fellow Americans make it through difficult times. Deficit spending seems the more precise issue, and it is then intrinsically connected to taxes and other forms of federal revenue as well as to national debt accumulation. But judging the goodness or badness of spending also depends on the state of the economy at a given moment in time. Spending here again is a relational concept and practice.

On one hand, the key US financial/budget institutions (Treasury, OMB, and GAO) have all predicted dangerous increases in debt over the next couple of decades. They've been doing so for years. The projection is that the country will be bankrupt by as early as 2030 if there are not significant cuts in spending across government and if - in my view - the US continues subsidies to traditional energy resources industries, if it doesn't reduce military spending, and if it doesn't reform the healthcare system.

Deficit spending during a recession, however, especially a deep recession like the one we've been in since 2007, is considered by many economists to be the right approach to ending a recession. The general objective is to raise GDP, which the stimulus is designed to do. Increased taxes can't make much of a dent in the debt; but economic growth can. Economic growth requires economic activity. That is, spending. Consumers and businesses aren't spending money into the economy, so the stimulus is designed to be a catalyst. A growing economy and a better debt to GDP ratio will help bring the debt down. Many economists think that cutting taxes alone is a dangerous idea during a severe recession with high unemployment.

Probably the biggest concern over the longer-term is healthcare costs. We pay more than any other developed nation, yet we don't have nearly the same adequate healthcare as a country like France. France's healthcare system has its own problems, but all French people are covered at a good standard level and can pay more into whatever other medical services they want and even then at a lower cost than in the US for supplemental services. The doctors, technology, medical research, and pharmaceutical development are among the most advanced in the world. And the government and taxpayers pay less into the system than Americans do with their current system. The French system probably isn't the right model for the US, but the US system is in need of serious repair and the French version shows how a less expensive and fairer system is possible. Bringing those costs down will help with the national debt.

Even if a given healthcare system does qualify as "socialist" on some definition of the term, should this label matter if the system is more efficient, less costly, and fairer? It's difficult for policy analysts to see a robust alternative healthcare proposal because what is on offer seems to rest mostly on the scariness of a particular word rather than a concrete, morally sound, and practically feasible policy proposal.

I think everyone in a decent country ought to have adequate healthcare. However, actually creating such a system that might approximate the ideal of adequate universal healthcare - dealing with real, concrete political and economic tradeoffs - is a different story. A serious proposal would be welcome, taking healthcare policy as just one example. No one wants more debt and people don't like to see less take-home income due to increased taxes. But a serious policy proposal has to be one that also takes into account the current and projected state of the economy as a whole.

I guess my main question is: what do teabag people believe they are doing? What purpose do you want these events to serve? I don't understand.

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