Monday, March 18, 2013




Corkernomics

Josh Israel (emphasis his) at Think Progress quotes Senator Bob Corker contending on GOP News Sunday

I think there–by the way–is a chance on a deal. I know the president is saying the right things and we have an opportunity over the next four-to-five months. I think that we’ll know when the president is serious by virtue of a process is setup where he is actually at the table or he has a designee and whether he begins to say publicly to the American people, to all Americans, that he understands that Americans are only paying one-third of the cost of Medicare and that has to change for the program to be here down the road. But look, Chris, I think Republicans — if they saw true entitlement reform — would be glad to look at tax reform that generates additional revenues. And that doesn’t mean increasing rates, that means closing loopholes. That also means arranging our tax system so that we have economic growth. And I think we’ve been saying that from day one.

The Tennessee Republican has come up with an ingenious and pretty clever way of recommending that Medicare be slashed.  Don't recommend a cut to Medicare- urge that Americans pay a greater share of the program.  But Medicare is effective, providing health care for less than does private insurance and far less than when an individual privately pays, precisely because it is a government program. It's difficult to determine whether Corker wants simply to slice and dice the Medicare program or instead to push individuals out of Medicare and into Medicare Advantage or other private programs.  Either would jack up the cost of health care overall because consumers would not have the benefit of the federal government's ability to bargain with providers.   But it would please the health care industry, which in the 2010 election cycle gave Corker more than any but five U.S. Senate candidates.

The alternative, Corker claims, is "for the program (not) to be here down the road."  It's only with earned benefits- Medicare and Social Security- that it is argued the program can survive only if it is cut.  "We must reduce the cost of defense  to the American people if it is to survive" is a claim yet to be made.

Israel fails to emphasize Corker's last sentence "And I think we've been saying that from day one."  But that's a pity because it lays bare the Senator's meaning.   Republicans from day one have not been saying that additional revenues or fewer loopholes have been needed.  Instead, they have been peddling at least since a meeting in 1974 among Arthur Laffer, Jude Wanniski, and Dick Cheney.  They believe that reducing revenues through tax cuts magically increases revenues.  And they believe, contrary to most evidence, that reducing taxes substantially increases economic growth.   The New York Times' David Leonhardt explained in September

When the top marginal rate was 70 percent or higher, as it was from 1940 to 1980, tax cuts really could make a big difference, notes Donald Marron, director of the highly regarded Tax Policy Center and another former Bush administration official. When the top rate is 35 percent, as it is today, a tax cut packs much less economic punch.

“At the level of taxes we’ve been at the last couple decades and the magnitude of the changes we’ve had, it’s hard to make the argument that tax rates have a big effect on economic growth,” Mr. Marron said. Similarly, a new report from the nonpartisan Congressional Research Service found that, over the past 65 years, changes in the top tax rate “do not appear correlated with economic growth.”

The minimal correlation between low tax rates and economic growth has been a negative one.   The author, "an engineer turned math teacher" of conceptualmath.org, presents four graphs/tables (below).  The first two, he observes, demonstrate "low taxes correlate to slow growth. When marginal taxes on the rich were below 40% growth remained below 4.5%. When top taxes were above 65% growth tended to be higher, even going above 6%. Historically, higher taxes on the rich have correlated to higher growth."   The last two indicate, on average, that in the year following a tax cut, there has been a slight decline in employment or gross domestic product.















Making the comparison:
Max Tax below 40%
Max Tax above 65%
Average Growth
3.0%
3.5%
25 percentile
2.5%
2.0%
75 percentile
4.0%
5.7%
 Maximum Growth
4.5%
8.7%



Year of tax cut
GDP growth
Employment growth
beforeafterchangebeforeafterchange
19644.6%5.7%
+1.1
No
Data
19712.9%2.6%
-0.3
0.6%2.3%+1.7
19812.8%3.5%
+0.7
1.8%.1.4%-0.4
19873.7%2.3%
-1.4
2.6%1.1%-1.5
20013.3%2.7%
-0.6
1.2%-0.4%-1.6
Typical change-0.25%-0.6%
Year of tax increasebeforeafterbeforeafter
19931.9%3.7%+1.7%0.8%2.5%+1.7%


All that, of course, matters little in a deficit-crazed environment in which one party is unconcerned about the deficit or the debt and merely is determined to shrink the size of government so it can be drowned in a bathtub.




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