Jason Furman on Fiscal Policy
Jason Furman is now Deputy Director of the National Economic Council. Conveniently, he also wrote an article for Slate back in April on what fiscal policy should look like. Thus far, everything that Obama’s done has been something that Furman recommended. But not everything Furman recommended has thus far made it into the budget. So it’s perhaps useful to take a look at what other kinds of ideas are bouncing around. Furman advocates:
- “[I]ncreased sin taxes on items like cigarettes” which, as you know, I agree with. I’m not sure how much room there is left to run with federal cigarette taxes before we start producing a counterproductive black market, but there’s a strong case for higher alcohol taxes and a decent case for legalizing-and-taxing marijuana.
- He says we should seek “a broader tax base by, for example, reforming the deductibility of the mortgage interest.” This is a very good idea, albeit politically difficult to implement. But insofar as we’re concerned with the long-run deficit, you could use a non-indexed cap such that over the years inflation will slowly phase the deduction out.
- On Social Security he says “Two of my favorite options are raising that amount of Social Security payroll that is taxable and indexing benefits and/or taxes to the changing ratio of beneficiaries to workers.”
- He calls for “scaling back on weapons systems originally designed to fight pitched battles on the plains of Europe,” which does seem to be the inclination of many inside the administration, but all signs are that they won’t actually seek to cut the defense budget or even to hold the defense budget steady. Instead, the White House will have a battle with the Pentagon over whether a country that accounts for half of global defense expenditures should engage in moderate real increases in defense spending or large real increases in defense spending. I expect fiscally conservative Blue Dog deficit hawks to be outraged by this state of affairs.*
Outside the realm of bullet points, two other things he suggests are switching the measure of inflation to the C-CPI-U and that cuts in small-bore government programs could be valuable “if only to create more confidence in the budget process.” The latter, I think, is something we very well may see. The President loves the line about going through the budget “line by line” and eliminating programs that don’t work, so they probably need to eliminate something or other to be able to keep saying it.
On the inflation index thing, this almost seems like a bipartisan deficit reduction no-brainer. It would, in effect, simultaneously raise taxes and cut spending but could be plausibly portrayed as doing neither—it’s just a technical adjustment to the way the Consumer Price Index is calculated! Of course, you would never want to do something like that as a one-party measure but if there’s ever a bipartisan commission or what have you, then this is a very appealing option. From an ideological point of view, I would say that the problem to watch out for is that you sometimes hear the suggestion that this switch should be made only for Social Security. That’s not something I would want to see progressives agree to. But make the switch across the board and it’s a progressive measure that, in exchange for a mild slowing of the growth in Social Security benefits, would also mildly increase not only the level of Social Security taxes but also income taxes more generally, generating revenue that can be used for all manner of worthy domestic purposes.
* As always, joking; they’re hypocrites!
27 Responses to “Jason Furman on Fiscal Policy”
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February 24th, 2009 at 5:54 pm
I can’t tell which of your ideas are sarcasm but most I agree with!
It reminds me of this video I watched just a minute ago on how much this deficit is driving people crazy. I don’t think either side will ever be happy with how spending is handled.
http://www.newsy.com/videos/trillion_dollar_question_for_the_u_s/
February 24th, 2009 at 5:55 pm
I like the below the fold asterisks. It’s like the backpage fold-up in Mad Magazine. ‘The Smart Fiscal Policy – Blue Dogs Know’ becomes ‘The-y Bl-ow’.
February 24th, 2009 at 5:58 pm
If being a fiscal-policy expert doesn’t work out for Jason Furman, he’s got an solid career ahead of him as a character actor specializing in smug Ivy Leaguers. Send that headshot to Whit Stillman!
February 24th, 2009 at 6:12 pm
Here’s an idea for broadening the tax base: make the bottom 40% of earners pay some net income taxes. Taking away the mortgage interest deduction is just another way to stick it to the people who already carry most of the country’s tax burden.
February 24th, 2009 at 6:14 pm
I have another idea, Fred. How about all those people who make hundreds of millions a year who only pay 15% because it’s all capital gains pay what they should for their tax bracket? And how about we close corporate tax loopholes that cost hundreds of billions a year? I bet if we do *that*, we could give your precious upper middle class some cuts!
February 24th, 2009 at 6:27 pm
He calls for “scaling back on weapons systems originally designed to fight pitched battles on the plains of Europe,”
But the gladium is a truly transformational weapons system! Is it RMA? Oh, hell yeah it’s RMA!
February 24th, 2009 at 6:29 pm
The trouble with a non-indexed mortgage interest deduction – as the value of it is eroded over time, there will be unstoppable pressure to “fix” this situation by increasing the cap by Congressional action. See AMT fix for an example of this in action.
February 24th, 2009 at 6:30 pm
Here’s an idea for broadening the tax base:
Hmm…does it fuck over poor people? Because that’s a deal-breaker.
make the bottom 40% of earners pay some net income taxes.
Yes! A winner!
Lucky duckies don’t pay nearly enough in taxes.
February 24th, 2009 at 6:31 pm
1) Federal excise taxes make up about 70 billion total, or about 5% of non-Fica revenue. ’sin’ taxes are even less; alcohol and pre-schip tobacco brought in around 14 billion total, other ’sins’ like gas guzzlers brought in a few more billion here and there.
2) Per Mr. Furman’s numbers, you have about another 70 billion to work with in the mortgage deduction. Even if you ‘end it, don’t mend it’ you’re still only 5% of the way toward just the deficit for this year with this idea.
3) Go ahead and make Social Security a welfare program and see how that works out for you politically long term. But as for ‘fiscal policy’ this doesn’t matter anyway – it’s a different part of the budget, the surpluses of which have hid or mitigated every ‘real’ budget deficit over the last few decades except for FY 00 (the only time there was a ‘real’ surplus in Clinton’s term; FY 99 was unified surplus but discretionary deficit)
4) You’ve already pre-butted the defense part.
Last, I thought progressives were saying that we’ve already jiggered with the CPI too many times. At least that’s what I was hearing during the Bush adminstration (and Clinton’s for that matter) that the official CPI #’s were understating the true rate of inflation.
February 24th, 2009 at 6:33 pm
Hmm…does it fuck over poor people? Because that’s a deal-breaker.
The rise in sin taxes should cover it; rich people are of course morally superior.
February 24th, 2009 at 6:36 pm
By “reforming the deductibility of mortgage interest” I assume he means eliminating the deductibility of mortgage interest for owner occupied homes. I would like to see the reaction to a recommendation to eliminate the deductibility of mortgage interest for all residential property – owner occupied homes and rental units.
February 24th, 2009 at 6:46 pm
It would, in effect, simultaneously raise taxes and cut spending but could be plausibly portrayed as doing neither—it’s just a technical adjustment to the way the Consumer Price Index is calculated!
Conservatives will love it, but do you think seriously progressives are going to go along with it? This change would CUT cost-of-living increases in government benefits and RAISE the real income numbers reported by the Census Bureau and other government agencies. Lefties will have an even harder time supporting their silly claim that real incomes for the poor and middle class have “stagnated” if real income figures as reported by the government suddenly go up.
February 24th, 2009 at 6:59 pm
From Naomi Klein’s June 2008 article Obama’s Chicago Boys:
I’m going to have to agree with Adam’s comment on this one. Stop with the bankrupt trickle-down theory and tax the rich, tax capital gains at a higher rate, tax hedge funds. A nation where Warren Buffet pays 18% of his wealth in taxes while his high level employees pay 33% is ridiculously skewed. Definitely cut off the Bahamian tax-shelter dodges.
February 24th, 2009 at 7:00 pm
Christ, whenever someone wants some money, just steal if from the people who smoke! They’re ’sinners’ and mostly working class anyway so its not like they have much political clout. Fuck. Off.
February 24th, 2009 at 7:18 pm
From Naomi Klein’s June 2008 article Obama’s Chicago Boys: …
Hi. My name’s Naomi Klein, and I’m a lunatic.
February 24th, 2009 at 7:29 pm
“I have another idea, Fred. How about all those people who make hundreds of millions a year who only pay 15% because it’s all capital gains pay what they should for their tax bracket?”
Great idea, Adam. Let’s build a time machine so we can go back to the private equity boom (itself a child of the credit bubble) and tax those guys at a higher rate. That should solve everything.
News flash: You wanted more income equality, and you’re getting it, good and hard. Recessions are great for lowering income inequality. The super-rich are making a lot less now. So in order to raise tax revenue, you have to tax more non-rich people who are currently getting a free ride.
February 24th, 2009 at 7:35 pm
Conservatives will love it, but do you think seriously progressives are going to go along with it? This change would CUT cost-of-living increases in government benefits and RAISE the real income numbers reported by the Census Bureau and other government agencies. Lefties will have an even harder time supporting their silly claim that real incomes for the poor and middle class have “stagnated” if real income figures as reported by the government suddenly go up.
Sometimes I feel bad for all the basically intelligent conservative commenters who have to go on these Internets every day and read this kind of know-nothing boobery.
APS
February 24th, 2009 at 7:41 pm
Fred:
Actually the boom/bust cycle doesn’t have a dramatic effect on income inequality. If you look at a map of a country’s employment rate vs. its Gini coefficient, there’s not really any identifiable relationship.
February 24th, 2009 at 7:53 pm
Sometimes I feel bad for all the basically intelligent conservative commenters who have to go on these Internets every day and read this kind of know-nothing boobery.
Sometimes I feel bad for commenters who want to criticize something someone else has said but don’t have the knowledge or understanding to do so.
February 24th, 2009 at 8:20 pm
anders:
For anyone who knows anything about, well, anything, your comment needs no rebuttal because it is patently ludicrous.
When you change the way the CPI is calculated, it doesn’t cause analysts to suddenly get confused and say “holy shit! income just went up 16% overnight!”
Not everyone is, um, a complete tool.
February 24th, 2009 at 8:30 pm
Haven’t read the post yet, but had to comment on the photo. Man, this guy is a nerd after my own heart. I no longer have to be embarrassed by my high school year book pic.
February 24th, 2009 at 8:50 pm
When you change the way the CPI is calculated, it doesn’t cause analysts to suddenly get confused and say “holy shit! income just went up 16% overnight!”
No one said it did. I suggest you try reading my post again, more carefully this time. If you still don’t understand it, never mind.
February 24th, 2009 at 8:51 pm
Actually the boom/bust cycle doesn’t have a dramatic effect on income inequality
Not dramatic but it does have an effect. Graph 1 shows how the 5Q income dips below the long term trend with a greater % than others in every recession (and returns to or get above the trend in every expansion). Graph 2 shows that the growth of % of total national income the 5Q had flattens (1991 ish) or goes negative (1981 ish) (i.e. a reduction in inequality)
February 25th, 2009 at 3:04 am
“Not dramatic but it does have an effect.”
It’s going to have a more dramatic effect this time. Think of how many top-earners were in finance, a highly-leveraged sector that produced about 30% of corporate profits in recent years. There are going to be a lot fewer financiers making a lot less money over the next several years.
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