Ryan’s Budget Gives Obama What He Wants

April 13th, 2011 at 4:27 pm David Frum | 97 Comments |

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“Whatever you do, don’t serve to his backhand.”

“Don’t be nervous. I have the new Ryan serve. It’s bold!”

“Trust me on this. Don’t serve to his backhand.”

Thomp. Wham.

Here’s a basic fact of American politics. The American people like Medicare. They are not so enthusiastic about tax cuts for the rich.

Those of us on the political right have different preferences. We believe that low rates for high earners accelerate economic growth. We believe that the cost of Medicare must be restrained. And I think we have a lot of good arguments on our side.

But we must never deceive ourselves: We are arguing for policies with a lot of political negatives attached to them. Which means we have to take some basic political precautions.

In the current Republican mood, however, precautions are for girlie-men. Republicans have succumbed to a strange mood of simultaneous euphoria and paranoia. Republicans have convinced themselves both that: (1) American freedom stands in imminent danger of disappearing into totalitarian night; and (2) that the vast majority of the great and good American people are yearning for a mighty rollback of big government, even at considerable personal sacrifice.

And so Republicans have united around Rep. Paul Ryan’s (R-Wis.) proposal that for the first time in modern conservative history explicitly joins a big tax cut for the rich to big cuts in health care spending for virtually everybody else. If this were a tennis game, the Republicans would be placing the ball in exactly the spot on the court where it must never, ever go.

Take a look at Wednesday’s USA Today/Gallup poll.

Medicare remains hugely popular. By 2-to-1 margins, Americans reject changes to Medicare. Even among self-identified Republicans, one-third reject changes to Medicare.

So how do Americans want to balance the budget? By raising taxes on the rich! Fifty-nine percent favor raising taxes on those who earn more than $250,000.

Let me repeat and stipulate: I agree that raising marginal income taxes would be a big mistake. I agree with those conservative Republicans who wish that marginal taxes could be reduced further and soon.

But if we are to get to lower tax rates, we must get there via tax reform — eliminating deductions, and substituting new taxes on energy and consumption.

Meanwhile, health care spending must be treated as a separate problem, with the focus on reforms to control costs — including squeezing payments to health care providers like insurance companies, pharmaceutical companies, hospitals, and doctors.

That’s not what happened. The Republican insistence on joining two negatives in hopes of producing one positive opened the way to President Obama’s speech Wednesday.

That speech was not so especially eloquent. It was, however, very effective. It frames the debate in a way that is maximally useful for Democrats. This framing was made possible by the efforts of Republicans themselves, blinded by their own hopes, misdirected by their own messaging.

It’s exactly like what happened on health care reform, where Republicans persuaded themselves they had Obama on the ropes even as he succeeded in enacting the most important new entitlement since 1965. We went for all the marbles, and ended with none. Now I fear we are doing it again.

Originally published in The Week.


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97 Comments so far ↓

  • Nanotek

    “We believe that low rates for high earners accelerate economic growth. … And I think we have a lot of good arguments on our side.”

    the same could be said of safety nets for working class Americans … so arguments aside what is the evidence?

    • blueshark

      “We believe that low rates for high earners accelerate economic growth”

      I’m with Nanotek, not only is there no evidence to support David’s contention, there is a quarter of a century’s worth of evidence to support the point that this sort of supply-side nonsense is nothing more than wishful thinking.

      The problem with today’s GOP is that it thinks that the 2010 elections have given them a mandate to enact the agenda David describes above. All the evidence, however, points to the thesis that the results of the election reflected the population’s unhappiness with the economy and not a mandate to scrap the New Deal and the Great Society and re-introduce the pre-Lochner Gilded Age.

      • armstp

        All tax cuts to the wealthy do is further concentrate the wealth in this country.

  • politicalfan

    I couldn’t agree with Frum more! Honestly written and to the point. There is a ton of irony in the Republican thinking tank at the moment. They are opening a pandora’s box and they don’t see it yet. I wonder what spin will happen at certain news sources?

    • Nanotek

      “They are opening a pandora’s box and they don’t see it yet.”

      makes sense, since hope was the only thing that remained in her box (jar) when it was closed, in the mythology

      • Traveler

        Hey Politicalfan, do you really buy into David’s notion that taxes on marginal income really have negative consequences on the economy? :) I have yet to see this documented in any analysis, but I am just a techie, not an economist. What I do know is that tax cuts for the wealthy have had no beneficial effect whatsoever. In fact, it could be argued that they supported the bubble, with all that money chasing financial vehicles.

        Other than that, I totally concur.

    • UncleLew

      For goodness sake — 10 years of Bush tax cuts resulted in the worst job creation record since Hoover. Frum’s assertion was dumb.
      It’s quite amazing how right-wingers are always willing to throw grandma and other poor people under the bus. It’s especially galling come from wealthy GOPers like Frum, who has not known a moment of want or need his entire life.

  • armstp

    I would argue once properly explained the clear majority of Americans would be for expanding Medicare to Medicare-for-all or to a single-payer system. Just like 70% of the people supported a public option.

    So to go further Frum. The majority of Americans not only like Medicare, but would probably support expanding it. Trashing Medicare is not only a stupid solution that does not make much sense, but is suicide for the GOP. The GOP presidential candidates are now going to have to wear the Ryan plan. Brilliant!

    • politicalfan

      Universal medicare? Gasp!

      • armstp

        politicalfan,

        Most people are very happy with the service they get from Medicare and it is far cheaper than the private system. So you are right: Gasp!

        • DirtyLibrul

          Overhead for Medicare: 2-3%. Overhead for private insurance: 30-42%.

          ‘Nuff said.

          Wait, not ’nuff said…Medicare is better: no rescission, no pre-existing conditions, no lifetime cap, and on and on and on.

  • ottovbvs

    Agree entirely with your characterisation of what has happened here. That Obama is a canny lad. He allowed Ryan to publish his proposals which just as you say explicity ties together dismantling of the welfare state in order to fund huge tax cuts for the rich. They got lots of visibility with the chattering classes bloviating away. He then allowed Republicans to get behind Ryan’s budget and make it holy writ. Thus they appended to their backs a target a mile wide.

    • Traveler

      Rope a dope strategy executed brilliantly. We just saw the first shot. Wait for the rest of the fireworks to follow. Frankly, I dont see how the poor refuglicans will wriggle out of this one. BO has them pinned to the floor like bugs in biology class. Which is about what they are worth.

  • _will_

    We believe that low rates for high earners accelerate economic growth

    Which again prompts the question: where was the growth (outside of the already very wealthy class) over the last 10 years ( actually, the last 25 years). Look, I’m willing to be wrong on this. Just point me to all these trickle-down riches I keep hearing about.

  • TerryF98

    Once again the headline is nothing to do with the article.

    I wonder what seniors are thinking right now. In the health care debate the GOP told them that Obama by bringing in modest changes to Medicare was instituting “Death Panels”

    Now they learn that the same people who told them that are now proposing to scrap Medicare and give them a worthless voucher in order to give their overlords a huge tax cut.

    Must make them somewhat confused I guess. I wonder if they will ever wake up to the fact that the GOP are a load of liars who would kill granny for a few bucks.

    • Saladdin

      I wonder if they will ever wake up to the fact that the GOP are a load of liars who would kill granny for a few bucks.

      TerryF98, I think that the Ryan plan doesn’t touch anyone over 55… hmmm, maybe there’s a political reason for this?

      • Traveler

        Thought occurred to me too. Like Walker triangulated the firemen and police. However, that had little effect on the electorate. Also, I don’t believe AARP is gonna throw their entire class of 2011 under the bus, and from what I am told, us oldies have solidarity. I suppose I should be happy to be barely over the cutoff. Plus it will be spun to scare the hell out of the entire age group. The Dem’s version of Death panels.

    • _will_

      “Now they learn that the same people who told them that are now proposing to scrap Medicare and give them a worthless voucher in order to give their overlords a huge tax cut.”

      Depends. If they are part of the crowd that’s been riding their govt-subsidized rascals and carrying misspelled signs to tea parties over the last 2 years it really won’t mean a thing.  Obama is still black, urbane and demonstrably intelligent (i.e., he’s the anti-Christ).

      For the ever-shrinking, moderately informed center, it will probably probably get drowned out by outlandish claims courtesy the FOX/ talk radio echo chamber.

  • TerryF98

    “We believe that low rates for high earners accelerate economic growth”

    Despite zero evidence that they ever have.

  • msoliverca

    >> I agree that raising marginal income taxes would be a big mistake.

    I have a serious question for folks on the Right. Why is returning the Clinton era tax rates such a “big mistake”? All politics aside, I have never read anyone trying to explain the reasoning for this. It is just taken as axiomatic that any reversion of the tax rates as they were in the prosperous ’90s would be disastrous. I just don’t get it.

  • The American Spectator : AmSpecBlog : It's Dead Right to Pay the Price

    [...] man and I've learned a lot from his work over the years. But I'm always disappointed when he writes stuff like this. For a refutation of this kind of thinking, there is no better place to start than [...]

  • ram6968

    people kept saying, he’s not doing anything, he’s weak….nah, he was just waiting for the republicans to step in it…..and they did not disappoint…how many savy republicans are going to put their name on ryan’s plan knowing election tv spots in their district are going to bury them come election time….that house vote is going to be interesting

  • hisgirlfriday

    Rope-A-Dope. That’s how Obama plays it EVERY.SINGLE.TIME.

    “The rope-a-dope is performed by a boxer assuming a protected stance, in Ali’s classic pose, lying against the ropes, and allowing his opponent to hit him, toward the end that the opponent will tire and make mistakes which the boxer can exploit in a counter-attack.

    In competitive situations other than boxing, rope-a-dope is used to describe strategies in which one party purposely puts itself in what appears to be a losing position, attempting thereby to become the eventual victor.”

  • ottovbvs

    Oh yes, this is what the 2012 election is going to be about. Remember we have the debt ceiling battle coming up and then a battle over the 2012 budget that has been proposed by Ryan. This will be the focus and the battle will easily go into early next year and by then we’ll be in the thick of the presidential campaign with Republicans being forced to take a position on the Republican budget. No need to mention Eddie Munster.

  • valkayec

    Mr. Frum, you said you agree with the GOP on reducing marginal tax rates for the rich. But I have a question for you, given these factors:

    1) Supply side economics were tried during the 1800s in England and failed to increase the economic activity and wealth amongst lower classes.

    2) Reagan’s budget director, David Stockman, stated that supply side economics was a failure; and Bruce Bartlett wrote, in his Forbes blog, that given the nature of Congress to provide special interest tax breaks, a supply side tax system was unworkable and only increased the deficit.

    3) Laffer’s curve indicates that high marginal tax rates does stifle the economy but extremely low tax rates depresses economic expansion. As we’ve just experienced, exceptionally low tax rates enabled a bubble in CDOs and CDSs rather than investment and growth in equities and the real economy. While the exact trade off point in the curve is yet unknown (assumed by Bartlett and others to be somewhere between 35% and 50%), evidence indicates that the current low marginal tax rate is harmful to the overall economy and has led to high deficits.

    Given these data points, how would lowering the marginal tax rate, especially for exceptionally high earners, increase economic activity, create more jobs in the U.S., create higher wages, and reduce the deficit?

    Mind you, I’m not anti-wealth creation. I’ve known more than few multi-millionaires and have nothing against them, especially those who used their natural talents to build remarkable technologies and companies. I admire their creativity and abilities. However, I do believe that excessively low marginal tax rates on the wealthy can harm the economy in multiple ways, including reducing the tax revenues needed to fund government and prevent a huge deficit.

    • LFC

      Very well put. The problem with the today’s Republicans is that they blindly believe that if some is good (cutting marginal rates from 50%) then more must be better. It’s a position that requires no thought, which is good because it has no evidence to back it up.

  • think4yourself

    While I (mostly) agree with what David said (I think tax rates for all earners should revert to Clinton year’s – it’s not just the wealthy that taxes are the lowest in 60 years for), the President has offered 4 trillion in savings over 12 years, quite a lot based on the Deficit Commission.

    While I’m personally very in favor of the Deficit Commission’s work, the Liberals won’t like this, because the President has taken a pretty centrist view as his starting point for negotiations. If the strategy works, you’ll probably be at 5 Trillion in cuts over 12 years and (hopefully not), keeping taxes for the wealthy were they are now. BUT, I’m sure what the President wants is to ensure we don’t dismantle Medicare or give block grants to the states with no accountability for what they do for their citizens that depend on these programs. So the final product may not be one that Liberals like either.

  • LaughingCat

    David,

    A good middle-of-the-road blog about this issue. I rarely read the Forum, but saved your blog as a favorite. Keep them coming.

    Jon

  • nhthinker

    David,
    You completely misread the midterms and you completely misread Obama’s level of support by the American people.

    Spending cuts first
    Talk about adjusting taxes later.

    If not done in that sequential order, government will end up bigger than Americans want it to be.
    Enough of the American electorate knows this. Why don’t you?

    Maybe it’s just a bad case of Beltway Derangement Syndrome.

    • ottovbvs

      Yeah pay no attention to those opinion polls. Americans can’t wait to scrap Medicare and Medicaid to give the wealthy another huge tax cut. As the president said 33 seniors each contribute $6000 to personally hand him a tax cut of $200, 000. You’d vote for that wouldn’t you NH (thinker?)

  • gmckee1985

    Jesus. How does anybody take Obama seriously?

  • Elvis Elvisberg

    “We believe that low rates for high earners accelerate economic growth.”

    Like in the 1990s? Those were some pretty darn low tax rates, historically, and we had a pretty good economy to boot. And surpluses! Let’s do that again!

    “We believe that the cost of Medicare must be restrained.”

    Everyone agrees. That’s not a left-right thing.

    That’s why the ACA had cost control provisions. We should have had more, such as a public option. But it’s a start. And it’s a whole lot better than Ryan’s “you’re on your own” not quite plan.

  • jjack

    If this were a tennis game, the Republicans would be placing the ball in exactly the spot on the court where it must never, ever go.

    At least Frum is honest about the fact that Republicans cannot afford to be honest about their policy goals. He is basically saying Republicans have to mislead the useful idiots more artfully with noble lies; otherwise, they would never vote for tax cuts for the rich and cuts in everything for everyone else. And I agree.

  • politicalfan

    Traveler- I do agree with Frum on the marginal tax rate (for different reasons- I presume). However, when looking at this from a purely economic window. I think people are going to have to give and that means the wealthiest 3%.

    If we are going to push the “sky is falling,” then we will all be standing with large nets. I think the tax issue will be a stalemate to a larger degree. There are more individuals making under $250,ooo dollars, so the polls may guide the President’s argument (what is happening with unions) will cement it my view. The perfect storm is brewing. We will see if the Dems can maintain the argument.

    If I am a business owner who benefits from Bush (Obama) tax cuts and have effectively hired folks. I am ticked about now because of the uncertainty. Our politics does not incentivise for people that are doing things right. (I don’t broad brush all Republicans-there are some brilliant Repubs). I would base their tax cuts on productivity, which translates to more oversight. Show me the job creation, here is your tax cut.
    (I don’t see that happening).

    The backlash could be people not wanting to hire folks. The $250,000 mark will not be good for small business. Should be higher. My guess it will be millionaires and billionaires who account for approx 11 million of the population. (I don’t have exact figure). Millionaire-billionaire tax will be the next sound bite. (Just guessing). I think Frum is pragmatic, which is refreshing even when I don’t agree with him. If you’re a millionaire or billionaire, getting tax cuts is not a bad thing. If we are being honest.

    Nano- I was thinking in terms of the modern day interpretation. “Evil” or put simply “not a good thing.” I see more nasty rhetoric. Sigh.

    • ottovbvs

      The $250,000 mark will not be good for small business.

      Er…you do realize that if you’re earning $250 k you’re in the top 2% of income earners don’t you.

    • Ana Gama

      Most small businesses net far less than $250k. Look it up.

      • ottovbvs

        Most small businesses net far less than $250k. Look it up.

        Er…I didn’t say anything about small business profitability. Perhaps you’d like to show me where I did? I was just pointing that using politicalfan’s number (not mine) that $250k puts you in the top 2% of income earners

  • NRA Liberal

    “…In the current Republican mood, however, precautions are for girlie-men. Republicans have succumbed to a strange mood of simultaneous euphoria and paranoia. Republicans have convinced themselves both that: (1) American freedom stands in imminent danger of disappearing into totalitarian night; and (2) that the vast majority of the great and good American people are yearning for a mighty rollback of big government, even at considerable personal sacrifice…”

    Reminds me of nothing so much as American liberals circa the McGovern era.

    Never get high on your own supply.

    • Elvis Elvisberg

      Maybe true, NRA Liberal, but that brand of insanity never controlled the entirety of a major political party. I mean, Sam Nunn was a Democrat all that time, for gosh sakes.

      But today’s GOP is 100% insane, or as you put it, high on its own supply.

  • Frumplestiltskin

    A great article by David though I, like others, disagree with some of his contentions his politics is dead on target.

    “But if we are to get to lower tax rates, we must get there via tax reform — eliminating deductions, and substituting new taxes on energy and consumption.” I have no problem with lower rates provided they are revenue neutral, or enhanced (we do have a huge deficit) but I do agree our tax code is needlessly complex.

    “Meanwhile, health care spending must be treated as a separate problem, with the focus on reforms to control costs — including squeezing payments to health care providers like insurance companies, pharmaceutical companies, hospitals, and doctors.” Again, perfectly fine.

    The funniest thing is Obama’s policies are precisely what I would have expected from a sensible Republican. 3 dollars in cuts for every 1 dollar in tax hikes, you would expect a Democrat to be the opposite, at most 1 for 1. Of course todays brand of Republican is absolutely insane (present company excluded) and have this Norquistian notion that taxes must never be raised, not even during War time.

  • politicalfan

    Otto- Ask a small business if $250,ooo is big considering that they want to keep really happy employees and have the potential for growth? I goofed on my point evidently.

    How about this?

    I think the argument will switch to millionaires/billionaires.

    • ottovbvs

      You’re mixing up personal and corporate taxation. I know a lot of small businessmen choose to be taxed as S corps but that’s just a device to avoid tax. I was one myself for a short while. It has damn all to do with keeping employees happy or growth plans.

    • Ana Gama

      You understand that $250k is the PROFIT, not the income. Small business owners pay tax on NET INCOME after expenses.

  • valkayec

    Second question, Mr Frum. It’s a given that the costs of health care are rising much faster than inflation and will continue to do so as Boomers age and the fact that the annual “doc fix” is inevitable, does it make much sense to attempt to hold down the payments to doctors without changing the payment system?

    ACA funds some research and experimental programs which attempt to reduce actual health care delivery systems. Yet, the GOP House defunded two of the most promising experimental programs that might actually succeed in reducing costs, not only to medicare patients but to the public at large as well as providing a potential roadmap to eliminating highly expensive corporate health care insurance. Moreover, health insurance companies, while enjoying greater profit margins, are not amongst high earners on the Dow. Pushing down their margins does not make the system more efficient and effective. I reflect upon the Swiss and German systems to see how they handle insurance costs.

    So, is the GOP more interested in reducing health care costs or are they more aligned with a philosophy of the “stern father” self-sufficiency wherein each person stands on his own two feet and never asks for help from the community? If the latter takes precedence over the former, then it appears to me that the GOP fails to understand the 21st Century global economy.

    Singapore has not adopted our welfare state but has chosen to attack costs which has led to much reduced prices when compared to the U.S. for the same treatments.

    The goal needs to be attack costs of the health care delivery system by attacking unnecessary procedures and tests; controlling static, unquestioned requirements for return doctor visits; eliminating payment of treatments that show no benefit; using the buying power of Medicare and ACA to negotiate drug prices as other countries do; reducing administrative costs through technology including a standard form; making costs transparent to users, i.e. patients, of the system; and making it easier and more affordable to access routine health care through community health care centers and using lower cost nurse practitioners. In other words, the entire payment system needs revamping, which ACA, in part, took the first step toward doing.

    As Ezra Klein wrote, the U.S. has become a health care system with a huge military. The shift of monetary or fiscal resources from the young to the old is unsustainable and should shock any parent or grandparent. But leaving older people out in the cold also is against our values. We need to look at how other countries are managing to control costs in the delivery system and learn from them, instead of continuing this idiotic belief that we can never learn from anyone else.

    So again the question, when will the GOP at large begin to recognize that the health care delivery system needs to be revamped to reduce costs by learning from what other countries have done?

  • Slide

    When Clinton raises taxes at the start of his presidency, without one Republican vote, they all said it would destroy the economy. Wrong. When Bush have huge tax cuts to the wealthy the same morons said how it would spur the economy. Wrong again. Why so we even listen to these bozos? They don’t even believe their rhetoric. It’s all about greed. Pure unadulterated greed.

    • Traveler

      Slide,

      While greed no doubt played perhaps an overriding aspect of Laffer curve theorists, many good people like Jack Kemp truly believed in the rising tide theory back then. We now know it is total bullshit, so your comment stands well for the current crop of promulgators. But it wasn’t always thus.

    • JimBob

      Clinton also cut taxes on capital gains. But the truth is the economy didn’t take off for Clinton until he got wiped out in the 94 midterm elections. Republican House and Senate stopped all his grand schemes and forced welfare reform on him. Clinton changed because he wanted to win in 1996. But in 93-94 after his big tax increase the economy wasn’t doing very well.

      • ottovbvs

        Raising tax rates on people like me is good for CPAs . In the end I’ll just show less income. But lowering rates and closing loopholes(I shouldn’t get a mortgage deduction) will bring in more revenue.

        Presumably this means you’re set up as an S corp and are (let’s say) maximizing your tax position as I described @ 7.03. Nothing wrong with it at all so why are you whining about taking the top rate back to 39%?

      • LFC

        JimBob said… “But the truth is the economy didn’t take off for Clinton until he got wiped out in the 94 midterm elections.”

        So Clinton is to blame because he didn’t clean up the mess he was handed in 2 years. Earlier you blamed Obama for not cleaning up the MASSIVE mess he has handed in 2 years. Well, at least your consistent. You expect Dem Presidents to clean up Republican messes in less than 2 years.

  • Traveler

    Political fan,

    Thanks for a considered reply. I am an inventor starting my business now, so eventually I might care about potential implications of tax rates for hiring. But in business, employee expenses come off the top, so how can marginal rates on the owner make much of a difference on hiring decisions? There was a long thread on this some time ago, which no doubt Ottovon can dig up. Seeing as how I plow every dollar back into the company, I am still way below the threshold where this would make a difference for me at the moment. But I like the idea of tax breaks for companies that hire in the US. Now that makes sense. How to structure it is another thing. You have seen the other responses, so I’ll leave it at that.

    • ottovbvs

      imho this is a total red herring. S corps are a favored device for small business owners for all sorts of reasons including avoiding being taxed twice. It also provides considerable opportunities for minimizing your tax bill . There’s nothing whatever wrong with this but if an S corp proprieter has personal income of $250 k plus he’s probably got a somewhat higher income in reality than a similar earning employee on a regular corporate payroll. Nothing wrong with it, but to suggest it’s going to have anything to do with making his employees happy or preventing him taking advantage of a growth opportunity is with all due respect not the case.

      • Traveler

        Absolutely! I was being polite. I have been an S corp for two decades. I sheltered plenty. Gross was pretty damn good while the pigs fed at the trough, but net was much less, and easily covered. Now gross sucks, and half my time is on my company so things much tougher. However the future is so bright, I gotta wear shades as I eat corn beef hash.

  • JimBob

    Of course Frum is wrong. Ryan does nothing to Medicare for those already on it. But down the road a fact of life is Medicare is going to change. Either that or entitlements will consume the entire budget. Republicans need to explain to the elderly that their Grandchildren are looking at a bleak future due to old age entitlements.

    As for taxes. Cut rates and close loopholes. A flat tax will bring in more revenue and be much more efficient. Where is Bill Bradley when you need him.

    We could slow the needed change if we would get rid of cabinet departments and change our foreign policy. That would buy some time, but entitlements are on a collision course with markets.

    • Traveler

      JimBob,

      Seems like you took the reality pill for once. Please go the NYT Budget chart site and play with it. You will find it instructive. I went with limited means testing like you propose, coupled with defense throttling, a modicum of taxes on the wealthiest 2%, went with the Simpson tax reform concept which reduced overall rates and closing loopholes and deductions for wealthy homes. Lo and behold, you are there. Don’t need the flat tax. Check it out. Most illuminating.

      • JimBob

        Raising tax rates on people like me is good for CPAs . In the end I’ll just show less income. But lowering rates and closing loopholes(I shouldn’t get a mortgage deduction) will bring in more revenue.

        As for SS and Medicare. I should only get a small fraction. Means testing. It is time to get real on entitlements. Government has made promises it can’t possibly keep. My kids are successful, but I’m about to become a Grandfather and I really worry about the future. Time for Boomers to get real.

        • Traveler

          JimBob,

          Again, I totally agree. Glad to see you accept the concepts we all have to face. Means testing will help a ton. However, I can guarantee your accountants wont be able to do what we got away with back in the 80s. So the marginal will climb, but when at your level, is that so bad? One less yacht? Remember how much our system of government gave you in terms of an economy to thrive. And that economy had nothing to do with low marginal rates. And you know it.

        • ottovbvs

          Actually I thought the 90′s were nirvana. Clinton had a stroke of luck with the PC revolution on his watch but by and large he was doing all the right things and most of the businessmen I knew thought so too. And despite slight dot com craziness at the end (which was really stock market craziness which didn’t much impact main street) it was without doubt the best business climate of my business life which started in the mid sixties.

        • ottovbvs

          Raising tax rates on people like me is good for CPAs . In the end I’ll just show less income. But lowering rates and closing loopholes(I shouldn’t get a mortgage deduction) will bring in more revenue.

          What is Jimbo’s problem?
          Presumably this means you’re set up as an S corp and are (let’s say) maximizing your tax position as I described @ 7.03. Nothing wrong with it at all so why are you whining about taking the top rate back to 39%?

    • ottovbvs

      Of course Frum is wrong. Ryan does nothing to Medicare for those already on it.

      Frum didn’t say it did, so how could he be wrong?

      But down the road a fact of life is Medicare is going to change.Either that or entitlements will consume the entire budget.

      Why is it a fact of life? since your second statement is entirely incorrect. Our peer group are running UNIVERSAL healthcare systems at half the cost of ours so what are they doing right and what are we doing wrong?

      • JimBob

        It’s called Demographics and medical technology. Otto, you’re pitiful.

        • ottovbvs

          What’s pitiful is your refusal to answer simple questions.

          It’s called Demographics and medical technology.

          Is this what passes for logical discussion in your circles.

  • RalfW

    Andrew Sullivan linked to a chart today that reminds us that in fact marginal rates are near their historic, 90-year lows. For Frum and others to say that rates need to be even lower because they believe that low rates stimulate growth, well, bucko, they’ve been low and, uhh, where’s the beef?

    Corporations are making huge profits and sitting on piles of cash, but there’s precious little job growth to show for it. Yes, one million private sector jobs have been created in the past year, but that doesn’t really even cover the absorption rate of new workers.

    The notion of trickle-down has been so utterly refuted that folks like Frum can only believe their tax ideology creates growth. They can’t prove it worth a tinker’s damn.

  • valkayec

    “Republicans have succumbed to a strange mood of simultaneous euphoria and paranoia. Republicans have convinced themselves both that: (1) American freedom stands in imminent danger of disappearing into totalitarian night; and (2) that the vast majority of the great and good American people are yearning for a mighty rollback of big government, even at considerable personal sacrifice.”

    This statement, while potentially true among politicos, seems strangely off kilter to me. I simply don’t understand it nor do I witness it during interactions in my largely conservative community. Consequently, I wonder where this concept came into being. The greatest concerns here are the lack of jobs; decreased wages; and lack of economic activity which has caused many small businesses to shut down.

    1) Is it true that American voters by and large believe that American freedom stands in imminent danger of disappearing into totalitarian night? I don’t see a great deal of evidence of this statement within my community. Certainly some Tea Party factions hold this belief, but it doesn’t appear to be wide spread.

    2) Is it true that the vast majority of the great and good American people are yearning for a mighty rollback of big government, even at considerable personal sacrifice. I don’t see any evidence of this either in polls or discussions with my neighbors. Overwhelming evidence shows that American voters continue to want everything while paying nothing. That is the major failure, in my opinion, of our political system – on both sides of the aisle – in not telling people that they actually have to pay for what they want government to do for them, be it low cost health care or rebuilding a community after a natural disaster or preventing a business sector from despoiling the environment or our food sources.

    Those all cost money, and if we want help and protection we have to pay for it. If we want safe roads & highways, bridges and levees, we have for pay for them. Those things are not free. Yet, our politicos have continually led voters to believe that they can have their cake and eat it too.

    Meanwhile, our nation’s infrastructure crumbles and the nation as a whole stumbles to compete in a global environment in which the most productive and economically vibrant societies are investing for the future.

    When I look at the GOP today, I do not see a party that puts the economic vibrancy of the nation first, but rather a party holding onto a failed notion of Wall St superiority. Let me clarify. During the last 3o some years, the idea of infallibility of took hold in DC. As a result, the idea of large returns on short term investments became dominant as well as the idea that the nation no longer had to reinvest in itself. That was already done by Eisenhower…and the states with whatever amounts the Fed government handed out would keep the nation’s infrastructure strong. But nothing is adverse to mutability.

    By putting so much emphasis and belief in Wall St, our politicos short changed the nation on multiple levels. I suspect that many, if not most voters, are reacting adversely to the truth that the nation has not invested in itself.

    So, let’s change the argument.

    • Traveler

      Valkayec,

      I always appreciate your posts, and in particular, this one. Its time to change. Got to give the refuglicans credit for forcing the issue (after years of denial and being the proximate cause), but hey, better late than never. However, as you point out, the whole debate is framed in a completely unreal manner. Thanks for the focus. Now lets quit bickering at each other and get down to it. That means you, Ottovon and JimBob. You two are far closer than your rhetoric indicates.

      • ottovbvs

        You two are far closer than your rhetoric indicates.

        I hate to disagree since you obviously know how many beans make five, but I do think there’s a fundamental difference. Basically Jimbo thinks Ryan’s budget makes sense. It doesn’t. It’s bollocks. Period. In a sense the whole debate about Ryan’s proposals is overblown (except as a reference point for the wider philosophical debate as you suggest) because they’re never going to get passed in a million years for the reasons that DF so eloquently explains. The issue on this thread is not Ryan’s budget per se but the extent to which it constitutes a hostage to fortune for the GOP. And it does both because of the unacceptability to most Americans of its conclusions and the flakiness of its data and reasoning (If I’d have produced something like this about 35 years ago when working in the strategic planning dept of an oil major I’d have been fired). Like David I think the GOP are making a considerable error in nailing their flag to this particular mast but I guess we’ll find out.

  • Traveler

    Ottovon,

    I admit seeing JimBob presenting a modicum of reasonableness induced me into the delusion of hoping for a rational discussion. That said, he is right that there should be some “means” testing. The devil is in the details, as Fred Bauer’s article indicates. I envisage starting with something along the lines of actuarial metrics, seeing as how we live longer and healthier than when the formulae were originally set up. So not really means testing per se, more along the lines of adjustments to recognize facts on the ground. But there has to be a way to divert some funds from going to those who made it already toward those less fortunate. Life is never fair. But this has to be fair, and not create disincentives.

    So I agree totally that Ryan’s budget is a major coup for BO. The refuglicans are exposed for the venal slime they are. I totally share your glee with them being nailed to the floor. But just because their dicks are in the wringer, that is the time to draw them out, not smash them and make them even more bitter. As a result, I see this an opportunity to engage folks like JimBob in a less confrontational manner. I am just a wuss I guess. But getting people’s back up against the wall makes for poor discourse. Jabs may be fun, but do they advance us as humans? Those assholes aren’t going away anywhere.Living well is the best revenge.

    I sure do love the rope a dope that BO played on this. They are going batshit over at the spectator.

    • ottovbvs

      I must take a look at the Spectator. In fact my crowd are mainly upper middle class Republicans (NE variety so reasonably sane) but I did have a house down on the GA coast for a long time and again hung out with upper middle class Republicans who sounded very like Jimbo. Totally irrational. Never stopped whining about the govt although many were involved in business activities that depended on govt or were retired military with fat pensions and VA healthcare. Racism and holy rollerdom was endemic, and many of them are still fighting the war of northern aggression. So no they weren’t really people I was interested in having a drink with. I finally got rid of the place about four years ago because I could see the property market was tanking. My old lady wasn’t happy but I was.

  • politicalfan

    Traveler-

    Difference in ideology. I don’t agree with all of the points but the final paragraph about having a drink or two with a person from another party. (Not a bad idea).

    “Republicans worry about the adverse incentive effects of high marginal tax rates. A marginal tax rate is the additional tax that a person pays on an extra dollar of income. From this perspective, many of the tax cuts you have championed look more like tax increases. For example, the so-called Making Work Pay Tax Credit is phased out for individuals making more than $75,000 a year. That is, because many Americans lose some of the credit as they earn more, the credit reduces their incentive to work. In effect, it is an increase in their marginal tax rate. From the standpoint of incentives, a tax cut is worthy of its name only if it increases the reward for earning additional income.” N. Gregory Mankiw
    The New York Times. Jan 1, 2011.

    http://www.nytimes.com/2011/01/02/business/02view.html?_r=1
    (and a different view)
    http://www.salon.com/news/politics/war_room/2011/02/16/recih_andrew_leonard

    • Traveler

      Politicalfan,

      I may be dense, but if the marginal dollar earned is still more than I would have got without earning it, then there is no disincentive. For sure if the guvmint gets 90%, then why go for it? But if you have the entity set up already, you are damn sure going to squeeze it for what its worth, whether the guvmint is taking 35% or 25%. It’s a question of marginal effort, and once you have your company set up, it is largely a printing press. Sure you have to show up and keep it humming, but you would do that anyway, whether it was 25% or 35%. So I find the argument kind of specious.

      Anyway, thanks for the rational discourse. Thanks also for the link to Mankiw. Still don’t agree, but wouldn’t mind tossing a beer or two over the topic.

      • politicalfan

        Clearly, there are differing arguments. Considering the tax cuts are $1 trillion dollars, I think the President has a sound position.

        I simply see the Republicans coming back with a counter-argument about hurting incentives, causing uncertainty, impacts on our economy and examples of economies in other countries (impacts due to high marginal tax rates) etc. etc. Get ready for the debate. Cheers to you Traveler!

        • Traveler

          Too bad you are such a leftist! :)

        • politicalfan

          Traveler-

          I imagine that I am a left/Independent. I see the gray area!

          I don’t agree with either sides all the time. I am not oblivious to the fact that they both play politics and do not celebrate the opportunities where the country could be on a better path (enough).

          I didn’t always agree with President Bush but I thought he could bashed unnecessarily at times. There are some brilliant minds on both sides, I just think more can get done if people have more “beer summits.” Or coffee?

  • sweatyb

    It’s exactly like what happened on health care reform, where Republicans persuaded themselves they had Obama on the ropes even as he succeeded in enacting the most important new entitlement since 1965. We went for all the marbles, and ended with none.

    Except for the part where the Democrats pushed through the Republican health care plan of the decade before and paid dearly for it in the following election.

    Ryan’s “plan” (cut taxes for the rich and slash assistance to the poor) could afford to be so out there, so blatantly cynical, because the Republicans know that Obama is going to hit back with something distinctly less extreme. So by staking out a position on the lunatic ideological fringe, they essentially guarantee a policy win.

    And the President happily obliged them today. The Democratic President with a Democratic Senate unilaterally proposed cuts of $4 trillion alongside a mild increase in tax rates. Sure, he didn’t propose destroying Medicare and Medicaid or defunding his own health plan, but he’s supposed to be the liberal, right?

    In terms of appearance, Ryan has egg on his face (same as last time when his “plan” was instead a “roadmap” — it doesn’t seem to phase them that much) and Obama looks good. In terms of policy, “progressives” and liberals are getting their asses handed to them courtesy of the Ayn Rand crowd (who aren’t ever going to get what they want).

  • TerryF98

    Well the “Twitteratti” are not seeing things quite like that. They see Obama taking the GOP’s lunch.

    “JohnRGuardiano W/buget deal, it looks like Obama took the #GOP’s lunch $ & w/speech today is prepared to stirfry the opposition in ’12 “

    • sweatyb

      @Terry

      In case you hadn’t noticed, the President’s reelection strategy has very little in common with the any liberal agenda. He’s certainly in great shape for 2012, but American Liberalism (like traditional conservatism) is very much lost in the wilderness right now.

      • ottovbvs

        You might also notice Obama has eaten the Republican’s lunch over the 2011 budget deal. As details are trickling out it’s becoming increasingly apparent Boehner is facing significant defections and will probably have to pass it with Democratic votes. Btw loved your rationalisation of the hole that Ryan has dug for the GOP (as Frum points out). Ever considered a job as a scriptwriter for the Harry Potter movies?

  • Primrose

    The whole concept of losing the incentive to work harder if we raise marginal rates has been troubling me all day. Precisely how much harder could someone earning above the 250K rate work? Would they? And should they?

    Most workers earning over 100K work at least 50hours a week. If there is an assumed increase in work to 250, maybe their working 65 hours and if there is an increase in workload to 400, then that’s edging into or at 80hours a week.

    Why on earth do we think its a good thing for someone to work more than 80hours a week? Wouldn’t it be better if they spent those few free hours with their children? Or volunteering on a pet project? Or more likely sleeping?

    There are only 168 hours in a week. If we give them 7 hours a sleep a night, which is required for good health (bad health being expensive) that’s only 119 hours, if they scarf down their meals (and never cook them, that’s down to 112, and if they only have a half hour commute (because live in a city ), that’s 105, at least five of that will be consumed by personal grooming, and the small transitions between waking and sleep. So at best, you only have 20 more hours to squeeze out of a person anyway.

    So no, over a certain amount of money, the marginal rates won’t make people work harder because they can’t. As for innovation and bright ideas, that requires more dilly-dallying and had does not (once desperation is gone) have respond to money.

    Nor after 300-500K (depending on region and responsibilities) should a person be motivated by money anymore. If you have enough even for luxuries and can only be motivated by more money, you have lost perspective, and are not your most useful to society.

  • Russnet

    Uh, Frum. We’ve got major structural defects in entitlements, but polls show Americans (by less than 6 to 10) “love their Medicare,” so revision is a negative? And might the greater problem with higher taxes on the wealthy be not their pain but the growing dependency of a non-saving, overconsuming, unhealthy and aging society? When I reached $50k net in my business, I hired. When reached $100knet, I hired again. If I had hit $250k, I would have hired some more had I not been dog tired and sick of no sleep and my a55hole accountant, i.e. Quikbooks. This is the problem with politicians and their poll-sniffing consultants. Polls can never make two existential lines genuinely meet on a graph. We’ve got major structural problems, and Obama just wants to be re-elected. Where’s the principle in liquidating reserves? I wish him well if he gets the gimmee gimmee gimmee vote, but he’s not getting mine.

  • SFTor1

    I would ask someone to show me that the motivation to work harder lies in the marginal compensation received. Does a doctor work harder after his first Porsche Cayenne because he wants a Maserati in the driveway as well?

    Does an entrepreneur scale back his ambitions because the IPO will only bring him 15 million instead of 20?

    I think the argument is entirely misbegotten. There is plenty of reward even with a higher marginal tax rate. If anyone says otherwise then please show me that entrepreneurialism and productivity increases in periods with higher marginal tax rates were lower than we have now.

    What do I base my assumptions on? Most of all Herzberg, who classifies money as a hygiene factor and not a motivator. Have too little of it, and you complain. Once you have enough true motivation factors like mastery, shared purpose, autonomy, and opportunities for creative exertion are the things that drive you to greater heights.

    • Bunker555

      Sometimes it’s a privilege to pay taxes. Following dialogue from Eddie Murphy in the movie 48 Hours.

      [Shaking down a redneck, Reggie pulls a wad of money from his pocket]
      Reggie: Man, you loaded here. What the fuck’s this?
      Redneck: Tax refund!
      Reggie: Bullshit! You’re too fuckin’ stupid to have a job!

  • Rabiner

    Russnet:

    “When I reached $50k net in my business, I hired. When reached $100knet, I hired again. If I had hit $250k, I would have hired some more had I not been dog tired and sick of no sleep and my a55hole accountant, i.e. Quikbooks.”

    Why didn’t you then hire someone to do your books?

  • A Completely Unofficial Blog About Eric Cantor » Republicans Fall into Obama’s Budget Trap

    [...] Conservative writer David Frum agrees that Republicans have given Obama exactly what he wanted, Here’s a basic fact of American politics. The American people like Medicare. They are not so enthusiastic about tax cuts for the rich. [...]

  • Russnet

    Figure of speech, Rabiner. IF I had hit $250k, my next hire might have been a bookkeeper. (Maybe he or she would have lied about my tax liabilities, unlike the software.) If I had hit $250k, I might have hired three others, fueling further growth and hiring. Then net might have dropped back down to below $250k, but gross would continue to rise creating greater opportunity for future profits. My point is that on the back end, where the rubber meets the road, the business owner struggles first and foremost against fixed costs, primarily taxes, especially during growth. Obama’s deficit reduction plan is to raise a higher hurdle for the businessman when the problem is clearly excessive government spending. His is not a plan for government, it is a re-election ploy rooted in class division.

    • ottovbvs

      Obama’s deficit reduction plan is to raise a higher hurdle for the businessman….. where the rubber meets the road, the business owner struggles first and foremost against fixed costs, primarily taxes, especially during growth.

      How exactly does taking the top marginal rate from 35% back to 39% raise higher hurdles for the businessman? Just about the best business climate of my lifetime was in the 90′s when top rates were at or just above this figure. And since when were income taxes a fixed cost?

  • Obama’s 2012 Opponent – Paul Ryan : Delaware Liberal

    [...] David Frum, George W. Bush’s former speechwriter, knows that Republicans have fallen into a tr… In the current Republican mood, however, precautions are for girlie-men. Republicans have succumbed to a strange mood of simultaneous euphoria and paranoia. Republicans have convinced themselves both that: (1) American freedom stands in imminent danger of disappearing into totalitarian night; and (2) that the vast majority of the great and good American people are yearning for a mighty rollback of big government, even at considerable personal sacrifice. [...]

  • Primrose

    Russnet,

    My parents are have a small business (a farm) and the odd thing is that they only pay taxes (other than sales) on profit. If they invest in their business, that’s money that is not a profit. So if they earn more on their cattle, and they buy more, or buy a tractor, or hire more help, that money ceases to be taxed.

    Fixed cost for them is how much it costs to buy (and in their case) raise, their product, also how much to market, plus employees. (Yes payroll taxes for employees affects them (are fixed) but that’s not the marginal tax rate).

    If you are paying tax on net not profit, you should well need to get that bookkeeper…

    • ottovbvs

      Primrose:
      He’s bs’ing. Income taxes are not fixed costs. Property taxes are but that’s not what we’re talking about. Fixed costs are costs that aren’t directly related to the volume of business a corporation does. As the name implies they’re fixed regardless of volume. For example, rent of premises and utility bills for the store owner are fixed costs whereas the inventory he buys or his employees wages are variable costs because they adjust depending on volume of sales.

  • Petersoa

    First time I’ve read the Frum Forum and I’m impressed, both with the content (which, having seen Mr. Frum on TV, I expected) and with the Comments (which was unexpected). The latter are far more civilized than on the usual conservative website. Informed commentary and little profanity, at least.

    I’m a liberal Democrat. I liked the President’s speech yesterday and I like Mr. Frum’s analysis even though I don’t agree with his contention that lower tax rates on high earners stimulate growth.

    I’m not so sanguine about how the electorate will greet the President’s proposals because the direction of the political climate in this country has been rightward, I think, for many years. Conservatives have been very effective in turning the country to the right. Maybe things will start to change. I think we liberals have a stronger position morally (e.g. we think, as a community of Americans, we ought to watch out for the less fortunate; we ought to have their back rather than, as with the Ryan budget, stab it) and I think the President began to outline our case very well yesterday.

    Especially here, I don’t expect the above to gain much approval, but, so far, I’ve enjoyed the read.

  • Obama’s budget: facts, not fantasy

    [...] – something all voters, even Republican ones, oppose. David Frum explains exactly why the Ryan plan represented a easy opening for President Obama to deliver a budget plan on his agenda and cast the GOP overreach in stark [...]

  • Rabiner

    Russnet:

    “My point is that on the back end, where the rubber meets the road, the business owner struggles first and foremost against fixed costs, primarily taxes, especially during growth. Obama’s deficit reduction plan is to raise a higher hurdle for the businessman when the problem is clearly excessive government spending. His is not a plan for government, it is a re-election ploy rooted in class division.”

    Except that isn’t how a smart business man reacts to the income tax. A smart business man says ‘does this action increase profit?’ and if it does, they do it almost regardless of any tax system. The reasoning behind that is the progressive tax code is marginal so moving into a higher bracket doesn’t affect past earnings, only future ones and even at that, it still leaves you with more money than before.

  • Russnet

    How many ways can you guys deny that higher taxes means lower profits? Lower investment in hiring and R&D? To say that a smart businessman acts to increase profits “regardless of any tax system” is ludicrous. The smart businessman rather incorporates tax consequences into business strategy at the outset, and with higher taxes, that usually means less fuel for growth, a harder struggle to succeed further. And by fixed costs I mean taxes are an inescapable liability. I appreciate the arguments here, but I think you guys are getting too creative in demonstrating how the business mindset can accept higher taxes, as though the government owns the money in the first place and does us a favor by letting us keep some of it. Why do you suppose the business class is traditionally conservative and for lower taxes?

  • LFC

    If business taxes are so onerous, and cutting the business tax rate is supposed to hire spending and hiring, how come business has been holding onto money (taxed as profits) instead of spending and hiring (untaxed as expenses) for the past 30 years? The corporate tax cut idea doesn’t pass the smell test.

  • Russnet

    Lack of a product and/or talent, combined with the freedom of ownership to determine short-term vs. long term strategy. If that graph were flat we’d truly live in the trees of another planet. I would have hired because I had a service-intensive business. I don’t begrudge conservative fiscal policy except when truly shortsighted. I love the power of the individual. I loved the employees I had and grew to the levels I did because of them. (Until I could not pay the tax bill. Then we all lost our jobs.) IMHO to have employees for the sake of having employees is a non-starter, somewhat statist organizational outlook. The government gets away with it; business can’t. I’m busy today ladies and gentlemen. Have a good day. I’ll return and try to clarify in other posts some time later, or offer modest rebuttal to those who have chained me upside down by my ankles. I am wrong often with [detail stuff] but I’m not going to shy away from ultimate valuations. I’m center-right. No way I leave this deep channel based on what I see or hear these days.