Entries Tagged as 'tax cut'

Debunking the Payroll Tax Cut Idea?

David Frum August 30th, 2011 at 9:21 am 38 Comments

Over the past 2 years, I’ve banged the drum for a payroll tax cut as a way to put more money into workers’ hands quickly and efficiently, arguing against most other forms of fiscal stimulus as too slow and unwieldy. Bruce Bartlett states the counter-case today in the New York Times:

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.

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Pawlenty Can’t Afford His Foreign Policy

July 2nd, 2011 at 12:39 am 26 Comments

GOP presidential candidate Tim Pawlenty recently called for $2 trillion in tax cuts for individuals and businesses in the next decade, view as well as two to three times less federal spending – cutting a total of $8 trillion.

But on Tuesday, illness Pawlenty expressed his foreign policy plans to remain involved in the Middle East – to “seize” the opportunity “amid the turmoil of the Arab Spring” and to “help promote freedom and democracy.”

The GOP candidate said America should stop “leading from behind” and be more active in regions like Libya, Egypt and even Saudi Arabia.

However, the cost of the U.S. campaign in Libya is expected to exceed the $750 million Pentagon estimate set out in March. Taxpayers are spending $2 million a day to support the African nation – and all this while “leading from behind.” At the current expenditure, the U.S. will spend almost $1 billion on its Libya mission.

Pawlenty’s campaign spokesperson refused to comment on how the candidate plans to fund even more overseas missions while also cutting government spending.

Economics columnist Bruce Bartlett said his foreign policy corresponding to his economic policy is “possible – but it’s also possible that pigs will grow wings.”

A president has limited power in controlling the budget. Pawlenty would require Congressional approval to make such drastic cuts in both taxation and spending, which Bartlett said is “absurdly unrealistic.”

Taking stands that separate him from other candidates may appeal to some portion of the Republican electorate, which could give him the much-needed popularity he is lacking – even if it’s from Tea Partiers, Bartlett said.

However, Peter Feaver, a former National Security Council advisor to Clinton and Bush, said that ignoring problems abroad will just bring them home, so Pawlenty has the right idea by addressing the importance of U.S. involvement in the Middle East.

“I wouldn’t say that he is focusing so much on the Middle East as the Middle East is focusing on us,” said Feaver, who is now a professor at Duke University. “I would say in the long run the Republicans are not going to win in the general election by running on the left of Obama on foreign policy.”

Feaver said he did not know enough about economics to analyze if Pawlenty’s plan is feasible, but he did say “a crucial part ofPawlenty’s stance is that you have to rebuild the economy and get it growing again and his plans and ambition on the foreign policy side is predicated on [that].”

Feaver said the perceived mood of the Republican party is war-weariness and a desire to retreat from the Middle East, but even though “being strong on national security doesn’t capture the way the mood seems to be recorded,” the last century of history shows that few international problems have been solved without help from the United States.

“The lesson since World War II is that American leadership is important,” he told FrumForum, “There are few problems that got better with America ignoring them, and few that got solved by others stepping up and letting America ‘lead from behind.’”

But looking at the numbers, Pawlenty’s foreign and economic policies do not seem compatible.

Federal Budget Analyst Andrew Fieldhouse said that Pawlenty’s tax plan does not compute with his spending plan because the GOP candidate has endorsed a federal balance budget amendment towards capital expenditures of 18 percent GDP. Currently, federal spending is close to 24 percent. His revenue plan would lose 7.6 trillion dollars of revenue. According to his plan, revenue would only be 14 percent of GDP, and after subtracting the three percent interest rate, there would only be 11 percent of GDP for actual government spending.

“At that point you could theoretically continue large military presence overseas and his extensive foreign policy, but it would crowd out huge areas of the federal budget,” said Fieldhouse.

The government would have to reduce the Congressional budget, eliminate Social Security, federal retirement, foreign subsidies, federal health expenditure, non-interest government spending and 10 percent of the economy over the next decade.

“It doesn’t seem feasible to me,” he told FrumForum. “He has a delusional approach to budgeting. I don’t think he’s thought any of this through.”

Budgeting 18 percent of the economy (which the Ryan plan proposes) is always difficult, but possible. However, budgeting 11 percent of the economy for federal spending, while having a large military presence overseas – is near impossible, said Fieldhouse.

A recent Gallup poll shows that Pawlenty’s name recognition among Republicans has risen to 57 percent, but his Positive Intensity Score is 8 – his lowest to date. To prevent his popularity from decreasing, he needs to increase his appeal to voters.

When asked if he thinks Pawlenty is using his foreign policy stance to stand out from other candidates, Feaver said that Tuesday’s speech truly reflects his views.

“I think this doesn’t reflect a tactical positioning of himself to appeal to the primary voters so much as this is what he actually believes is good for American national interests,” he said. “And that’s an important distinction – some candidates will take a stand because they’re trying to triangulate some primary voting blocker.”

“Since the [Tea Partiers] make no demands on their ideological leaders to be logically consistent or have numbers that add up, he doesn’t feel like he has to conform to that requirement either – so he just says whatever he thinks will be popular,” said Bartlett.

A Jobs Summit that Works

David Frum November 30th, 2009 at 10:16 am 47 Comments

Good for Newt for calling his own.

Here are some things we should be talking about:

1) A 5-year extension of the Bush tax cuts. This is no time to be raising taxes. While the ideology of the governing party rules out making the Bush tax cuts permanent, economics tells us that short extensions do no good at all. Shoving off the expiration date from 2011 to 2013 will make no difference. Five years at least. There will be time in the next administration to think through the revenue reforms we need to achieve budget balance in future: consumption taxes or energy taxes, not taxes on saving, work and investment.

2) Military re-equipment. Our John Guardiano has been arguing here that re-equipping the armed forces after a decade of exhausting war can provide stimulus to some of the economy’s high technology sectors, badly battered by the collapse in business investment. We’re hearing a lot of 1930s analogies these days. Consider this one: the FDR bill that had the most dramatic impact on employment was his Naval bill of 1938, a then-astounding $1 billion for new ships and naval aircraft. That money helped pull the economy out of the “second depression” of 1937. A military capital budget could help sustain both employment and necessary rearmament over the difficult months ahead.

3) An exchange rate deal. The dollar has declined against the yen and euro, as it needs to do. Through complex central bank operations, China has thus far managed to push its currency down in tandem with the dollar. This is good news for Chinese exporters: their goods stay cheap in American stores. But for everybody else in China, the currency decline implies inflation ahead: Unlike the recession-struggling U.S., China is growing and super-abundant liquidity translates into asset bubbles and soaring consumer prices. In its own interest, China needs to revalue its currency sooner or later. Trade inducements from the U.S. might help nudge that decision forward to “sooner.”

4) An immigration slowdown. The job growth of the past year heavily disproportionately benefited immigrant rather than native-born labor, as economist Ed Rubinstein has shown.  Federal stimulus dollars are headed toward immigrant-heavy sectors: construction above all. Given the especially appalling unemployment numbers among young black males, we need to be acting decisively to ensure that U.S. taxpayer dollars provide relief to U.S. nationals.

5) Avoid direct federal job creation. These programs become dead ends: see especially the sorry history of the Comprehensive Employment and Training Act. Created in 1973 to expand a program created in the Kennedy administration (!) to help workers displaced by automation (!!), CETA rapidly devolved into a permanent holding tank for lightly committed workers.

6) TARP 2. I know, I know: everybody hates TARP. But 14 months after the Lehman crash, credit remains ultra-tight, in great measure because the books of banks and other lending institutions are clogged with bad debts. Inability to produce a plan to clear these bad debts remains failure 1 of the Obama administration domestic policy … a better TARP remains today as it has always been a prerequisite for rapid recovery. Otherwise we are in a Japan-like situation of hoping that general economic improvement will turn bad assets into good. That can happen too, but it takes time – and nobody should wish to dawdle.