Wonkbook: 9-9-9 under the microscope
By Ezra Klein,
If you were looking for a sober, sensible discussion of tax policy, last night's GOP debate was not for you. Take Congresswoman Michele Bachmann’s opening criticism of Herman Cain’s 9-9-9 tax plan. “If we give Congress a 9 percent sales tax,” she asked, “how long will it take a liberal president and a liberal Congress to run that up to maybe 90 percent?”
But Cain's defense wasn't much better. "The thing that I would encourage people to do before they engage in this knee-jerk reaction is read our analysis," he shot back. "It is available at hermancain.com. It was performed by Fiscal Associates. And all of the claims that are made against it, it is a jobs plan, it is revenue-neutral, it does not raise taxes on those that are making the least."
Fiscal Associates -- or at least the Fiscal Associates listed on Google -- turns out to be a five-person financial planning firm in West Bloomfield, Michigan. "Matching your Resources to Your Goals and Lifestyle," their website promises in a tasteful, tan, and seemingly randomly capitalized script. There is no evidence that anyone at the firm has any experience estimating the revenue effects of tax-reforms proposals. [Update: Turns out Cain meant Fiscal Policy Associates, which is an analysis shop in Arlington, VA, run by ex-Treasury official Gary Robbins. That makes more sense.]
Somewhat oddly, the analysis (pdf) Cain posted from them has the word "draft" emblazoned on the bottom of every page. Confidence inspiring stuff. But even the draft analysis doesn't tell us much. What we need to know to decide whether the plan will raise taxes on those making the least is what tax wonks call "a distributional estimate" -- an estimate of what different income groups will pay under the new proposal. There's no such estimate in the Fiscal Associates draft. Luckily, the nonpartisan Tax Policy Center, who have long experience estimating tax-reform proposals, released just such an analysis last night.
They found that the proposal would raise taxes on 84 percent of households -- and, broadly speaking, those 84 percent of households would be the bottom 84 percent. A family in the bottom 20 percent of the income distribution can expect their tax bill to rise by more than $1,600. A family smack in the middle will be paying will be paying $3,238 more. It's not until you get to households making more than $200,000 that you begin to see tax cuts. If you're in the top one percent, your tax bill will drop by $307,000. The top 0.1 percent? A tax cut of almost $1.7 million.
To his credit, Rick Santorum had done his homework before coming to the debate. "Herman's well-meaning, and I love his boldness, and it's great," he said. "But the fact of the matter is, I mean, reports are now out that 84 percent of Americans would pay more taxes under his plan. That's the analysis."
Cain's response? "That simply is not true. I invite people to look at our analysis, which we make available." I will note again that the Fiscal Associates analysis provides no estimate of how many taxpayers would pay more and how many taxpayers would pay less under Cain's plan.
Hoping for further fireworks, the moderator, CNN's Anderson Cooper, turned to Newt Gingrich. "Speaker Gingrich, you have said in recent days that Mr. Cain's 999 plan would be a harder sell than he lets on," said Cooper. "How so?"
"Well," said Gingrich in the slightly sleepy, slightly bemused tone he has adopted for these debates. "You just watched it."
1) The supercommittee is way behind, reports Robert Pear: "With just five weeks until its deadline, a secretive Congressional committee seeking ways to cut the federal deficit is far from a consensus, and party leaders may need to step in if they want to ensure agreement, say people involved in the panel’s work. The 12-member committee is just over halfway through the 76-day interval from its first meeting to the date its final report is due on Nov. 23, but has not gained much traction. The lawmakers have not agreed on basic elements like a benchmark against which savings will be measured. The panel’s members, evenly divided between the two parties, spent most of September in a standoff. Republicans refused to budge from their position against new taxes. Democrats said they would not discuss cuts to entitlement programs like Medicare unless Republicans made a firm commitment to accept additional revenues."
2) The pared-back jobs bill could get even less support, report Manu Raju and Scott Wong: "President Barack Obama and Democratic leaders believed that bringing forward a popular spending package for hiring teachers and firefighters would prove to be a far easier sell than the White House’s more ambitious $447 billion American Jobs Act. But that’s hardly been the case on Capitol Hill. Several moderate Democrats and Republicans appear to be struggling to overcome 'stimulus fatigue' setting in among voters back home and are withholding support for now -- meaning the latest proposal is at risk of winning even less backing than the president’s signature economic bill, which fell nine votes shy of breaking a GOP-led filibuster last week...Sen. Joe Lieberman (I-Conn.)...told POLITICO he probably would vote to block the latest proposal from even moving forward for debate."
3) Banks are pressuring Democrats over their support of "Occupy Wall Street," report Robin Bravender and Anna Palmer: "After the Democratic Congressional Campaign Committee sent a recent email urging supporters to sign a petition backing the wave of Occupy Wall Street protests, phones at the party committee started ringing. Banking executives personally called the offices of DCCC Chairman Steve Israel (D-N.Y.) and DCCC Finance Chairman Joe Crowley (D-N.Y.) last week demanding answers, three financial services lobbyists told POLITICO. 'They were livid,' said one Democratic lobbyist with banking clients. The execs asked the lawmakers: 'What are you doing? Do you even understand some of the things that they’ve called for?' said another lobbyist with financial services clients who is a former Democratic Senate aide."
4) European leaders are haunted by the ghost of Lehman Bros., reports Neil Irwin: "As European politicians and bankers confront their continent’s debt crisis, they are haunted by the memory of Lehman Brothers. The failure of that Wall Street investment bank in the late summer of 2008 turned what had been largely a domestic financial crisis in the United States into a global emergency that tripped up the world economy, including that of Europe. European leaders are now keenly aware of the myriad strands that bind together the world’s financial system. And they say they are determined not to commit the same mistakes that, in their view, the Bush administration and the Federal Reserve made when they did not prevent Lehman’s bankruptcy in September 2008."
5) 9-9-9 came in for criticism at last night's GOP debate, report Karen Tumulty and Amy Gardner: "The near-weekly ritual of Republican presidential debates took a raucous turn Tuesday night as the unsettled field of candidates ganged up on one another in a series of attacks more intense and personal than any in their previous appearances together. The first to feel the assault was the front-runner of the moment, Herman Cain, who is struggling to prove that he is a serious contender and not merely another evanescent phenom of this election season. He was thrown on the defense by new criticism of his signature '9-9-9' tax overhaul plan, which an independent analysis released shortly before the debate indicated would be a boon to the wealthy and put a significantly heavier burden on lower- and middle-income Americans."
1) The supercommittee is right to operate privately, writes Jordan Tama: "History reveals the importance of extensive private talks for members of a bipartisan group to get to know one another and pursue compromises. Eleven of the 18 members of President Obama’s fiscal commission endorsed a $4 trillion deficit reduction package, but only after months of private deliberations. When the panel did hold public hearings, they resulted in partisan grandstanding about fiscal stimulus and health care reform. Private deliberation can also help ensure legislative follow-up. In 1981, a crisis in Social Security financing prompted President Ronald Reagan to appoint a 15-member commission led by Alan Greenspan (then an economic consultant) and including seven members of Congress. The panel achieved a breakthrough at a three-day retreat in Alexandria, Va."
2) We need to better regulate "Too Big to Fail" banks, writes John Huntsman: "More than three years after the crisis and the accompanying bailouts, the six largest American financial institutions are significantly bigger than they were before the crisis, having been encouraged to snap up Bear Stearns and other competitors at bargain prices. These banks now have assets worth over 66% of gross domestic product--at least $9.4 trillion, up from 20% of GDP in the 1990s. There is no evidence that institutions of this size add sufficient value to offset the systemic risk they pose. The major banks' too-big-to-fail status gives them a comparative advantage in borrowing over their competitors thanks to the federal bailout backstop. This funding subsidy amounts to roughly 50 basis points, or one-half of a percentage point in today's market."
3) The falling share of labor in the economy is driving public discontent, writes Peter Orszag: "In Economics 101, students learn that the share of national income received by labor stays roughly constant with the share received by capital. This is the first of 'Kaldor’s stylized facts,' articulated half a century ago by the Cambridge economist Nicholas Kaldor. Recent experience betrays this lesson. Over the past two decades -- and especially since about 2000 -- the share of national income that flows into wages and other kinds of worker compensation has been plummeting in various countries. Labor share normally bounces around over the business cycle, but given how long the decline has lasted, it can’t be dismissed as cyclical. And this partly explains the kind of anger and frustration that is fueling the Occupy Wall Street movement worldwide."
4) 9-9-9 is a great tax plan, writes Arthur Laffer: "The whole purpose of a flat tax, à la 9-9-9, is to lower marginal tax rates and simplify the tax code. With lower marginal tax rates (and boy will marginal tax rates be lower with the 9-9-9 plan), both the demand for and the supply of labor and capital will increase. Output will soar, as will jobs. Tax revenues will also increase enormously—not because tax rates have increased, but because marginal tax rates have decreased. By making the tax codes a lot simpler, we'd allow individuals and businesses to spend a lot less on maintaining tax records; filing taxes; hiring lawyers, accountants and tax-deferral experts; and lobbying Congress. As I wrote on this page earlier this year ("The 30-Cent Tax Premium," April 18), for every dollar of business and personal income taxes paid, some 30 cents in out-of-pocket expenses also were paid to comply with the tax code. Under 9-9-9, these expenses would plummet without a penny being lost to the U.S. Treasury. It's a win-win."
5) The future of the Euro doesn't look bright, writes Martin Wolf: "Suppose the immediate crisis were indeed overcome, in such ways. Would this promise a sunlit future for the euro? No. Nor, as so many suggest, is some sort of fiscal union the answer. True, if creditworthy members were to transfer resources to the uncreditworthy on a large enough scale, the eurozone might be kept together. But, even if such a policy could be sustained (which is unlikely), it would turn southern Europe into a greater Mezzogiorno. That would be a calamitous outcome of European monetary integration. The fundamental challenge is not financing, but adjustment. Eurozone policymakers have long insisted that the balance of payments cannot matter inside a currency union...This is nonsense."
Live interlude: Memoryhouse play "Modern, Normal."
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Still to come: Ben Bernanke wants the Fed to help burst financial bubbles; the Senate is acting to water down nutrition rules; last fiscal year's deportation numbers set a record; regulators are cracking down on energy speculation; and a bear cub gets into a grocery store.
Ben Bernanke wants the Fed to keep a closer eye on financial bubbles, reports Neil Irwin: "Federal Reserve Chairman Ben S. Bernanke said Tuesday that he is more open to using the Fed’s interest rate policies to combat financial bubbles, arguing that in the wake of the economic crisis, central bankers must rethink their assumptions. Before the economic upheaval, Bernanke acknowledged, central banks viewed financial stability as a 'junior partner' to the task of tweaking interest rates to try to boost growth. But both stability and monetary policy are of vital importance to the U.S. economy, he said...During the late-1990s stock market boom and then the housing price boom in the early 2000s, the Fed largely avoided using its power to control interest rates and the supply of money as a way to fight off what were in hindsight dangerous bubbles."
State attorneys general are pushing for Richard Cordray's confirmation, reports Ylan Mui: "The White House has enlisted a bipartisan coalition of state attorneys general to help break a blockade by Senate Republicans of President Obama’s nominee to lead the controversial new federal consumer watchdog agency. The National Association of Attorneys General on Tuesday sent a letter to Senate leaders calling nominee Richard Cordray 'brilliant and balanced.' Cordray was an attorney general in Ohio known for his aggressive pursuit of foreclosure fraud before joining the Consumer Financial Protection Bureau (CFPB) as head of enforcement in January. This summer, Obama picked him to lead the fledgling agency, and he now awaits Senate confirmation."
The US is behind on implementing global banking rules, reports Brooke Masters: "Six of the 27 countries that set global banking regulations still have not fully implemented the Basel II reforms agreed in 2004, and only 11 of the 27 have drafted rules to enact the tougher Basel III standards that are supposed to replace them. The scorecard issued on Tuesday by the Basel Committee on Banking Supervision, which writes the rules, raises serious questions about whether some of the world’s financial centres are paying lip-service to global efforts to make banks safer and prevent a repeat of the financial crisis. Both the US and China are among the countries that are in the process of implementing Basel II."
Moody's has downgraded Spain, reports Howard Schneider: "Moody’s Investors Service downgraded Spain’s credit rating Tuesday and warned that France’s rating could also be at risk, citing both nations’ vulnerability as Europe struggles to manage its persistent debt crisis. In cutting Spain’s rating by two notches, Moody’s said that since it began reviewing the nation’s ratings in July, no resolution to the debt crisis has emerged and that worsening outlooks for global and European growth are hampering Spanish prospects, the Associated Press reported. That will make it harder for the country to achieve its targets for reducing its budget deficit. The Moody’s downgrade comes four days after Standard & Poor’s cut its rating on Spain’s long-term debt, the AP said. Fitch Ratings cut Spain’s rating Friday."
Fanboy interlude: The alternate timelines episode of "Community", run simultaneously.
The Senate acted to save potatoes from school nutrition rules, reports Robert Pear: "The Senate stood up Tuesday for the humble white potato and rebuffed an effort by President Obama to limit its consumption by millions of schoolchildren around the country. The administration has proposed limiting the amount of potatoes and other starchy vegetables that can be served in school lunches to one cup per student per week, and banning them from school breakfasts. The Senate on Tuesday moved to block the proposal by adopting an amendment to the 2012 spending bill for the Agriculture Department. The amendment, approved by unanimous consent, prohibits the department from setting 'any maximum limits on the serving of vegetables in school meal programs.'"
If anyone killed the CLASS Act, it's ex-Sen. Judd Gregg, reports Sarah Kliff: "If anyone can claim responsibility for the CLASS Act’s demise, it’s probably Sen. Judd Gregg. During the health reform debate, the former Republican senator from New Hampshire secured an amendment requiring the Department of Health and Human Services to certify that the long-term insurance program would be fiscally sound. On Friday, HHS announced it couldn’t meet that requirement: no matter how the program was modeled, actuaries could not find a way to get the premiums paid in to cover the benefits paid out. The CLASS Act would have to come to halt. 'I expected that, at sometime it would implode because of the amendment,' Gregg told me in an interview earlier today. 'I am surprised at how quickly they came to that conclusion.'"
Last fiscal year's deportations broke records, reports Jordy Yager: "The U.S. deported more people -- nearly 400,000 -- who were in the country illegally in fiscal 2011 than ever before, according to the latest numbers released Tuesday by the Immigration and Customs Enforcement (ICE) bureau. President Obama’s administration touted the startling figures as evidence of its progress in stopping illegal immigration, a record that could help the president win back independent voters who abandoned Democrats in the 2010 midterm elections...Of the 396,906 people removed from the U.S., more than half -- 216,698 --had been previously convicted of felonies or misdemeanors, according to the ICE numbers, which represent a 90 percent increase in the number of criminals deported over those for fiscal 2008."
The chances of Obama's judge nomination rate trending up aren't good, writes Al Kamen: "Hoping for a White House nomination to the federal bench? Already in the pipeline? Either way, you may not want to get measured for those new black robes just yet. It’s crunch time for judges as the clock winds down on the number of days remaining in this year’s Senate session -- which may be their best shot at winning that chamber’s approval. Presidential election years are notoriously bad for nominees. For one thing, the Senate will probably meet fewer days in 2012, as it usually has in presidential election years. And the mood in Congress gets even testier, making what’s become a contentious process that much more partisan. And during recent presidential election years, confirmation votes for circuit court nominees end in early summer."
More adorable animals disrespecting property rights interlude: A bear cub walks around the produce aisle like he owns the place.
Regulators are cracking down on energy speculation, reports Ben Geman: "A divided Commodity Futures Trading Commission voted along party lines Tuesday to impose new restrictions on speculative trading in energy futures markets. The rules, required under last year’s Dodd-Frank law, are aimed at reigning in speculative Wall Street trading that some allege has driven up oil prices and worsened market volatility in recent years. The rules impose 'position limits' on the amount of futures and swaps contracts for oil and other commodities that traders hold...The rule sets limits on contracts for oil, natural gas and two other energy contracts, as well as a slew of agricultural and metals contracts...The long-delayed rules have proven controversial among the CFTC members and prompted widespread interest among a range of industries that participate in energy and other commodity markets."
A contributor to Solyndra is under investigation, reports Joe Stephens: "The nonprofit organization that was the largest investor in the failed solar company Solyndra contributes only a small portion of its assets toward community work, raising 'serious questions' about its charitable tax status, according to Senate investigators. Sen. Charles Grassley (R-Iowa) urged federal officials Tuesday to tighten loopholes that he said allow the George Kaiser Family Foundation and similar organizations to sidestep the payout requirements governing most public foundations. 'The recent Solyndra scandal highlights the need for further reforms,' Grassley said Tuesday at a Senate Finance Committee hearing."
Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.