Wonkbook: The House GOP's tax day lesson

at 08:08 AM ET, 04/17/2012

Happy tax day!

But perhaps you hate tax day. Perhaps you want much lower taxes. Well, then you better be willing to face up to choices like the one the House GOP made on Monday.


Illinois Department of Revenue office associate Arline Williams processes 2011 income tax forms in the Document Control and Deposit Division at the Illinois Department of Revenue April 16. (Seth Perlman - AP)
House Republicans think the Pentagon is in trouble. Under current law -- which includes the "sequester" that Democrats and Republicans agreed to in the debt-ceiling deal -- it's scheduled to take more than $500 billion in cuts over the next 10 years. Republicans are desperately trying to find alternative savings. And, on Monday, they named one of them: Cuts to food stamps.

"An average family of four would face an 11 percent cut in monthly benefits after Sept. 1 and, even more important, tighter enforcement of rules would require that households exhaust most of their liquid assets before qualifying for help," reports David Rogers. "This hits hardest among the long-term unemployed, who would be forced off the rolls until they have spent down their savings to less than $2,000 in many cases."

Republicans argue that the food stamp program has been expanded in recent years, and they're just cutting President Obama's hammock back down to a safety net. Democrats reply that the food stamp program has been expanded because the economy crashed, and, by the way, the Pentagon's budget has grown by far more than the food stamp program in recent decades.

Wherever you come down, the fight is a reminder that there are few easy cuts in the budget. This argument, after all, isn't even over further deficit reduction. It's how to replace one year of the sequester's proposed spending cuts with different spending cuts. But Republicans are already having to target programs, like food stamps, that people actually care about, and that will actually hurt low-income Americans if they're cut. To achieve the spending paths envisioned in Rep. Paul Ryan's budget, Republicans will have to find cuts that are many orders of magnitude larger.

Which brings us back to tax day. In the end, we pay taxes, or we're supposed to pay taxes, because we prefer those taxes to the cuts in government services that would be required in their absence. If we don't prefer the taxes to the cuts, we should be making the cuts. Unfortunately, those choices are rarely spelled out, or they're put off by deficits. And, in any given year, we don't really see where our taxes go (which is why I've always liked the idea of a tax receipt).

But on Monday, the House gave us a look. In the coming years, the alternative to higher taxes is savage cuts to the Pentagon, and to food stamps, and to Medicaid, and to Medicare. Indeed, the reality is that even with higher taxes, all those programs are going to come in for cuts. Without taxes, the required cuts to government services will be far beyond anything either party has dared to specifically propose.

Oh, and one more thing: We do all pay taxes. Or, at least, the vast majority of us pay taxes. There's a line you occasionally hear about how 60 percent of Americans pay no federal income taxes. And that line is true, so far as it goes. But those Americans do pay payroll taxes, and state sales taxes, and local taxes. Indeed, when you look only at federal income taxes, you exclude most of the taxes that most Americans actually pay. So here, in two graphs, is the total tax burden, once all taxes are taken into account.

Top stories

1) The Buffett Rule failed to break a filibuster. "The Senate rejected consideration Monday of the 'Buffett rule,' a key election-year Democratic initiative that would impose a minimum tax rate on those making more than $1 million per year, as a philosophical debate over taxes that will define this year’s elections occurred on Capitol Hill. Democrats were unable to get the 60 votes necessary to break a filibuster and proceed to a full consideration of the measure, with the Senate voting 51 to 45 to move ahead. The vote was largely along party lines, although Republican Sen. Susan Collins (Maine) voted with Democrats to allow the measure to proceed and Democratic Sen. Mark Pryor (Ark.) voted to block it. The outcome was the first phase of a week-long congressional discussion about taxes, timed by both parties to coincide with Tuesday’s deadline for submitting federal tax returns." Rosalind Helderman in The Washington Post.

@daveweigel: BREAKING: Thing that was always going to happen ended up happening.

2) The House is set to 'deem' the GOP budget as passed. "The House on Tuesday will pass a resolution that will deem the GOP-passed budget resolution as passed for the purpose of setting budget targets as members work on FY 2013 appropriations bills. The so-called 'deeming resolution' is included in a rule setting the terms of debate for a gun rights bill, H.R. 4089, which will also be debated on Tuesday. Republicans on Monday evening released a statement explaining why it is proceeding this way, and pinned it on the failure of the Senate to approve a budget for the third year in a row...The GOP statement stresses that both parties have done this six times over the last decade, and said the 'deemer' is needed to set guidelines for the House as it works on spending bills for the next fiscal year...Language provided by the Rules Committee says that the deeming resolution 'provides that the House-passed budget resolution shall have force and effect until the adoption of a conference report on the budget resolution.'" Pete Kasperowicz in The Hill.

3) Jim Yong Kim was named president of the World Bank . "The World Bank named Jim Yong Kim, Dartmouth College’s president, as its new chief on Monday after an unprecedented competition against nominees from Nigeria and Colombia. In a statement Monday afternoon, the bank board said it had chosen Kim as the institution’s 12th president to succeed Robert Zoellick when his five-year term ends in June. Reflecting the competitive nature of the appointment, the release made no mention of consensus on the bank’s board, but rather said that 'the final nominees received support from different member countries, which reflected the high caliber of the candidates. We all look forward to working with Dr. Kim.'...President Obama reached outside the worlds of finance and government in nominating Kim, whose career was built around one of the more intractable problems in development -- how to deliver expensive HIV and tuberculosis medicines to poor or remote parts of the world." Howard Schneider in The Washington Post.

4) House Republicans moved to cut food stamps in order to preserve the defense budget. "From food stamps to child tax credits and Social Service block grants, House Republicans began rolling out a new wave of domestic budget cuts Monday but less for debt reduction -- and more to sustain future Pentagon spending without relying on new taxes...Nothing better illustrates this perhaps than the renewed focus on food stamps -- now titled SNAP (Supplemental Nutrition Assistance Program). And the estimated $33.2 billion in 10-year savings there could have an immediate impact on the farm bill debate and come November, the 2012 elections. An average family of four would face an 11 percent cut in monthly benefits after Sept. 1 and, even more important, tighter enforcement of rules would require that households exhaust most of their liquid assets before qualifying for help. This hits hardest among the long-term unemployed, who would be forced off the rolls until they have spent down their savings to less than $2,000 in many cases." David Rogers in Politico.

5) The House GOP remains divided over the highway bill. "House GOP leaders face a bumpy road within their own party over the direction of a long-term transportation spending extension, even as they prepare for a vote Wednesday. Although Speaker John Boehner (Ohio) remains hopeful his team can round up enough GOP support to pass a 90-day extension -- a bill that would be used to start talks with the Senate on a longer extension -- conservatives continue to chafe at the idea, worried it will mean the Senate’s version will prevail. Specifically, conservatives worry that because the bill is a 'clean' extension and does not include any of the reforms to highway and transit programs originally proposed by Boehner, they would automatically be precluded from being considered during a conference committee...Boehner has sought to sweeten the legislation with his latest offering by including language mandating the construction of the Keystone XL pipeline. But many conservatives have questioned the strength of the provision." John Stanton in Roll Call.

Top op-eds

1) BURMAN: The Buffett Rule isn't the right tool for the job. "Most Americans believe the rich do not pay enough tax. President Obama has said that the Buffett Rule is a principle for tax reform, and heaven knows that the tax code needs an overhaul. But as part of such reform, we should correct the underlying defects that let multimillionaires like Mr. Buffett and Mitt Romney pay relatively low taxes -- namely, those lightly taxed capital gains and dividends. The Fair Share tax is not the right tool for this job. It is bad policy. If it became law, it would needlessly complicate taxes and create new inequities. In so doing, it would repeat an egregious error made 43 years ago when Congress created the first minimum tax in a poorly executed effort to rein in tax breaks for millionaires...A top-to-bottom income tax reform is the best choice. That approach was supported by a majority of the Bowles-Simpson deficit-reduction commission impaneled by President Obama." Leonard Burman in The New York Times.

@BetseyStevenson: Tomorrow is tax day: when we give the top 1% nearly $4K each to help pay their mortgages. How small would their house be w/out our help!

2) KLEIN: Another rich guy for higher taxes. "Most people, of course, do not mark major life events by the top marginal tax bracket at the time. But David Levine isn’t most people. Levine is the former chief economist for the investment-management firm Sanford C. Bernstein. He is, as you might expect, a very rich man. But he’s one of those rich guys who, like Warren Buffett, is begging the government to raise his taxes...It would be one thing, Levine says, if the economy had performed so much better after taxes on the rich were cut. But it didn’t. Some of the fastest economic growth of the post-war period came in the 1950s, when the top tax rate was above 80 percent. The slowest growth came in the 2000s, when the top tax rate was 35 percent. So the fastest income growth for the top 1 percent has come under the low-tax regimes, while the fastest income growth for the median American came when taxes on the richest Americans rose." Ezra Klein in The Washington Post.

3) YGLESIAS: Taxes shouldn't be hard to do. "Collectively, of course, taxes are absolutely necessary, but the extremely annoying process of actually filling out the forms and calculating the required sum is a completely unnecessary evil. Substantial tax reform is hard, but reforming the tax-payment process would be easy...Why don’t you just lie on your taxes? You don’t lie because you’re worried that the IRS will catch you. And why do you worry about that? Because all the various entities who’ve paid you over the course of the past year have to submit paperwork about your income. Your employer, your bank, your stock broker, etc.--record and transmit almost all relevant information about your money to the IRS, meaning that if you lie you’ll get caught. But by the same token, the IRS could simply collect all this information and send you a tax bill. You could read it over, sign at the bottom, and either include a check or wait for your refund. It wouldn’t be fun, exactly, but it would sure be simple." Matthew Yglesias in Slate.

4) BROOKS: Obama should make fiscal stability the core of his campaign. "I’ve been critical of President Obama’s budgets. I’ve argued that while I like the way Obama preserves spending on things like scientific research and programs for the vulnerable, he doesn’t do enough to avoid a debt crisis...I’ll just say that my conversations reaffirm my conviction that Obama is a pragmatic liberal who cares about fiscal sustainability, who has been willing to compromise for its sake, but who has not offered anything close to a sufficient program to avoid a debt crisis. But we have a campaign in front of us. If the president is truly committed to a strategy for progressive fiscal stability, as Bill Clinton was, he’ll make that the center of his campaign. He’ll earn a mandate. He’ll win over independents who want fiscal discipline but worry about the way Republicans get there. If he doesn’t have a passion for fiscal stability, he’ll campaign on side issues and try to win by scaring everybody about the other side. We’ll see." David Brooks in The New York Times.

5) BARRO: We should get rid of HUD. "This weekend, Mitt Romney gave a talk at a fundraiser that he didn’t realize could be overheard by reporters standing outside. Since perhaps the biggest challenge in evaluating Mitt Romney is figuring out what he actually believes or intends to do if he becomes president, hot mic moments like this one are a blessing. Especially because, in this instance, we learned something good: Mitt Romney is interested in abolishing HUD...There is no reason the federal government should be in this business. Unlike health care, there is nothing fundamentally unworkable about a private market in housing that requires heavy government regulation and subsidy. Withdrawing federal housing subsidies would force states and localities to cough up the money needed to offset their costly housing policies--or to relax housing regulations so that the market could drive home prices and rents down...Housing programs that are basically just income support for the poor, particularly Section 8, should be abolished in favor of an expanded EITC." Josh Barro in Forbes.

POLL: What the public knows about the parties' policy positions.

Top long reads

Annie Lowrey profiles Emmanuel Saez and Thomas Piketty, the economists behind the Buffett Rule and the fight against inequality: "'The United States is getting accustomed to a completely crazy level of inequality,' Mr. Piketty said, with a degree of wonder. 'People say that reducing inequality is radical. I think that tolerating the level of inequality the United States tolerates is radical.' As much as Mr. Piketty’s and Mr. Saez’s work has informed the national debate over earnings and fairness, their proposed corrective remains far outside the bounds of polite political conversation: much, much higher top marginal tax rates on the rich, up to 50 percent, or 70 percent or even 90 percent, from the current top rate of 35 percent.

Jason Zengerle talks to Barney Frank: "I underestimated the depths of the recession. The mortgage crisis was worsened because critical decisions were made during the transition between Bush and Obama. TARP was basically being administered by Hank Paulson as the last man home in a lame-duck presidency. I tried to get them to use the TARP to put some leverage on the banks to do more about mortgages, and Paulson at first ­resisted--he just wanted to get the money out. And after he got the first chunk of money out, he said, 'All right, I’ll tell you what, I’ll ask for a second chunk, and I’ll use some of that as leverage on mortgages, but I’m not going to do that unless Obama asks for it.' This is now December, so we tried to get the Obama people to ask him, and they wouldn’t do it. During the critical period when the TARP was being administered, there was a vacuum of political leadership. At one point, Obama said, 'Well, we only have one president at a time.' I said I was afraid that overstated the number of presidents. We had no president."

CONGRATULATIONS: To David Kocieniewski of The New York Times for winning the 2012 Pulitzer Prize for explanatory reporting for his series on tax loopholes.

Alternative hip-hop interlude: Michael Franti plays "Say Hey (I Love You)" live on WTMD.

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Still to come: Too big to fail banks are still big; more workers could trade insurance for a raise; mail carriers' plan to fix the U.S. Postal Service; inside the EPA switch on carbon regulation; and a baby thinks being vacuumed is just the funniest thing.

Economy

Too big to fail banks haven't got any smaller. "Two years after President Barack Obama vowed to eliminate the danger of financial institutions becoming 'too big to fail,' the nation’s largest banks are bigger than they were before the nation’s credit markets seized up and required unprecedented bailouts by the government. Five banks -- JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), Citigroup Inc., Wells Fargo & Co. (WFC), and Goldman Sachs Group Inc. -- held $8.5 trillion in assets at the end of 2011, equal to 56 percent of the U.S. economy, according to central bankers at the Federal Reserve. Five years earlier, before the financial crisis, the largest banks’ assets amounted to 43 percent of U.S. output. The Big Five today are about twice as large as they were a decade ago relative to the economy, sparking concern that trouble at a major bank would rock the financial system and force the government to step in as it did in 2008." David Lynch in Bloomberg.

The ECB doesn't seem inclined towards more stimulus. "As the euro zone crisis shows signs of heating up again, political leaders are once more looking to the European Central Bank for help. But analysts say they do not expect the central bank, with its focus on fiscal discipline, to provide any quick remedies. Spain continues to be the focus of regional anxiety, as its borrowing costs rose further on Monday before two crucial debt auctions this week...The French president, Nicolas Sarkozy, and his main challenger, François Hollande, have begun loudly pushing the European Central Bank to intervene more forcefully in the sovereign bond markets or take other steps to relieve hard-pressed governments. But analysts say such pushing could be counterproductive because the bank and its president, Mario Draghi, might be even less likely to act if doing so could appear to be a response to political pressure." Jack Ewing and Raphael Minder in The New York Times.

@mattyglesias: The medium-term expected future path of the price level is too damn low!

The SEC is boosting its economic impact analysis. "The Securities and Exchange Commission is moving to address criticism that it doesn't adequately weigh the economic impact of its regulations, a problem that has led to rules overturned in the courts and delays of key policies...The SEC has now started reviewing, as early as possible, the potential economic impact of both congressionally mandated rules and the rules it proposes on a discretionary basis, such as planned requirements to shore up money-market mutual funds, according to a 17-page document drafted by agency staff last month...The agency is also hiring 17 new staff with economics doctoral degrees, which would nearly double the number of Ph.D. economists already on staff to assist with rule-writing, spokeswoman Florence Harmon said. A lack of resources had prevented the agency from fully studying the economic impact of its rules in the past, people familiar with the matter said." Jessica Holzer and Andrew Ackerman in The Wall Street Journal.

@justinwolfers: Why are folks expecting strong activity due to good weather to be reversed, but stimulus-related activity to be multiplied?

Children covering German metal interlude: Three children cover Rammstein's "Sonne."

Health Care

Healthcare reform may lead to more workers trading health insurance for a raise. "Would you give up your health insurance for a raise? A minority of big companies offered extra pay to workers who waived their health benefits last year. This practice, which was common decades ago, could see a resurgence once the biggest parts of President Barack Obama's health care reform law take effect in 2014 and start to rearrange the health insurance market...The health care reform law includes a 'pay or play' requirement that companies with at least 50 employees must either provide employees with health benefits or pay penalties as high as $3,000 per worker to offset the government's cost of subsidizing insurance coverage. Although jobs are projected to remain the number-one source of health coverage, some workers will be affected, since the penalty is less money than the insurance coverage. In some cases, that will mean higher paychecks to make up for lost benefits." Jeffrey Young in The Huffington Post.

Mobile health technology and the FDA have made an uneasy couple. "An onslaught of mobile health technology has forced an arranged marriage between smartphone app makers and the Food and Drug Administration -- because someone had to regulate them. There’s just one problem: Many of the tech wizards aren’t used to FDA supervision. And now, both sides are struggling to figure out how to live with each other. Last year, the FDA suggested some ground rules: If you make an app that claims to diagnose or treat a medical condition, then you need to show that it’s safe and effective before you sell it, just as other medical-device makers do. That seemed reasonable enough to the traditional medical-device industry, which is well-versed in the ways of the FDA. But the requirements -- data on effectiveness, possibly clinical trials -- have gobsmacked some software developers who are used to working in the fast-paced, relatively unregulated wilds of the Internet." Brett Norman in Politico.

Domestic Policy

The cybersecurity bill got tweaked. ""Responding to criticism from privacy advocates, the House Intelligence Committee announced changes to the Cyber Intelligence Sharing and Protection Act (CISPA) on Monday...The new draft of the bill uses a different definition for a 'cyber threat' that leaves out any reference to intellectual property infringement. Critics had warned that the bill's definition was so broad that it could include people illegally downloading music and movies...The new draft would also require that the Homeland Security Department have access to all information shared with the government. Privacy advocates prefer that a domestic agency like Homeland Security play a central role in the information-sharing process instead of a spy agency like the National Security Agency...The new draft would give people and companies the right to sue the government if it mishandles the information. The Republican aide said the new provision 'gives the privacy protections very strong teeth.' Brendan Sasso in The Hill.

The mail carriers have their own plan for fixing the Postal Service. "The nation's largest mail-carriers union wants the U.S. Postal Service to raise stamp prices and expand mail delivery. In a report to be released Tuesday, it sharply criticizes the agency's own rescue plan and argues the Postal Service will become profitable only if it restructures itself like a business...The Postal Service's proposal to close thousands of post offices and cut back on the number of days that mail is delivered 'won't work' and would accelerate the agency's decline, according to the six-page report...Instead, the report says, the agency should raise its stamp prices, which are among the lowest in the world, and find new ways to profit more from its built-in advantage as the only entity to reach every American home every day. It should also replace its multilayered governance system with a corporate- style board of directors whose members have entrepreneurial experience." Jennifer Levitz in The Wall Street Journal.

Adorable babies being adorable interlude: A baby thinks the vacuum is pretty funny

Energy

The U.S. will begin exporting natural gas. "The first project to export liquefied natural gas from the US in more than 40 years has been given its final approval by the federal energy regulator, clearing the way for construction to start at the site on the coast of Louisiana. The decision is a potential first step in what could be a profound upheaval in global gas markets, allowing the impact of the US shale gas revolution to be felt in other countries worldwide. The surge in production made possible by the application of techniques to open up reserves that have traditionally not been commercially viable has sent US natural gas prices plummeting to a ten-year low below $2 per million British thermal units. That is less than one-seventh the price that LNG cargoes have been selling for in Asia, creating an inviting arbitrage opportunity for anyone able to ship gas from the US...Several other LNG export projects have also been proposed, but none has yet been awarded general export permits by the energy department or approvals from Ferc." Ed Crooks in The Financial Times.

The EPA changed its mind on regulating CO2 from existing power plants. "The Environmental Protection Agency’s apparent change of heart on plans to limit greenhouse gas emissions at existing power plants came during a White House review of the agency’s proposed greenhouse gas rule for new plants, according to documents obtained by POLITICO. A draft version of the proposed rule for new plants’ emissions repeatedly references the agency’s controversial plans to eventually regulate greenhouse gases from existing plants. But now agency officials say no such plans exist. The plans were still alive in the draft proposal that EPA sent for review by the White House Office of Management and Budget on Nov. 7...Requiring CO2 emission cuts from existing power plants could be especially costly and would inevitably fall mostly on comparatively dirty coal-fired plants." Erica Martinson in Politico.

@NJCoralD: #gasprices holding steady @ $3.91 avg., a notch down from $3.93 a week ago. EIA still predicts they'll peak @ $4.01 in May.

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.

 
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