Tuesday, December 13, 2011

You're Doing it Wrong, Republican Party Edition

Before I explain why they're doing it wrong, I suppose some background information should be in order. Over the past year or two, the rise of the Tea Party during Barack Obama's first term in office has created a dangerous dynamic that has radicalized the Republican Party.  In any case, during 2011, both political parties pivoted (wrongly, I might add) towards a focus on the deficit and national debt. I've already explained why this is a bad idea, so I won't go into that. The Democrats are just now realizing that they ought to focus on more pressing issues, like unemployment, and the Republicans probably do too, but you wouldn't know it from listening to them.

In any case, the fundamental paradox I've noticed in the GOP right now is that on the one hand, lawmakers in the House are dragging their feet over whether they ought to pass a payroll tax cut for the middle class that will cost somewhere on the order of a few hundred billion. They argue that it has to be offset by cuts or concessions somewhere else in order to pay for it. Obama and the Democrats have proposed a small surtax on millionaires to pay for it, and while this is popular with the broad public, Republicans see this as taxing small business owners that are the chief job creators. Never mind the fact that less than 3% of the top tax bracket are actually small business owners (let alone millionaires, who bring in four times the $250,000 taxable limit for the top bracket). So on the one hand, you have lawmakers in D.C. arguing over how to pay for a temporary payroll tax cut for the middle class (even though the point of fiscal stimulus is that it is not paid for). On the other hand, you have Republican primary candidates touting hugely expensive and unpaid for tax plans that disproportionately benefit top earners while doing relatively little for the middle class.

For example, Newt Gingrich released his tax plan, which is essentially to create a 15% flat tax that people can choose to use over the current bracketed system. The Tax Policy Center (a nonpartisan think tank, before you ask) released its findings on what the effect would be on the budget and incomes. It isn't pretty, to say the least. I watched a video where Gingrich said it was revenue-neutral, so it wouldn't increase the deficit. The Tax Policy Center's results show that it would increase the annual budget deficit by $1.3 trillion compared to current law. That is to say, last year our budget deficit was $1.3 trillion. So our deficit would be $2.6 trillion. How are you going to solve that fiscal problem? You would have to cut literally ALL of Medicare, Medicaid, Social Security, AND defense spending to balance the budget. Sure, it might spur businesses to come to the U.S. but I doubt that the broadening of the tax base would offset the lost revenue. If you don't believe me, look at this chart of federal spending and do the math for yourself. 

Also, here's a graph of the tax rates under Gingrich's plan:

So the paradox that I'm seeing is that the GOP is arguing over how to pay for comparatively cheap (and temporary) payroll tax cut for the middle class and frustrating any attempt by Obama to pass additional fiscal stimulus by using the justification that it would add to our already considerable mountain of debt. At the same time touting permanent huge tax cuts largely benefiting the wealthy and giving little to no indication of how these programs will be paid for. And if they do say how they'd be paid for, it would involve cutting popular programs like Medicare, Medicaid, and Social Security. Not to mention that these permanent tax cuts are far more expensive than any temporary stimulus Obama has put forth. 

Bad arithmetic, meet bad economics.