Wednesday, November 28, 2012

Eliot Spitzer — Boehner Wants To Hold Obama Hostage on the Debt Ceiling Again. Here’s How to Stop Him

It is time to take the debt ceiling off the table as a negotiating ploy, time to call their bluff, recognize that time is on our side, and turn up the heat on a Republican house leadership that has a weak hand. 
Play hardball Mr. President. It feels good, and you’ll win.
Slate
Boehner Wants To Hold Obama Hostage on the Debt Ceiling Again. Here’s How to Stop Him.
Eliot Spitzer

When I saw the title, I was hoping he was going to push the platinum coin.


23 comments:

Jonf said...

Yeah well. He means well. I don't think allowing a default is useful to anyone. The President has the two options. Even Bill Clinton agreed to the constitutional option. But I do agree Obama should let those damn tax cuts expire. It is way past time we took some of that money away from the rich, no matter what else. I want a new deal with the plutocrats. That includes some leveling of the playing field. We may need to suffer a little but this BS has to end.

Dan Kervick said...

My feeling now is that they should pass an extension of the tax cuts for people with taxes under 250 K, let the other cuts expire, pass NO spending cuts, make NO grand bargain. That's all.

JK said...

Dan,

From an MMT perspective, does it make much sense to basically change nothing except for raising taxes on the most wealthy? To me this comes off as spiteful.

Much more in line with MMT would be something like "we should allow the tax cuts to expire for the top rates, AND not just extend the rates for people under $250K but actually lower them…" for reasons XYZ.

What I'm getting at is that from a birds-eye macro view, keeping every thing the same except for raising taxes on top earners is deficit reduction. Doesn't MMT say the deficit should be increased right now, not decreased?

Again, from an MMT perspective, calling for tax increases on the wealthy 'in and of itself' really makes no sense during a time of high unemployment. If we're going to raise taxes on the most wealthy, shouldn't we be offsetting that "net deficit reduction" by lowering rates further on middle and lower income people?

(p.s. I pretty sure you support lessoning the burdern on middle and lower income people… I'm just trying to fit this all into the big picture of what MMT says ought to be occurring)

beowulf said...

Since the trillion dollar coin is purely a Tsy play, its major flaw is its reliance on the very weak reed which is Tim Geithner.

Starting the ball from the other side with a trillion dollar gift from the Federal Reserve is more believable since Bernanke has consistently been more proactive than Tsy or the White House, Geithner would (continue) not having to do anything.
http://monetaryrealism.com/ben-bernanke-and-the-trillion-dollar-gift/

What's more, the logistics of a trillion dollar gift are much simpler.. When its 10 minutes to midnigh atnd the Obama Administration suddenly realizes there is no grand bargain, that once again its been had, the Fed can donate back T-bonds to the Bureau of Public Debt almost instantly, canceling the debt when it got there (its all electronic book-entries these days). The rub with coinage is its squarely (roundly?) in the physical world instead of the electronic one. Actually designing, engraving and striking the hubs and dies for a new platinum coin would take a few days. I seriously doubt Geithner has gotten his ducks in the row at the Philadelphia Mint (where new coins are designed) and the West Point Mint (where platinum coins are struck) so he could fire on the half-volley as quickly as Bernanke could.

Edmund Kar said...

JK,

Again, from an MMT perspective, calling for tax increases on the wealthy 'in and of itself' really makes no sense during a time of high unemployment. If we're going to raise taxes on the most wealthy, shouldn't we be offsetting that "net deficit reduction" by lowering rates further on middle and lower income people?

I'm of no strong opinion about increasing taxes on the wealthy, but I do wonder this with regard to MMT and economics in general: are all deficits created equal?

For example, the very wealthy would lose some top end income. This is not income that is primarily spent. It's mostly squirreled away in investments, and not new fixed capital investments, but bonds and stocks and the like.

At this time, short term interest rates are zero. Long term interest rates will be held down by the Fed if the economy is not improving. What does the investment of the wealthy actually do in this situation? I suppose stock prices might decline, but the Fed will keep buying bonds to goose markets.

The real problem is if wealthy people are deleveraging and we're hurting their attempt to do so. I'm not sure if the wealthy are proportionally more likely to be doing so - probably not.

I suppose I'm still confused about the quality of deficit increases or reductions from manipulating different taxes. If people in different income brackets are deleveraging at far different tendencies, then government deficits created by helping one group or the other should have significantly different economic outcomes. I suspect jacking up taxes on the wealthy is much less damaging than broad tax hikes. Likewise, I think government spending "financed" by taxing the wealthy is probably much more inflationary than that "financed" by taxing poorer people. If I had to support any policy right now, it would be to let the tax cuts expire on the wealthy, but totally offset them with tax cuts on poorer people.

It seems like all the above isn't in paradigm, but does anyone think there's anything to it?

JK said...

Beowulf,

The platinum coin idea is very interesting. Does it actually have any traction? Honestly it seems VERY unlikely that anyone in our government would pursue it. If they did they'd tacitly be acknowledging a core ModernMoney message. Why does anyone think that it's at all likely?

Edmund Kar,

Seems that everything you said is basically 'in paradigm' except for this line 'I think government spending "financed" by taxing the wealthy is probably much more inflationary than that "financed" by taxing poorer people.' (admittedly you did put the word financed in quotes).

But you're absolutely right… not all budget deficits are equal in effect. Raising and lowering taxes on different income brackets, giving away free money to people in different income brackets, government spending on military hardware vs. healthcare vs. infrastructure, and so on, all have differing macro economic effects.

I'm not sure if it's part of the descriptive aspect of MMT, but I'd guess that most MMTers would advise that taxes ought to be more favorably shifted toward middle and lower income people. Also, the argument for this would probably be made on both moral (fairness) and economic (stimulative) grounds.

David said...

The problem is in the framing. There is no way that putting critical safety net programs on the chopping block in exchange for some token tax concession should constitute any framework of a negotiation. One could say that raising taxes on the rich would be spiteful. Is it not spiteful to cut programs which benefit the non-rich? When I look around at who seems to be pushing such cuts, it's the rich. All that's kind of beside the point, though. When the income tax was first instituted it was designed (somewhat) to capture what used to be termed "unearned income" or economic rent, if you like.

This is not a new idea and goes back to Adam Smith (and others). The idea was that for capitalism to work in a progressive way certain kinds of wealth and income should be taxed (land, inheritance, stock dividends) while others should be untaxed (labor, factories, small businesses) The idea was to develop an incentive system that would tend to keep money and credit circulating in an expanding loop of production. Without such an incentive system you end up with a sclerotic rentier economy, which was the bane of Europe for many centuries.

Right now "the rich" are operating in an extraordinarily perverse incentive system in which their best investment is to simply buy the laws that they want. For MMT to be really effective it needs to be integrated with rent theory. The argument shouldn't be about taxing to "punish" or taxing to "finance" it should be about re-incentivizing the holders of capital to channel their resources along more productive lines.

Matt Franko said...

"When I saw the title, I was hoping he was going to push the platinum coin."

Well he has exhibited a preference for "cash settlements" Tom...

This is a bad idea and another example of why it is often said that lawyers make for terrible leaders...

rsp,

Roger Erickson said...

There's a lot beneath the surface here. The Platinum Coin option exists precisely because the supposely insane people in Congress purposely created that option, and not that long ago. Even if the puppets in place now don't even know about it, people in the party staffs do, as do experienced lobbyists.

Seems like a Kabuki show, with two people from Stockholm feigning a kidnapping, in order to make the victim look like a hostage-taker.

Shall we call that the Gopdem syndrome, anti-leader syndrome, or simply Politician Syndrome? Foolish Population Syndrome?

Instead of trying to swat thugs, drain the lobby?

We need growth of Stockholder Syndrome, so more of the real victims will take back control of their own boardrooms.

paul said...

"does it make much sense to basically change nothing except for raising taxes on the most wealthy? To me this comes off as spiteful."

It isn't about spite…it is a way to keep the super-rich from acquiring too much power. It isn't about the money, either.

For 30 years starting around 1933 the top marginal tax rate was in the 90% range.

Plus, the deficit will come down a bit and all of the Grand Bargaineers will lose a little bargaining power.

Jure Jordan said...

JK
From MMT perspective deficits do not matter.
By increasing taxes on wealthy which invest in paper assets mostly, you would lower total GDP and increase defficits. But deficits do not matter, right?
But it will not hurt economy it might even improve it since it will deflate paper assets and housing prices which will ease expenses for housing for lower income people and have it more for consuming.
Yes, taxing wealthy will increase defficit, but we do not care about that, right?
There are many reasons for having high marginal taxes; preventing menagement from making companies finance operating costs from debt, preventing menagement from taking all productivity gains for themselves, preventing asset inflation making it inaccessible for retirment funds and lower income people, preventing them from acquiring too much political power, preventing vulture kapitalizm, and all that makes economy works smoothly.

Malmo's Ghost said...

This puny tax increase will do nothing to change power dynamic of the rich, which is why in the end it'll probably sail through, with some kicking and screaming along the way. This is rather all about the entitlement stripping, of which both Obama and Boehner are in lock step. Oh, and the rich won't miss a beat.

When all is said and done, Obama will have accomplished what Bush and Romney never could have, in successfully initiating the emasculation of the so called third rails of the social safety net. Utterly disgusting!

Mike Norman said...

"When I saw the title, I was hoping he was going to push the platinum coin."

Or at least the 14th Ammendment.

Tom Hickey said...

Let's stop talking about letting the Bush tax cuts expire as "raising taxes." It is not. Taxes can only be raised by an act of Congress. Here the cuts expire if Congress does not act. Huge difference and it is not just semantic. The Dems, press and country are getting sucked in by Norquist and Luntz's framing of the issue.

The fact is that George Bush argued for a temporary tax cut to "return the surplus to its rightful owners, the people." Well, the surplus has been distributed already as evidenced by the deficit. It's logical that the tax cuts should be allowed to expire based on the reasoning that they were instituted.

Who is bring this up?

PeterP said...

Jure Jordan,

From MMT perspective deficits DO matter a lot. They are too big (if there is inflation) or too small (when there is output gap). So they do matter, but in context. You cannot just say: "1.4T deficit????, that is TOO BIG!". Even a 4T deficit could be too small in some circumstances. The number itself doesn't matter, how many zeros or digits it has doesn't matter, how big it is compared to GDP or size of the Moon in nautical cables doesn't matter. So you look at unemployment and inflation and deficits DO matter.

Tom Hickey said...

When all is said and done, Obama will have accomplished what Bush and Romney never could have, in successfully initiating the emasculation of the so called third rails of the social safety net. Utterly disgusting!

Just as former union president Reagan will go down in infamy as a traiter to labor, and Clinton will go down in infamy as a traitor to public assistance, Obama will go down in infamy as a traitor to public insurance for retirement and health care.

We'll have to wait for the next FDR for a new New Deal. Right now, the cards are marked and the game is fixed.

Well over sixty percent of the country favors letting the tax cut expire for the wealthy and not touching public insurance programs. The Democrats won the election by whupping the GOP. The ball is in their court. Will they carry democracy forward or betray it? The answer hangs on the progressives in the Senate, since the president has indicated that he is a sell-out. Most of his actions in the presidency show that he cares little about democracy or the Constitution anyway.

Jure Jordan said...

PeterP
I know that, but did not want to complicate my point about raising taxes on the wealthy. I am a bit slopy in my writing too, but i hope that i will get a pass since english is my third laguage.

beowulf said...

"Well he has exhibited a preference for "cash settlements" Tom..."

OK, THAT'S funny! :o)

Dan Kervick said...

JK, There was some recent reporting that said there was no likely destimulative effect to be expected from increased taxes on the wealthy. So from the standpoint of pure fiscal policy, it is meaningless. So MMT really has no bearing on it one way or another.

However, from the standpoint of an egalitarian social agenda, it makes sense. So I'm for it.

Tom Hickey said...

There was some recent reporting that said there was no likely destimulative effect to be expected from increased taxes on the wealthy.

Right, it reduces their saving not their consumption. In fact, it actually stimulates charitable donations, too, which increases overall spending in the economy.

JK said...

Dan and Tom,

I asked this in a different comments section but didn't get a response…

Would much higher tax rates on the wealthy force them to do something more productive with their money?… i.e. either invest it in capital, pay workers more, etc… or lose it to the black hole of the sovereign currency issuer?

How do we get 'money hoaders' to get that money flowing?

It seems to me that we ought to think of taxes in a constructive way. How can taxes be shifted to encourage better overall outcomes?

Tom Hickey said...

Michael Hudson has made a case that will very high marginal tax rates, the top of the town either invests more or gives to charity rather than marginally increasing saving and paying the exorbitant taxes. Don't have the ref offhand.

Jure Jordan said...

JK
Answer is no.
But there is a more important aspect of the high marginal tax rate of above 70%.
Would owners and managers raise their payouts to such levels that taxes will take away the most of raise? No, they would not is the obvious answer. With that the companies would have more cash on their hands to give to workers, no need to finance operating costs with debt as much, have more chance to survive the next crisies and less need to finance the crisis with stocks as colateral for debt. Many companies fail when stocks are used as colateral and due to the fall in stock price the bank asks for more colateral.
Bain company and such would not be feasable due to high taxes, exorbitant fees and dividend recapitulation would not be enough to cover for investment.
There would be no such need for fantasticly imaginative financial inovations that crashed the banking system in 2008, the risk would be to high for small benefits since taxes would confiscate most of the gains.
High marginal taxes reduce the the greed, or they reduce the incentive for very agressive scams.
There would be small incentives for short term planing for higher stock values that managers receive as bonus against long term sustainability of a company.Enron would not happen with high taxes.