My local paper, Foster's Daily Democrat, recently published an
from New Hampshire
Democratic pol Mark Fernald: "Why the supercommittee was a super
failure." A little Googling shows that versions also appeared
in (at least) Seacoast
Online, the Nashua
Telegraph, and the Keene
Sentinel. You can also read it
at Fernald's website.
My guess is, he wants to run for something again, but that's neither
here nor somewhere else. Let's take a look;
I'll use the Seacoast Online
version and leave in the links found
For Congress, the federal budget deficit is like the weather: everyone
talks about it, but no one does anything about it.
Tired simile. Next?
The Super Committee failed to reach a budget-cutting deal for the same
reason as previous efforts--their concern is with ideology, not
True enough, and remarkably even-handed. Enjoy the even-handedness
while it lasts.
For the forty years from 1969 to 2008, federal spending
averaged a little over 20% of gross domestic product. During that
period, the federal budget was in surplus for one year of the Johnson
administration, and several years of the Clinton administration.
Fernald starts going off the rails here. First, a quibble: my spreadsheet skills
actually show federal outlays averaging 20.6% of GDP for Fiscal Years
1969-2008; it's more accurate to say that spending averaged
"a little under 21%" than "a little over 20%".
More important is what Fernald conveniently leaves
out: federal receipts during that same period averaged about 18.2%
of GDP. Remember that as we proceed.
During the administration of George W. Bush, federal spending as a
percentage of gross domestic product (GDP) rose while revenues as a
percentage of GDP declined. The result, of course, was record
Fernald actively starts misleading here. I have no desire to
defend Dubya's profligate spending, but
, federal spending between FY 2002 and 2007 remained below
GDP (the long term average, remember); it went to 20.7% in 2008.
And, you may remember: we were fighting an expensive war at the time.
By 2009 (the final Bush budget year), spending
was 25% of GDP while revenues were just 15%. (After President Bush left
office, the 2009 budget was amended. Taxes were cut and spending
increased to counteract the recession, but even without these changes,
the final Bush deficit would have been a record
breaking $1.2 trillion.)
Fernald is stuck in blame-Bush mode, but it's hard to hide
the fact that the actual
deficit was about $1.4 trillion, all of which occurred with Democrats
in control of Congress. That was
we hit the budget deficit for the just-ended FY2011, currently estimated
at $1.56 trillion. Fernald omits that fact, since it doesn't fit in
well with GOP-bashing.
But it gets worse:
To get back to the balanced budgets we enjoyed in 1999-2001, we need to
both cut spending and increase revenue so that they balance at about 20%
We see now why Fernald omitted mentioning the long-term historical
average level of Federal receipts: it allows him to slip in the notion
that a 20%-of-GDP take is something that's historically
normal and reasonable.
It isn't. In fact, in every year since 1945, Federal
government receipts have stayed under—and usually well
under—20% of GDP, with only one exception (FY2000: 20.6%).
What did the numbers look like for those three wonderful
"balanced budgets we
enjoyed in 1999-2001"? Fernald won't tell you, but they're easy
Note: outlays for these years
were significantly under 20% of GDP; receipts were at
levels unprecedented in peacetime.
Republicans have a different idea. They voted
this year to cap federal spending at 18% of GDP. Federal spending
has not been that low since 1966. Rolling back federal spending to the
level of the early sixties may sound appealing until you consider it
would mean the elimination of Medicare (enacted in 1965) and a steep
drop in Social Security benefits.
Fernald's being kind of deceptive here too.
As noted above, federal spending has been close
to 18% of GDP
as recently as 2001.
Fernald also falsely implies that the 18% cap on spending is the only
GOP "idea." In fact there are a bunch: the so-called
Roadmap sees a very gradual reduction in federal spending, not getting
below 20% of GDP until 2059 (while assuming taxes can be held
at 19% of GDP, forever). The somewhat more enthusiastic
"Cut, Cap, and
Balance Act" purports to put spending on a "glide path" down
to 19.9% of GDP, not tomorrow, but by 2021.
Fernald's summary of the Super Committee's failure is predictably
The Democrats on the 'Super Committee' proposed
a ten-year plan to cut $3 billion from future expected deficits,
with about two-thirds of that amount coming from spending cuts and
one-third coming from increased tax revenue.
In their ten-year plan, the Republicans offered
to increase taxes by $300 billion -- $30 billion a year, or less
than 3% of the deficit.
For a GOP interpretation, see Jeb
, committee co-chair, in the WSJ
(Hensarling is too diplomatic to note the folly of relying on Democratic
promises of future spending cuts.)
It's not that finding additional revenue is hard
to do. The major factor in the decline in federal revenues is the Bush
tax cuts. Allowing the Bush tax cuts to expire for those households
with incomes over $250,000 would bring
in $70 billion a year. The Republicans offered $30 billion a year,
but only on the condition that all the Bush
tax cuts be made permanent.
Love the euphemism.
We're not raising taxes. We're just 'finding additional revenue'!
Or 'allowing tax cuts to expire'!
In fact, repealing the hated
Bush tax cuts is something the Democrats couldn't
manage to do even when they were in firm control of both Congress and the
And there's zero evidence that those cuts permanently depressed
revenue: in 2007, federal receipts were 18.2% of GDP, the
The largest source of federal revenue is the
income tax. You might think that income is income, but you would be
wrong. Investment income -- capital gains and dividends -- are taxed at
a lower rate than wages, which means that a middle income person who
works overtime to make an additional $1000 will pay more in tax than a
millionaire would pay on an additional $1000 in dividends. Taxing
investment income at the same rate as wages would strike a blow for
equity, and raise $84 billion a year.
Punishing people who save and invest their income instead of consuming
it? What could possibly go wrong there?
No, sorry. Silly, stupid idea. See here
for a good argument that the capital gains tax rate should be zero.
The oil and gas industry enjoys tax breaks given
to no other industry. Eliminating these would bring in $4 billion a
year. Even in Washington, that is real money. The Republicans said
Cheap demagoguery against an unpopular industry. In fact, the biggest tax
enjoyed by "Big Oil" is a credit enjoyed by all
But read on…
Our corporate income tax is a mess. Our
corporate income tax rate is among the highest in the industrialized
world, but our corporate income tax receipts as a percentage of GDP are
nearly the lowest in the industrialized world. If we simplified our
corporate income tax, decreased the rate, and increased corporate income
tax receipts to the average in the industrialized world, it would bring
in about $100 billion a year.
This is almost
a good idea.
At least it is, if
you remove the silly implication that
the government can extract, pain-free, an extra $100 billion a year
from corporations. (And you know that $84 billion Fernald wanted to
get from increased investment taxes a few paragraphs ago? Kick corporations in the teeth
hard enough, and there won't be any capital gains or dividends
But corporate tax reform is a generally excellent idea. Half a thumbs-up
for Fernald here.
A financial transactions tax at a low rate --
say, 0.5% -- would bring in
about $79 billion a year. Such a tax would have a negligible impact
on long-term investors, but would discourage short-term trades on Wall
Street, allowing the Street to get back to its function of allocating
capital, rather than rewarding speculators.
… it's right back to horrible ideas.
If you think the management
fees on your mutual funds are high now, wait until the government starts
demanding a piece off the top of each trade made by those managers.
Again, Fernald shows no comprehension that all this money removed from
private capital markets just might
have adverse effects on the economy.
Five changes to our federal tax code -- allowing
the Bush tax cuts for the wealthy to expire; eliminating preferential
tax rates for dividends and capital gains; eliminating tax breaks for
oil and gas; plugging the holes in the corporate income tax so that it
brings in revenue similar to other countries; and a financial
transactions tax -- would bring in $337 billion a year.
It wouldn't, of course. It's trite, but nonetheless true, that when
you tax something, you get less of it. Fernald's multiple-pronged
attacks on private investment and economic activity would result in
a permanent loss of American prosperity.
And Fernald's mythical $337 billion is only about 22% of the FY2011
deficit: not even one-quarter of the way toward budget balance.
In the face of a $1.3 trillion deficit, the revenue proposal of the
Democrats was too timid; the revenue proposal of the Republicans was
Simple math dictates a balanced approach to the
deficit problem, but Republicans cannot do math any more, they can only
The Republicans — including Congressman Bass, Congressman Guinta,
and Senator Ayotte — are committed to the Grover Norquist pledge not
to raise any taxes, the deficit be damned. If Republicans stick by the
pledge — and if voters stick by the Republicans — we have no
hope of taming the deficit.
Speaking of pathetic, here are Fernald's "balanced"
proposals to reduce spending:
(And, by the way, here is the number of times the word "entitlement" appears in
Fernald's article: zero point zero.)
Fernald (way back in paragraph two) bemoaned the "ideology" of
(presumably all) the
Super Committee members. But by the end, he's only blaming Republicans,
and hiding his own ideology—hey, I'm just doing the math!
But in fact, his math is suspect, his facts are selective, his proposed
"solutions" are unbalanced and unserious.