A plague on both your houses

Allan Sloan, an editor of Fortune, blames BOTH tea party conservatives AND the Obama administration for bungling our economic crisis:

What the hell is going on? We thought the worst was behind us, but it wasn’t, thanks largely to fallout from the Standard & Poor’s downgrade of U.S. credit brought on us by the incompetence of our alleged national leaders.

Only three short years ago, the world financial system was on the brink of disaster after Lehman Brothers went broke in September 2008. Those scary times seemed to have disappeared in the spring of 2009. But now, things are even scarier.

After the worst sell-off since the financial crisis, traders and passersby react to grim news about the stock markets and the global economy.

Our current mess is different from the Lehman-related horror because it stems primarily from politics, not economics. The previous fear-fest came about because Lehman’s bankruptcy disrupted financial markets in unanticipated ways. Today’s crisis was completely avoidable. You can blame it directly on the fools who brought our country to the brink of defaulting on its debts in the name of saving us from . . . I’m not sure what.

Yes, the tea party types bear primary responsibility — but they couldn’t have done it without the cowardice and incompetence of the Obama administration, which let things get way out of hand. This whole fiasco just enrages me. And it ought to enrage anyone who wants the United States to act like a real country rather than some third-rate failed state run by fanatical factions that hate one another. . . .[He goes on to detail why both sides are at fault.]

Now that I’ve finished venting, let me make one more attempt to be reasonable — and show how relatively easy it would be to solve our problems while allowing both the tea party and the left wing to claim victory and go home. This requires (1) that we survive the 2012 election cycle (boy, that’s going to be a blast) and (2) that the winners recognize that our current federal income tax rules and rates, Social Security benefit formula and Medicare provisions are historical and political accidents rather than holy writ handed down to Moses by the Lord on Mount Sinai.

We need more jobs, more growth and more tax revenue. Note that I said more revenue, not higher rates. There are lots of proposals kicking around that would cut rates, eliminate the alternative minimum tax and broaden the tax base by drastically reducing itemized deductions.

Only about a third of taxpayers, primarily higher-income types, itemize deductions, so only they would be affected. Do this right, and you end up with more tax revenue from high-income people (which allows the “tax the rich” types to be happy) but lower rates (which lets the tea party folks claim victory).

On the entitlement front, we modify Social Security and Medicare formulas, imposing higher costs on higher-end retirees (which would include me, should I ever retire). What’s in it for the right-wing fanatics? Those programs’ projected costs drop. For liberal wing nuts? They can claim victory because people are living longer than when these programs were introduced and will collect more benefits over their lifetime than originally intended.

Yes, rationality is out of style, and fanaticism is the new normal. But do we really want a national life like the one we’ve had the past few years? All shrieking and no thinking?

via This time, the economic crisis is no one’s fault but the government’s – The Washington Post.

What do you think about his solutions?  Tax reform that increases revenue, while lowering rates (pleasing liberals). Entitlement reform (pleasing conservatives).  Is there any way politically to adopt that kind of centrist something-for-both-sides program?

About Gene Veith

Professor of Literature at Patrick Henry College, the Director of the Cranach Institute at Concordia Theological Seminary, a columnist for World Magazine and TableTalk, and the author of 18 books on different facets of Christianity & Culture.

  • fws

    We need more jobs, more growth and more tax revenue. Note that I said more revenue, not higher rates. There are lots of proposals kicking around that would cut rates, eliminate the alternative minimum tax and broaden the tax base by drastically reducing itemized deductions.

    Only about a third of taxpayers, primarily higher-income types, itemize deductions, so only they would be affected. Do this right, and you end up with more tax revenue from high-income people (which allows the “tax the rich” types to be happy) but lower rates (which lets the tea party folks claim victory).

    On the entitlement front, we modify Social Security and Medicare formulas, imposing higher costs on higher-end retirees (which would include me, should I ever retire). What’s in it for the right-wing fanatics? Those programs’ projected costs drop. For liberal wing nuts? They can claim victory because people are living longer than when these programs were introduced and will collect more benefits over their lifetime than originally intended.

    Well now.

    This is the outline of what EVERY single super committee on the budget that is bipartisan has recommended so far.

    I can see every liberal or Democrat on this site going for this outline. people like me, Todd and Tom Herring and your brother.

    Here is the rub: I can’t imagine any of the Grover norquist no new tax crowd favoring this. Why not? They are using no new taxes as a way to brand the republican party in a bumper sticker sorta way,

    So that means that even eliminating tax deductions and credits to industries equals an increase in taxes. So they cant go for this proposal. they have boxed themselves in with their public pronouncements.

    I could see Obama and all the rest of the Democrats going for this outline, and I could see them being able to persuade the vast majority of rank and file dems and also independents to go for this.

    Its virtue is that it is sane. Right now the “tax rates” are sorta meaningless in that no one is taxed truly at those rates. I read somewhere that GE paid no taxes at all last year.

  • fws

    We need more jobs, more growth and more tax revenue. Note that I said more revenue, not higher rates. There are lots of proposals kicking around that would cut rates, eliminate the alternative minimum tax and broaden the tax base by drastically reducing itemized deductions.

    Only about a third of taxpayers, primarily higher-income types, itemize deductions, so only they would be affected. Do this right, and you end up with more tax revenue from high-income people (which allows the “tax the rich” types to be happy) but lower rates (which lets the tea party folks claim victory).

    On the entitlement front, we modify Social Security and Medicare formulas, imposing higher costs on higher-end retirees (which would include me, should I ever retire). What’s in it for the right-wing fanatics? Those programs’ projected costs drop. For liberal wing nuts? They can claim victory because people are living longer than when these programs were introduced and will collect more benefits over their lifetime than originally intended.

    Well now.

    This is the outline of what EVERY single super committee on the budget that is bipartisan has recommended so far.

    I can see every liberal or Democrat on this site going for this outline. people like me, Todd and Tom Herring and your brother.

    Here is the rub: I can’t imagine any of the Grover norquist no new tax crowd favoring this. Why not? They are using no new taxes as a way to brand the republican party in a bumper sticker sorta way,

    So that means that even eliminating tax deductions and credits to industries equals an increase in taxes. So they cant go for this proposal. they have boxed themselves in with their public pronouncements.

    I could see Obama and all the rest of the Democrats going for this outline, and I could see them being able to persuade the vast majority of rank and file dems and also independents to go for this.

    Its virtue is that it is sane. Right now the “tax rates” are sorta meaningless in that no one is taxed truly at those rates. I read somewhere that GE paid no taxes at all last year.

  • Tyler

    I fully agree with him that our tax system is broken. We have created a system that is so full of loopholes and tax breaks that it takes highly specialized lawyers to make sense of it all. A simplified tax code would go a long ways to providing revenues for the government. How about a flat-tax that begins with people above the poverty limit and also has a rate for businesses?

    The current problem with having a “centrist” solution is that there is not a super large amount of center ground that people will agree to. The tea party and the left side of the aisle have fundamentally different economic approaches. One is Keynesian and assumes that government spending is the answer and the other advocated more by Friedman. In having such fundamental differences, I’m not sure there is much center ground.

  • Tyler

    I fully agree with him that our tax system is broken. We have created a system that is so full of loopholes and tax breaks that it takes highly specialized lawyers to make sense of it all. A simplified tax code would go a long ways to providing revenues for the government. How about a flat-tax that begins with people above the poverty limit and also has a rate for businesses?

    The current problem with having a “centrist” solution is that there is not a super large amount of center ground that people will agree to. The tea party and the left side of the aisle have fundamentally different economic approaches. One is Keynesian and assumes that government spending is the answer and the other advocated more by Friedman. In having such fundamental differences, I’m not sure there is much center ground.

  • Eric Brown

    It could work if both parties were content to claim victory, content to claim “we got X that we wanted” — but now, both parties want to defeat the other, say, “We kept them from getting Y”. In that environment, what room is there for compromise and reason?

  • Eric Brown

    It could work if both parties were content to claim victory, content to claim “we got X that we wanted” — but now, both parties want to defeat the other, say, “We kept them from getting Y”. In that environment, what room is there for compromise and reason?

  • SKPeterson

    The proposal for tax reform has merit – simplifying the tax code would reduce a substantial amount of economic inefficiency. However, entitlement reform alone is not going to do it, and I trust the author knows this. Along with reforming and simplifying the tax code, we could create the conditions that will generate those all important jobs (and increase tax revenues besides) by cutting, abandoning and jettisoning most of the regulatory code that has arisen over the last 25 years. In turn, reduce the government spending required to staff the regulatory agencies which promulgate all of these extra-legal regulations. Also, eliminating most of the associated federal criminal statutes would help. Federalizing crime does not reduce the impact of crime on society – it simply increases the costs of enforcement, while simultaneously making more people criminals, thereby increasing calls for more money to fight crime, so more laws can be passed to make more things crimes, so we can have more criminals, and then more money for “crime fighters.”

  • SKPeterson

    The proposal for tax reform has merit – simplifying the tax code would reduce a substantial amount of economic inefficiency. However, entitlement reform alone is not going to do it, and I trust the author knows this. Along with reforming and simplifying the tax code, we could create the conditions that will generate those all important jobs (and increase tax revenues besides) by cutting, abandoning and jettisoning most of the regulatory code that has arisen over the last 25 years. In turn, reduce the government spending required to staff the regulatory agencies which promulgate all of these extra-legal regulations. Also, eliminating most of the associated federal criminal statutes would help. Federalizing crime does not reduce the impact of crime on society – it simply increases the costs of enforcement, while simultaneously making more people criminals, thereby increasing calls for more money to fight crime, so more laws can be passed to make more things crimes, so we can have more criminals, and then more money for “crime fighters.”

  • Bryan Lindemood

    This is exactly the kind of leadership “reason” the church by me prayed for yesterday. It’s nice to hear of someone influential saying such reasonable things. I think people should keep praying for this kind of measured reason in wise leaders who will serve the country and all of their local constituents along side of the rest of us.

  • Bryan Lindemood

    This is exactly the kind of leadership “reason” the church by me prayed for yesterday. It’s nice to hear of someone influential saying such reasonable things. I think people should keep praying for this kind of measured reason in wise leaders who will serve the country and all of their local constituents along side of the rest of us.

  • http://www.biblegateway.com/versions/Contemporary-English-Version-CEV-Bible/ sg

    “We need more jobs, more growth and more tax revenue.”

    No we don’t. This thinking is out of date. We only need as many jobs as we have workers. We have a fully developed economy. We don’t need growth in absolute terms, just innovation and new industries that make older ones obsolete. We sure don’t need more revenue because more money in the hands of government means more power for the government. Money is power. We need less spending, fewer foreign adventures and fewer illegal aliens increasing while at once undermining the labor market. The revenue we have is wasted on foreign adventures and perverse incentives that encourage social pathologies.

  • http://www.biblegateway.com/versions/Contemporary-English-Version-CEV-Bible/ sg

    “We need more jobs, more growth and more tax revenue.”

    No we don’t. This thinking is out of date. We only need as many jobs as we have workers. We have a fully developed economy. We don’t need growth in absolute terms, just innovation and new industries that make older ones obsolete. We sure don’t need more revenue because more money in the hands of government means more power for the government. Money is power. We need less spending, fewer foreign adventures and fewer illegal aliens increasing while at once undermining the labor market. The revenue we have is wasted on foreign adventures and perverse incentives that encourage social pathologies.

  • http://www.biblegateway.com/versions/Contemporary-English-Version-CEV-Bible/ sg

    “We have created a system that is so full of loopholes and tax breaks that it takes highly specialized lawyers to make sense of it all.”

    But those are good jobs. Jobs that Americans will do. :-)

  • http://www.biblegateway.com/versions/Contemporary-English-Version-CEV-Bible/ sg

    “We have created a system that is so full of loopholes and tax breaks that it takes highly specialized lawyers to make sense of it all.”

    But those are good jobs. Jobs that Americans will do. :-)

  • Steve Billingsley

    It’s funny that this solution is very similar to what the Bowles-Simpson Commission proposed (and yet wasn’t even approved by the congressional committee and completely ignored by the President who appointed the Commission). There is plenty of blame to go around.

    At the end of the day, the President can still show some leadership on this if he so chooses. A solution of this type is exactly what he should propose. I am not, however, holding my breath.

  • Steve Billingsley

    It’s funny that this solution is very similar to what the Bowles-Simpson Commission proposed (and yet wasn’t even approved by the congressional committee and completely ignored by the President who appointed the Commission). There is plenty of blame to go around.

    At the end of the day, the President can still show some leadership on this if he so chooses. A solution of this type is exactly what he should propose. I am not, however, holding my breath.

  • DonS

    As has been posted above, this guy’s no genius. These proposals have been around for quite a while now. But so far, despite FWS’s optimism @ 1, it is completely untrue that liberals in government or who control the levers of government are willing to make even these modest changes to spending programs, or to the tax system. Obama completely rejected Bowles-Simpson, out of hand. And he is now proposing, not tax simplification, but additional specified tax credits and deductions for favored individuals and businesses, making the tax system even more complex and political.

    I have been posting for a long time that we need a trade-off — a much simpler tax system, with lower rates and fewer or no tax credits and deductions. Everyone pays something into the system, and no one is treated differently than anyone else, in terms of tax preference if they make a similar income, business or individual. Tax revenue increases (because the tax rates drop less than the money gained by eliminating tax preferences), but taxpayers come out ahead because tax compliance costs would be dramatically reduced. The only losers — tax attorneys and accountants. Probably, this kind of system would need to be phased in over a decade or more, because people have made business and personal decisions based on the current system — but we should start the process now.

    On the spending side, Sloan’s entitlement reform proposals are incredibly milquetoast. They will do practically no good, as he is only proposing phasing out benefits for the relatively few well-to-do. Won’t work. We need dramatic age eligibility increases for Social Security and Medicare, together with some means testing, benefits reductions, and COLA changes. In the long term, we need to wean those who are presently still children out of the system. We need to begin modifying all entitlements programs so that no benefits are promised that aren’t pre-funded, the way private businesses are required to do things. Spending is the primary problem — it is about 6% of GDP higher than historical averages — and so it needs to be the focus of the solution. That’s just fact.

  • DonS

    As has been posted above, this guy’s no genius. These proposals have been around for quite a while now. But so far, despite FWS’s optimism @ 1, it is completely untrue that liberals in government or who control the levers of government are willing to make even these modest changes to spending programs, or to the tax system. Obama completely rejected Bowles-Simpson, out of hand. And he is now proposing, not tax simplification, but additional specified tax credits and deductions for favored individuals and businesses, making the tax system even more complex and political.

    I have been posting for a long time that we need a trade-off — a much simpler tax system, with lower rates and fewer or no tax credits and deductions. Everyone pays something into the system, and no one is treated differently than anyone else, in terms of tax preference if they make a similar income, business or individual. Tax revenue increases (because the tax rates drop less than the money gained by eliminating tax preferences), but taxpayers come out ahead because tax compliance costs would be dramatically reduced. The only losers — tax attorneys and accountants. Probably, this kind of system would need to be phased in over a decade or more, because people have made business and personal decisions based on the current system — but we should start the process now.

    On the spending side, Sloan’s entitlement reform proposals are incredibly milquetoast. They will do practically no good, as he is only proposing phasing out benefits for the relatively few well-to-do. Won’t work. We need dramatic age eligibility increases for Social Security and Medicare, together with some means testing, benefits reductions, and COLA changes. In the long term, we need to wean those who are presently still children out of the system. We need to begin modifying all entitlements programs so that no benefits are promised that aren’t pre-funded, the way private businesses are required to do things. Spending is the primary problem — it is about 6% of GDP higher than historical averages — and so it needs to be the focus of the solution. That’s just fact.

  • DonS

    http://www.cnbc.com/id/44226011

    Economists agree, rather overwhelmingly, that the problem is too much spending, not taxes that are too low.

  • DonS

    http://www.cnbc.com/id/44226011

    Economists agree, rather overwhelmingly, that the problem is too much spending, not taxes that are too low.

  • Lou

    DonS, While I agree that the problem is not that taxes are too low, I do think that an increase in Tax Revenue is need, and the way we go about getting it is by addressing the whole issue of jobs. More jobs, more tax revenue.

    I also think we need to be very cautious about going in for the jugular on deductions. For instance, the number tax deduction taken is for mortgage interest. That particular deduction is not targeted at high income earners or any particular category. Anyone who has purchased a home fairly recently did so understanding that in the early years of the loan, the tax deduction could be counted on to help with the burden of homeownership. Imagine what would happen to the housing market if the mortgage loan interest tax deduction was eliminated. New home sales would all but disappear and early defaults would escalate even further than they are already. This is only one example, so we need to be very cautious about our assumptions (the author of the article views deductions as something that only benefits high income individuals, which is untrue).

    Entitlement reform and job creation may not solve the entire economic dilemma, but both measures are the most rational things we need to do – now.

  • Lou

    DonS, While I agree that the problem is not that taxes are too low, I do think that an increase in Tax Revenue is need, and the way we go about getting it is by addressing the whole issue of jobs. More jobs, more tax revenue.

    I also think we need to be very cautious about going in for the jugular on deductions. For instance, the number tax deduction taken is for mortgage interest. That particular deduction is not targeted at high income earners or any particular category. Anyone who has purchased a home fairly recently did so understanding that in the early years of the loan, the tax deduction could be counted on to help with the burden of homeownership. Imagine what would happen to the housing market if the mortgage loan interest tax deduction was eliminated. New home sales would all but disappear and early defaults would escalate even further than they are already. This is only one example, so we need to be very cautious about our assumptions (the author of the article views deductions as something that only benefits high income individuals, which is untrue).

    Entitlement reform and job creation may not solve the entire economic dilemma, but both measures are the most rational things we need to do – now.

  • DonS

    Lou @ 11: Yes, I agree. The best way to increase tax revenue is to improve the economy, thereby creating more jobs and thus more taxpayers. And the way to improve the economy is to avoid raising tax rates, while also focusing government on reducing impediments to new business ventures, rather than its current focus on ever-increasing regulation and complexity for business people. When you view the current initiatives of government — energy scarcity policies, ever more restrictive regulation, particularly in the environmental field, health care mandates, etc., increasing the tax rates on small business people, you realize that government is primarily a stumbling block to business, especially small business, and that its entire focus is antithetical to job creation. How did we get to this place where government so impedes our economy, and how can we fix it? That is where our focus should be.

    As for the tax system, the complexity of the current system, and its penchant for adding more and more tax credits and deductions for things government has decided it particularly likes, as well as penalties for things it doesn’t like, has very much distorted our economy, as well as creating burdensome compliance costs for the citizens. We need to simplify and get the politics out of the system, and the way to do that is to take away the vast majority of the credits, deductions, and other preferences for favored interest groups. Despite the fact that many of us benefit from it, the mortgage interest deduction is not justifiable in the long run, so in any far-reaching reform should be eliminated. However, because so many people have built their lives and businesses about the existing tax system, I don’t think it can or should be changed overnight. The changes should be very gradual so that people can adapt in an orderly way. Many reformers have talked of a dual elective system for a period of time, where you can elect to go under the new simple system or be grandfathered under the old complex system for a substantial transition period. In the long run, once we’ve weaned ourselves from the mortgage interest deduction, we will find that prices will settle at similar, but more realistic, values, since tax rates will be much lower and the tax preferences won’t be worth as much or necessary in any event.

  • DonS

    Lou @ 11: Yes, I agree. The best way to increase tax revenue is to improve the economy, thereby creating more jobs and thus more taxpayers. And the way to improve the economy is to avoid raising tax rates, while also focusing government on reducing impediments to new business ventures, rather than its current focus on ever-increasing regulation and complexity for business people. When you view the current initiatives of government — energy scarcity policies, ever more restrictive regulation, particularly in the environmental field, health care mandates, etc., increasing the tax rates on small business people, you realize that government is primarily a stumbling block to business, especially small business, and that its entire focus is antithetical to job creation. How did we get to this place where government so impedes our economy, and how can we fix it? That is where our focus should be.

    As for the tax system, the complexity of the current system, and its penchant for adding more and more tax credits and deductions for things government has decided it particularly likes, as well as penalties for things it doesn’t like, has very much distorted our economy, as well as creating burdensome compliance costs for the citizens. We need to simplify and get the politics out of the system, and the way to do that is to take away the vast majority of the credits, deductions, and other preferences for favored interest groups. Despite the fact that many of us benefit from it, the mortgage interest deduction is not justifiable in the long run, so in any far-reaching reform should be eliminated. However, because so many people have built their lives and businesses about the existing tax system, I don’t think it can or should be changed overnight. The changes should be very gradual so that people can adapt in an orderly way. Many reformers have talked of a dual elective system for a period of time, where you can elect to go under the new simple system or be grandfathered under the old complex system for a substantial transition period. In the long run, once we’ve weaned ourselves from the mortgage interest deduction, we will find that prices will settle at similar, but more realistic, values, since tax rates will be much lower and the tax preferences won’t be worth as much or necessary in any event.

  • Lou

    See Veith’s latest post, DonS, with regard to the tax deductions. That gets it back to my comment and where I would stand on deductions. (He ht’s FWS for some reason???)

  • Lou

    See Veith’s latest post, DonS, with regard to the tax deductions. That gets it back to my comment and where I would stand on deductions. (He ht’s FWS for some reason???)


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