The State of the Union: Opening the Debate of 2012

President Barack Obama delivers the State of the Union address in the House Chamber at the U.S. Capitol in Washington, D.C., Jan. 24, 2012 © Pete Souza | Whitehouse.gov

I continue to be struck by the constancy of Barack Obama. His tactics shift and weave, but his overall principles and project are firmly rooted. In the State of the Union address, he revealed his core convictions, explained his policies and their consequences, and linked his accomplishments with his promises.

Obama is a centrist, working to define common sense, working to move the center left, as I have earlier argued. In his speech last night, he focused on fairness and the viability of the American dream. He argued for the way the government can support economic development and the interests of the vast majority of the American public. Though he did not use the language of Occupy Wall Street, his focus on fairness was clearly supported by the fruits of the social movement’s labors. And the principled debate before the American people in the coming election was illuminated, as Obama argued for his side: a “smarter more effective government” versus limited government, the Republican ideal.

The speech was elegantly crafted and delivered, something that is now expected from Obama and therefore doesn’t impress and is not really news. But the fine form delivered a well rounded argument.

He opened and closed with a call for common purpose, exemplified by the military and its virtues, as he highlighted major milestones in foreign affairs: the end of the war in Iraq and the killing of Osama Bin Laden. A move that makes me uncomfortable, though I understand that it works well.

The opening:

“Last month, I went to Andrews Air Force Base and welcomed home some of our last troops to serve in Iraq. Together, we offered a final, proud salute to the colors under which more than a million of our fellow citizens fought — and several thousand gave their lives.

We gather tonight knowing that this generation of heroes has made the United States safer and more respected around the world. (Applause.) For the first . . .

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Against “Tax Loopholes”?

Loophole, Fort Clinch State Park, Fernanda Beach, Florida © Ebyabe | Wikimedia Commons

The public debate about “tax loopholes” is muddled at least in part because “loopholes” and “tax expenditures” have become intertwined. Both are peculiar terms.

“Loopholes” have a history. Some accounts report the term as originally referring to the narrow slits (larger on the inside and smaller on the outside) cut into castles. They made it possible for defenders to peer out and watch with relative safety, and when necessary, fire arrows or other projectiles to protect the castle. Some loopholes in castles were slightly larger and could be used as an escape when necessary. Other explanations of the origin of the term point to alternative Dutch words meaning “to run” and “to watch”. Others refer to an English term, suggesting “to leap.” A number of references cite poet Andrew Marvell (1621-1678) using loopholes to communicate the ability to evade or squeeze through. Today, loophole is a symbolically rich term that is intended to mean that something unseemly is taking place through such evasion and squeezing.

Are tax expenditures an entirely different matter? The Congressional Budget Act of 1974 (Public Law 93-344) defines tax expenditures as, “…revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of liability.” That is, in plain English: tax expenditures are lost tax revenues caused by special exceptions to tax laws. By law, a list of “tax expenditures” must be included in the President’s budget in a section titled “Analytical Perspectives,” prepared by the Office of Management and Budget. The list for 2012 includes 173 “tax expenditures (p241 – 251),” which total over one trillion dollars for the fiscal year beginning October 1, 2011. As objective as this may sound, the list and estimates of “cost” is actually quite subjective, because analysts posit the starting point of the tax baseline.

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Can Washington Matter? The Case Against the Supercommittee

President Obama presenting "The American Jobs Act" to Congress © Chuck Kennedy, 9/12/2011 | WhiteHouse.gov

There is a growing expectation that Washington may address the jobs crisis in a significant way with the possibility of major parts of “The American Jobs Act” becoming law, The New York Times reports today. A key to this could be the supercommittee, officially called the “Joint Select Committee on Deficit Reduction.” Casey Armstrong considers whether it is likely to be up to its bi-partisan tasks. The question of American governability is on the line. -Jeff

Last month, I speculated that the supercommittee had the potential to help drag our legislature into a more authentic form of bipartisanship, a bipartisanship based on principled mutual compromise in the tradition of Henry Clay. I expressed my belief that the makeup of the committee would determine its ability to affect change. In that respect, the prospect of the committee changing the status quo now seems bleak. There is great opportunity but the membership of the committee suggested that the opportunity will be missed.

The Committee on Deficit Reduction is nominally a “joint select committee.” Emphasis should be given to the “joint” nature. Select committees generally suggest, but don’t legislate. In the present supercommittee, I see the spirit of the conference committees that resolve contentions between Senate and House bills. “Going to conference” offers possibilities of compromise that would not have previously existed for the conferees in their respective chambers or standing committees. Conference rules state that “the conferees are given free reign to resolve their differences without formal instructions from their bodies.” Senate scholar Walter Oleszek quoted an anonymous Senate leader opining, “Conferences are marvelous. They’re mystical. They’re alchemy. It’s absolutely dazzling what you can do.”

In the Obama budget talks, posturing was encouraged by heightened visibility. Separate branches of government competed for authority. With the supercommittee, we move to what Erving Goffman called the “backstage.” The individual actors have more agency to shape the outcome than the participants . . .

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Unemployment Equilibrium: Keynesianism 103

John Maynard Keynes  © Desconocido | Wikimedia Commons from Michael Holroyd, Lytton Strachey: A Critical Biography (1967), Volume 1

The failure of economics in the runup to and aftermath of the Great Recession has generated a lively debate about how to reform economics and more specifically about the renewed relevance of Keynesian economics, which had fallen out of favor since the 1970s. The Keynesian message, so important in this latest round of political wrangling over the increase in the US debt ceiling, is that cutting government spending in a slump will only worsen the unemployment problem. The role of expansionary fiscal policy, according to Keynesianism 101, is to provide demand for goods (and thus for employees to produce those goods) when the main sources of demand in a capitalist economy — households and businesses – are not providing a level of demand necessary to generate a socially acceptable level of unemployment.

Keynesianism 102 is about the multiplier effect of changes in spending. This is the notion that an increase in demand (from any source, not just government but certainly including government) will impact employment and incomes with a ripple effect. This includes a direct impact and then a secondary impact when the direct incomes are then spent (in some fraction) and an additional fraction of that is spent, etc.

There are two corollaries to the lesson of Keynesianism 102 that are worth mentioning because they have been raised in the current policy debate. The first is about the differential multiplier effect of a spending increase compared to a tax cut. Empirical studies show that the multiplier effect of the former is greater than the multiplier effect of the latter. The second is about the differential multiplier effect depending on the income of the recipients. Since the poor are more likely to spend a higher percentage of additional disposable income than the rich, a tax cut that benefits low-income people will have a bigger multiplier effect than a tax cut that benefits the rich.

These lessons have not been integrated into current economic policy in the US, where deficit spending and progressive tax reform and expanded benefits for . . .

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