Austerity & Uncertainty are holding back GDP

It's a day of the obvious it seems, but Suzy Khimm has a really great post up at Wonkblog that outlines how much in deficit reduction Congress and the president has already achieved, but also how those savings have depressed our GDP growth. This is, of course, I no-brainer. The government is part of the GDP equation and it's long been established when you cut government spending, you slow economic growth.

But perhaps more substantively for the future. Ms. Khimm notes that Barclays economist, Dean Maki, believes that only entitlement and tax reform can put the US on the path to greater economic growth. Quite honestly this is also pretty obvious. Companies have rebounded from the recession, but many are hording cash right now or looking for mergers and acquisitions to spend that cash on. One of the big reasons for that is governmental uncertainty. If you're a business owner you just don't know what the tax environment and entitlement is going to look like because there's tons of talk around making changes, but nothing has changed yet. It would be better for the economy if the government would do something decisive to give taxation and entitlement clarity to employers. Sadly, as I noted at length yesterday, if one side isn't ready to negotiate then no deal is going to get done.

Americans Want to Raise Taxes for Social Security

Again via Wonkblog (who maybe should get like a "Frequently Linked" card from me) comes the results from a survey conducted by a marketing firm hired by the National Academy of Social Insurance. And the results are in, when surveyed respondents support raising the payroll tax and lifting the payroll tax cap far more than cutting benefits.

Of note about this study, the surveyors explained policies before asking for their preferences, which is to say the answers aren't quite as arbitrary as some other polls and surveys would be. To me, this ties back again to President Obama's second inaugural address, the popularity of social safety net programs, and now some survey numbers suggest people are willing to pay more to keep it.

One final add-on that connects to my first post today: respondents were also asked if they thought Social Security was in crisis with 54% responding that they thought it was.  When the surveyors explained that raising Social Security taxes by 1.4% would guarantee the program for 75 years, the number of respondents thinking the program was in crisis dropped to 26%. Pundits are ginning up panic, again, when there is no real need for it.

Entitlements & Government Spending

Nate Silver does a great job at FiveThirtyEight breaking down where our government is spending money on the federal, state, and local level. After a thorough analysis he concludes what is fairly obvious: growth in government spending is coming from "entitlement programs" like Medicare, Medicaid, Social Security, and (to a far lesser degree) welfare.  This analysis leads me to two takeaways:

1) We don't have a spending problem, we have an entitlements problem. When you see plans to slash non-defense discretionary spending remember that's not the problem and that's not grown substantially since 1972. Non-defense discretionary spending has been relatively static for forty years, so those offering plans to slash the budget are wanting to take away government services like education funding, infrastructure investment, and R & D. More to the point, if they take it away it won't do anything to deal with the actual problem we have. It's a solution matching ideology, not necessity.

2) Just because we have an entitlements problem doesn't mean we should eliminate our entitlement programs. There are a number of things driving the entitlement problem. From exploding health care costs to demographic shifts. Some of these problems, like health care costs, can be worked. Some, like the demographics problem, need endured.

Starving the Beast on Steroids

The New York Times features a story this morning about Kansas and the efforts by state Republicans there, lead by Governor Sam Brownback to eliminate the state's income tax. Here's 90% of what you need to know about this plan:

The bill included the repeal of tax credits for food, rental housing and child care that benefited low-income residents. Because of those repeals, the poorest 20 percent of Kansans will spend an additional 1.3 percent of their incomes, an average of $148 per year, on taxes, according to a report by the Institute on Taxation and Economic Policy. The top 1 percent, meanwhile, will see the share of their income that goes toward taxes drop by 2 percent, or $21,087 per year, the report said.

The other 10% of the plan is a reminder of class "starve the beast" conservative policy. A concept I first heard through Paul Krugman, it works like this: Let's say you're a conservative and you want less government, but people really like the level of government they have broadly. Well if you can't kill the program, you kill the revenue stream. You cut taxes because when isn't that popular? And then as the tax cuts bite and the state lacks revenue to pay for the government people like the people are told, "Listen, we need less government or we need to raise your taxes." It's a dangerous game of chicken to play with dire financial consequences if it doesn't work.