How are we going to pay for
... the bailouts already on the books
... the proposal to buy the "underperforming" assets from financial institutions
Perhaps we should consider the impact of the tax proposals of both candidates. And here I suggest that there was a very good summary of the impact of both candidates' proposals in Derrick Jackson's Tuesday Boston Globe column, which was entitled Sweet promises and the sour taste of fiscal reality.
As a caution, let me quote something from near the beginning of that column
Obama is likely passing out candy of his own, a sweetness to distract Americans from the sour work ahead.
Below the fold, I want to offer the key information Jackson put in the column. And in offering this I in no way imply nor state that McCain would in any way be superior to Obama. Of course not. But given the current financial realities, and the real dangers to the American and world economies posed by the current crises and how we choose to respond, I think it appropriate to at least offer the information.
The analysis that follows immediately is a product of Tax Policy Center, a joint venture of the Brookings Institution and the Urban Institute, which means it is not exactly coming from the right wing:
Under McCain, the lowest, second, third, and fourth quintiles of Americans would receive an average 2009 tax cut of $21, $118, $325, and $994, respectively. Under Obama, the lowest, second, third, and fourth quintiles would see cuts of $567, $892, $1,118 and, $1,264.
Under McCain, the top 1 percent of Americans would receive a tax cut of about $49,000 and the upper 0.1 percent would receive a tax cut of about $291,000.
Under Obama, the top 1 percent would pay about $94,000 in new taxes and the top 0.1 percent would pay about $543,000 more.
So far so good, right? Obama's plan is progressive, McCain's at least tilts in the direction of being regressive. Except, consider also this:
But there is another reality. The McCain proposal would leave the nation $5.1 trillion more in debt by 2018. The Obama plan would still add $3.6 trillion to the national debt.
Len Burman of the Tax Policy Center sys that Obama cannot pay for all he proposes, and Jackson quotes him saying
"We're talking about massive tax cuts, significant new spending priorities, and down the road we have enormous economic challenges, particularly on healthcare. Anyone who did first-grade math should be able to figure that out. But it appears that a significant number of people in Congress haven't."
I do not have children. But I teach adolescents. And I believe it is irresponsible to do what we have seen in recent Republican administrations, piling up bills that will be passed on to future generations. I'm sorry, that is not only wrong, not only makes little economic sense, it is ultimately immoral.
I have talked recently with a number of figures from the Hill who are trying to figure out how bad things are. Even before any additional steps are taken to rescue financial insititutions in the attempt to save our economy from total collapse, we have in the pst 10 months or so committed the full faith and credit of the American people to as much as $900 billion in bailouts. Now to be sure, it may not be THAT high, and some of it might be offset by the assets AIG surrendered for a loan at 11.5% interest. In the Chrysler bailout several decades back, the US Government profited. And since what is now being proposed is similar to the RTC bailout of savings and loans, we can remember that eventually a substantial proportion of the expenditures were covered by sale of assets turned over in return for the funds of the bailout.
We do not know how great the financial exposure will be in the current proposals. I have heard figures ranging from $250 billion to a trillion. What is scary is that the people working on the proposals really have no idea.
I do not think we have much of a choice. That is, absent intervention, the costs to our society would be catastrophic. Since I am not an economist by background, I will leave arguments about that to them. I do not that absent stabilitization, the effects of the collapse that began with mortgage instruments will be horrible: we are already seeing the effects on local governments, because the value of property upon which taxes are assessed to fund their operations has plummeted. And absent liquidity, business activity begins to dry up, with concomitant losses in jobs, in the amount of money in the economy, and thus also in revenues to the federal government.
If this crisis as great as it seems, that we need an all hands on deck approach. We need absolute transparency, absolute honesty about costs and benefits. Attempting to gain political advantage through promising the free lunch of enticing tax cuts to one's potential electoral supporters is, in my mind, not appropriate at this time.
We have spent some time on these issues in class this week. How could we not? This is our government and our economy in action. And my students are rightfully concerned about what it all means. At back to school night Tuesday, one parent who works for what was Merrill Lynch raised the question of whether we should bother to teach the subject of moral hazards, since the reactive nature of our government (legislative as well as executive) has been to ignore the entire idea of responsibility.
Before I quote the final two paragraphs from Jackson, let me for the record note that I am not related to Jared Bernstein, nor have I ever met him. That said, consider this:
More optimistic was Jared Bernstein, analyst for the Economic Policy Institute and an informal Obama adviser. "I think it is doable," he said, "but there are a lot of moving targets, if he can really close loopholes in the tax code, if he can end the war, if Congress signs off on his ideas . . . It already takes tremendous nerve for him just to say he's raising taxes on some of the people and nerve to do it on the richest. That is still huge."
More huge will be the day when tax cuts cease to be an artificial sweetener.
Yes, it takes cast iron testes to be willing to be on record to raise taxes on anyone when we seem to be in a bidding war, what Jackson rightly refers to as an artificial sweetener.
And yes, there has been an imbalance in how recent tax cuts have been distributed.
And I agree that we absolutely need to rectify the problems in our financial sector.
I want real and meaningful regulation.
I want fairness for Main Street as well as all players on Wall Street.
And most of all, I want to see some semblance of fiscal responsibility.
Can anyone in the midst of a crisis responsibly propose tax cuts? Many have rightly criticized the Bush administration for cutting taxes when fighting a war. That has already added more than a trillion dollars to our indebtedness.
I offer no answers. I post this from my classroom, shortly before I begin my day's task of teaching. I do so because I believe we must be responsible. Just as it was wrong to attempt to fix the problems of Wall Street and the mortgage crisis one financial institution at a time, it is equally irresponsible to make major regulatory changs and financial commitments without totally reexamining all aspects of federal fiscal policy, including proposed tax cuts.
Peace.