“A Republican Ruse”


The Republicans haven’t taken over yet but they’ve made their plans known and it won’t come as much of a surprise that their top priorities are tax cuts. One of the very first changes will be gaming the system that tracks whether or not tax cuts work. By every legitimate measure, including common sense, they don’t. The Pubs are going to change all that.

AS Republicans take control of Congress this month, at the top of their to-do list is changing how the government measures the impact of tax cuts on federal revenue: namely, to switch from so-called static scoring to “dynamic” scoring. While seemingly arcane, the change could have significant, negative consequences for enacting sustainable, long-term fiscal policies.

Whenever new tax legislation is proposed, the nonpartisanCongressional Budget Office “scores” it, to estimate whether the bill would raise more or less revenue than existing law would.

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[The] conventional estimates do not, however, include any indirect feedback effects that tax law changes might have on overall national income. In other words, they do not incorporate macroeconomic behavioral changes.

Dynamic scoring does. Proponents point out, correctly, that if a tax proposal is large enough, then those sorts of feedback effects can aim the entire economy on a slightly different path.

“Dynamic scoring” basically allows the injection of unjustified assumptions about the future performance of the economy. IOW, adding a baseline article of faith from Reaganomics that all tax cuts on the wealthy raise revenues and if they don’t, it’s because they weren’t deep enough.

Federal deficits are on an unsustainable path (as it happens, because of undertaxation, not excessive spending). Simply cutting taxes against the headwind of structural deficits leads to lower growth, as government borrowing soaks up an ever-increasing share of savings.

The most optimistic dynamic models get around this by assuming that the world today is in fiscal equilibrium, where the deficit does not grow continuously as a percentage of gross domestic product. But that’s not true. If you add the reality of spiraling deficits into those models, they don’t work.

To make these models work, scorekeepers must arbitrarily assume either that we tax more and spend less today than is really the case — which is what they did for the Camp bill — or assume that a tax cut today will be followed by a spending cut or tax increase tomorrow. Economists describe such a move as “making counterfactual assumptions”; the rest of us call it “making stuff up.”

Again IOW, they’re going to enshrine in law a faith-based assessment mechanism guaranteed in advance to justify both their rosy predictions and their brutal get-tough-on-the-poor cuts to human services along with their go-easy-on-corporations cuts to everything from the SEC to the FDA. They will now be able to point to government-authorized conclusions that everything is fine even as it collapses around ordinary folk not rich enough to protect themselves from it.

The Republicans’ interest in dynamic scoring is not the result of a million-economist march on Washington; it comes from political factions convinced that tax cuts are the panacea for all economic ills. They will use dynamic scoring to justify a tax cut that, under conventional scorekeeping, loses revenue.

When revenues do in fact decline and deficits rise, those same proponents will push for steep cuts in government insurance or investment programs, because they will claim that the models demand it. That is what lies inside the Trojan horse of dynamic scoring.

A win-win. When their tax cuts make the economy worse, their scoring model will demand more tax cuts as a fix.

Priority #2 is likewise financially related: further weakening if not killing outright Dodd-Frank, once again allowing banks to rig their own scams.

The Dodd-Frank financial reform law was supposed to curb speculation in swaps. But as The Journal has reported, hedge funds are increasingly using swaps to wager on whether weak firms will live or die. RadioShack, the troubled consumer electronics retailer, is one of several prominent examples. In December, RadioShack’s total debt came to about $1.4 billion, but swaps outstanding on the performance of the debt totaled $23.5 billion. Similarly, J.C. Penney, the ailing department store chain, had total debt of some $8.7 billion, but swaps outstanding on the debt totaled $19.3 billion.

Those gaps suggest excessive speculation, though it is hard, if not impossible, to gauge the precise exposure of funds to big losses. What is known is that a hedge fund that is betting on a company’s default has an incentive to push it over the edge. Conversely, a fund that is betting a troubled company will not default has an incentive to keep it afloat, at least long enough to avoid a big payout. Either way, the company becomes a pawn in a financial game.

Speculative activity is likely to increase. Last month, Congress repealed an anti-speculation provision of Dodd-Frank that would have prevented federally insured banks from conducting several types of swap transactions. In addition, the Federal Reserve recently gave the banks two extra years to meet a Dodd-Frank provision requiring them to sell their investments in private equity funds and hedge funds.

And when the 2 yrs are up, the Fed will extend the deadline for 2 more yrs and then 2 more after that and so on and so on.

The Democrat minority will, of course, “compromise” by unconditionally surrendering when their corporate sponsors tell them to.

And so it goes.

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2 responses to ““A Republican Ruse”

  1. I am surprised that the Republicans continue to get the blame for everything bad economically. Read your history, 1929 was caused by blatant greed by the corporate leaders, the Morgans, Rockefellers, duPonts et all. Then when their man Roosevelt turned progressive and actually wanted to save the country, they plotted to overthrow him. These people helped Mussolini rise to power and then Hitler. These corporate titans traded with them and loaned them the money to start WWII and even supplied the technology to wage air war, initially denied our British ally. The regulations put in place by Roosevelt were slowly undone and with the repeal of the Glass-Steggel Act through 4 Republican Senators, the greed can get going full bore again, resulting in the housing crisis and the most recent meltdown. Currently there are several billionaires pulling strings getting their shills elected. Look at pitiful Kansas, is Brownback really in charge there? Listen to our congressmen and wannabee candidates for president, echoing the same broken record over and over, who is pulling the strings- ooops we’re back in Kansas after Dorothy met the wizard.

  2. I am surprised that the Republicans continue to get the blame for everything bad economically.

    Really? Do you mean that or are you being sarcastic? You write as if there’s some separation between Big Business and the GOP. Read your history. The Pubs have been corporate stooges since the days of the Robber Barons. Since the 19th century, iow. Teapot Dome ring a bell? The failed attempt by corporate leaders to use the GOP and the Army to overthrow FDR in a military-political coup?

    The Republican party exists only because huge amounts of corporate $$$ keep it afloat. They are partners at best, corporate lapdogs and go-fers the rest of the time. There’s little if any distinction between them.

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