I was on PBS’ NewsHour last night, talking austerity. I’m against it. Ken Rogoff from Harvard was also on, and he’s actually against it too. One point of disagreement came up, though, when I made the argument that public debt incurred when the economy is depressed causes no economic damage (in fact, it acts instead as a useful palliative).

Rogoff disagreed in principle and then said something kind of startling—that increases in deficits and debt could lead to incomes in the near-ish future (i.e., less than 30 years from now) that are “20 percent lower.”

I’m assuming this claim has some relation to a Congressional Budget Office estimate of the effect of one particular fiscal scenario (the “alternative fiscal scenario,” or AFS) that projects the effects of large increases in budget deficits in coming decades on economic growth (see table below from the CBO report (p. 28)). The mechanism is that rising deficits increase interest rates which lead to lower private investment and a stronger dollar, which leads in turn to higher trade deficits and rising foreign debt.

Set aside for a second whether or not there are some problems with these calculations—both in relying on the AFS to make predictions and in how to apportion the impact of higher interest rates between crowded-out domestic investment versus increased trade deficits. The more salient point is simply that there is nothing in the CBO analysis that rebuts my larger point: Potential damage from increased public debt does not materialize when this debt is taken on when the economy is depressed. Here’s the CBO on the issue (p. 21 in the linked report):

“… when the economy has substantial unemployment and unused factories, offices, and equipment, federal budget deficits—and thus additional debt—generally boost demand, thereby increasing output and employment relative to what would occur with a balanced budget. … CBO’s estimates in this chapter [ed: estimates about the output-depressing effects of budget deficits and extra public debt] do not take those short-run effects on demand into account. Indeed, the estimates reflect the assumption that over the long run, output is always at its potential level”

In short, the potential output-depressing effects stemming from budget deficits that the CBO is estimating only hold when “output is at its potential level.” Or to say it another way, the exact way I said it earlier, extra public debt incurred when the economy is depressed (i.e., output is not “at its potential level”) causes no economic damage.

And in fact, when extra public debt is incurred when the economy is depressed, the boost it gives (if spent wisely) to economic output can easily be large enough to actually reduce overall the overall debt/GDP ratio by boosting the denominator and by spurring enough additional tax collections to actually self-finance part of the extra debt. How are people so sure that the extra debt incurred in recent years hasn’t led to any of the downsides from crowding out or upward pressure on the value of the dollar? Simple—interest rates have not risen. And remember, the entire economic chain wherein incurring public debt leads to crowding-out and trade deficits is through upward pressure on interest rates. And, since the depressed economy is putting ferocious downward pressure on interest rates, there is no damage done.

Until the economy recovers and this downward pressure on interest rates relents, additional increments of public debt do not hurt, and scare-stories about the 20 percent income loss possible 25 years from now because of deficits do not change this calculus at all.

For the past few months, I (and others in favor of allowing the Bush-era tax cuts for the rich to expire) had worried that once we got into the lame duck session, congressional Democrats would let their position slip and start supporting extending tax cuts for couples with income above $250,000 (individuals above $200,000). But I thought at the very least it would happen in the last month or two, when the pressure was really being brought to bear.

Turns out, it happened a lot sooner than that. Yesterday, House Minority Leader Nancy Pelosi (D-Calif.) signaled support for allowing the Bush-era tax cuts under $1 million to expire. Pelosi explained, “It is unacceptable to hold tax cuts for the middle class hostage to extending multi-billion dollar tax breaks for millionaires, Big Oil, special interests, and corporations that ship jobs overseas.”

Yes, I understand that “tax breaks for millionaires” sounds better in a press release than “tax breaks for households with income over $200,000, or $250,000 for couples.” And perhaps she felt forced into this, worrying that she might not be able to hold her caucus at the $250,000 mark, opting instead to retreat to more defensible terrain before the battle royal later this year.

But this shift has a number of very disturbing consequences:

1) Slipping to the right.This will now be the left pole of the debate. The Democratic Party has moved from opposing the Bush-era tax cuts to supporting 80 percent of them, to now supporting nearly 90 percent of them. And yet these concessions have been given for free, without any countervailing progressive demands. This is just more evidence that the tax debate is shifting further to the right. Pelosi may have done this for short-term advantage, but in the long run, these shifts tend to be very difficult to reverse.

(From Flickr Creative Commons by nasa hq photo)

2) More spending cuts. Given that the Bush-era tax cuts cost $2.6 trillion over the last decade and will cost over $4 trillion in the next decade, this concession will put even greater pressure on the budgets of vital safety net and public investment programs.

3) The definition of “middle class” is losing relevance. The previous definition of the middle class as being anyone under the $250,000 threshold was already a severe stretch. After all, you’re talking about people who (1) are making five times that of the typical American household (which makes closer to $50,000 a year in combined income), and (2) whose incomes are higher than 98 percent of American households. To now extend the definition of middle class to people who make 20 times that of the average household and whose income is greater than over 99 percent of households is to define away the entire concept of the middle class.

4) Bigger tax cuts to the highest-income Americans. This shift isn’t just a huge boon to upper-income households making between $250,000 and $1 million in income.  In fact, about half of these additional tax cuts would go toward households with over $1 million in income. This is because the cut-off—be it $250,000 or $1 million—represents the portion of a taxpayer’s income that is subject to the continued tax cut.  So the previous Democratic position—which remains President Obama’s public position—is that if you make over $250,000, you still get to keep your tax cuts for all your income below that threshold and only have to pay higher rates on income above that threshold. Revising the threshold up to $1 million basically means that all income between $250,000 and $1 million also retains its tax cuts, and as it turns out, about half of those tax cuts will go to people with income over $1 million.

As Jared Bernstein said, we’ll let the game theorists argue over whether this helps or hurts the Democrats’ negotiating position. But even if this does give the Democrats the upper hand in negotiations, what then? The whole point is to enact a tax code that can adequately fund the social safety net and public investments that we need to create a stronger economy with equal opportunity for all. Retaining the tax cuts for most people making over $250,000 and reducing the tax increase that people making over a $1 million would be subject to, makes that job significantly more difficult, if not impossible.

With New Jersey joining several other states in considering raising its minimum wage, it is appropriate to do some myth-busting around the minimum wage, in particular addressing myths around who comprises the minimum-wage workforce, and what the employment impact of increasing the minimum wage would be.

EPI’s analysis of the New Jersey proposal shows that 307,000 workers will be directly helped by raising the New Jersey minimum wage from $7.25 an hour to $8.50 an hour (because their current wages fall between those points), with another 233,000 workers benefiting indirectly (those whose wages are slightly above the new minimum wage who would see their wages increased modestly). The prevailing misconception is that most minimum-wage workers are middle-class teenagers working part-time for extra spending money. The facts tell a different story. Of those workers benefiting from the proposed minimum wage increase, slightly over half (55 percent) are female, more than four in five (85 percent) are 20 years of age or older, and nearly four in five (79 percent) work more than part-time (29 percent work mid-time, between 20-35 hours a week, and 50 percent work full-time, 35-plus hours a week). More than 3 in 4 workers (76 percent) benefiting from an increase in the minimum wage have a high school diploma or more—and nearly half (46 percent) of workers affected are white non-Hispanic (as seen in Figure 1). Over 282,000 New Jersey children have a parent who would benefit from increasing the minimum wage.

GDP impact and job creation

The EPI analysis of the impact of the proposed minimum wage increase shows that those workers benefiting (both directly and indirectly) from increased wages, will see an additional $439 million in wages in the first year following the proposed minimum wage increase. For those benefiting, the average increase in their annual income would be $810.

In the first year following the increase in the minimum wage, we estimate that increased spending by workers who see a raise will boost GDP by $278 million. Wage increases resulting from indexing to inflation would result in further GDP boosts in future years. Economists widely recognize the relationship between GDP growth and employment growth. Our model shows that 2,420 full-time equivalent (FTE) jobs would be created in the first year as a result of the GDP boost resulting from New Jersey’s proposed minimum wage increase. These jobs would be concentrated within New Jersey, since lower-income workers disproportionately spend their wages locally to meet the immediate needs of their families.

The minimum wage as defense against further erosion of wages 

As seen in Figure 2, New Jersey saw significant erosion of low wages (those at the 20th percentile) between 2009-2011. New Jersey’s $0.60 erosion of wages at the 20th percentile was the 11th greatest wage loss of all states, exceeding the national low-wage erosion by $0.14. With unemployment rates remaining high, employers do not have to provide wage increases to get and keep the workers they need. Since well over half (56 percent) of those receiving additional income as a result of the proposed minimum wage increase fall in the bottom two income quintiles, it is clear that slowing this wage erosion would significantly help lower-income workers.

Increasing New Jersey’s minimum wage is the right thing to do for several reasons. It is smart economics, boosting a weak economic recovery that has New Jersey firmly in its grips, and it improves the well-being of working families still reeling from the effects of the Great Recession.

Does J.P. Morgan Chairman and Chief Executive Jamie Dimon belong on the board of the New York Federal Reserve? Of course not. And there’s actually a petition demanding his resignation or removal, being pushed by former IMF Chief Economist Simon Johnson.

But it’s also important to note that he didn’t belong on the board two months ago either—before the large trading loss J.P. Morgan suffered made news. And it’s not just Dimon, it’s the whole structure of Federal Reserve banks that needs reform.

The problem is that the boards of directors for regional Federal Reserve banks are composed of financial-sector executives—and these boards then get to choose five of the 12 voting members of the Federal Reserve’s Open Market Committee (FOMC), the body that makes monetary policy decisions. So, essentially 42 percent of the committee that controls the single most important lever of macroeconomic policy for the country is picked by banking executives. Oh, and the New York Fed, while technically a regional bank, occupies a permanent seat on the FOMC.

This is all made more ironic by the fact that any attempt by outsiders to criticize the Fed often leads to distressed hand-wringing by the Beltway elite about the sanctity of Fed “independence.” But of course, they are not talking about “independence” in any normal sense of the word, but rather independence from having to consider the views of those in the economy who might have different interests from finance.

So, sign the Dimon petition. But also, and much more importantly, support the efforts by legislators in Congress like Barney Frank and Bernie Sanders to undertake more comprehensive reform of the Fed. Because none of this is personal, it’s just business.

Given that Speaker of the House John Boehner (R-Ohio) essentially promised last week to engineer a replay of last summer’s debt ceiling fight at the first opportunity, people have been wondering if that previous fight could be tied directly to subsequent economic damage in the form of lost output or jobs.

The short answer: maybe.

Before going into this question, however, it is worth noting that there is absolutely zero economic reason to believe that current levels (and expansions in recent years) of public debt are damaging to the economy. We can say this with confidence for a couple of reasons, based in pretty boring textbook macroeconomics. First, interest rates remain historically low, meaning that lenders are not just willing, but intensely eager, to keep financing budget deficits. Second, these low interest rates are not based on capricious market sentiment that could turn on a dime; instead they’re based on economic fundamentals.

To put it quickly, the same thing that is keeping interest rates low is what is keeping the economy weak – an excess of desired savings from households and businesses over demand for new borrowing and investments. So there will be upward pressure on interest rates if and only if this fundamental economic weakness is resolved, and not before.

But while economic fundamentals regarding public debt pose no threat to the U.S. economy, political brinksmanship might. As the nation approached the (arbitrary, unuseful, and dangerous) statutory debt ceiling last summer, what had been historically a pro forma vote to keep the federal government from defaulting on its obligations became this time a chance for GOP members of Congress to extort passage of some of their own pet policies in exchange for not causing an economic crisis. Eventually, the debt ceiling was raised in a deal to cut more than $1 trillion in spending over the next decade.

Given Boehner’s threat/promise of last week, this brings us back to the main question: Did last summer’s political wrangling over the debt ceiling inflict tangible harm on the economy?

Circumstantial piece of evidence exhibit A is that economic growth decelerated markedly in the middle of the year (see figure below on year-over-year GDP growth), roughly as the debt ceiling debate came to a head.

Further, a paper by Scott Baker, Nicholas Bloom, and Stephen Davis (2012) has attempted to construct an empirical measure of economic uncertainty and estimate the association of rising uncertainty with economic performance. While the paper has often been cited by critics of the Obama administration who think that it estimates the effect of regulatory uncertainty on growth, there is actually almost nothing in the paper to support this reading.

But the paper does show a very large increase in economic uncertainty associated with the debt ceiling fight (see the figure below, which is lifted directly from the paper, including the association of the last spike with the fight over the debt ceiling). In fact, the index of economic uncertainty rose more in the midst of last summer’s debt ceiling fight than it did during the financial meltdown of fall 2008 (when Lehman Brothers collapsed).

Lastly, Baker, Bloom and Davis (2012) estimate that the rise in economic uncertainty as large as the total rise that occurred between the index’s trough in 2006 and its peak in 2011 is associated with a contraction in GDP of more than two percentage points and a reduction in employment of more than 2 million jobs. Eyeballing their chart, the fight over the debt ceiling accounts for nearly half of this 2006 to 2011 rise. If one believes their estimates of the effect of a rise in uncertainty of roughly this size and one is willing to make very strong assumptions about causality (more on this below) this means that the fight over the debt ceiling could have cost the economy a percentage point of GDP and a million jobs (Baker, Bloom and Davis say that these effects manifest between nine and 24 months later).

How hard should we lean on an estimate like this? Not very—the causal relationship between measures of economic uncertainty and performance clearly runs both ways. As Baker, Bloom and Davis note, “So, for example, it could be that policy uncertainty causes recessions, or that policy uncertainty is a forward-looking variable that rises in advance of anticipated recessions.”

Does fighting about the statutory debt ceiling in and of itself damage the economy? Maybe—and it’s clear that the current economy needs no further drags on growth in the coming year.

What’s much clearer is that an actual financial crisis caused by debt ceiling brinksmanship would have real economic consequences, and would also be the first purely self-inflicted sovereign debt crisis in history. Even flirting with this is unspeakably stupid.

Many in the media have accepted the notion put forward by conservatives and business associations that unions make businesses uncompetitive by raising wages and benefits irresponsibly. The poster child for this view of the world is the auto industry, where the United Auto Workers supposedly drove the “Big Three” (Chrysler, Ford, and General Motors) into the ground while foreign competitors ate their lunch.

This is false history. As Case Western Reserve University manufacturing scholar Sue Helper has helped me understand, the auto industry’s problem stemmed from decades of mismanagement, and regardless of the UAW contracts, the Big Three made choices that doomed them to lose market share and the ability to compete.

The biggest element of mismanagement was designing and selling poor products. Anyone who lived in Michigan in the 1970s remembers when Detroit began building truly terrible cars, like the Chevy Vega, the AMC Gremlin, the Chrysler Imperial, and the Ford Pinto; it was the beginning of what became a slow-moving train wreck. As the Economist published in the May 2009 story, “A Giant Falls,” Detroit began making cars that were both dull and unreliable:

“Only in the 1970s, after the first oil shock, did faults start to become visible. The finned and chromed V8-powered monsters beloved of Americans were replaced by dumpy, front-wheel-drive boxes designed to meet new rules (known as CAFE standards) limiting the average fuel economy of carmakers’ fleets and to compete with Japanese imports. As well as being dull to look at, the new cars were less reliable than equivalent Japanese models.

By the early 1980s it had begun to dawn on GM that the Japanese could not only make better cars but also do so far more efficiently. A joint venture with Toyota to manufacture cars in California was an eye-opener. It convinced GM’s management that “lean” manufacturing was of the highest importance. Unfortunately, that meant still less attention being paid to the quality of the cars GM was turning out. Most were indistinguishable, badge-engineered nonentities.”1

Bad design and engineering were accompanied by disastrous pricing decisions, which further jeopardized quality:

“As the appeal of its products sank, so did the prices GM could ask. New ways had to be found to cut costs further, making the cars still less attractive to buyers.”

Autoworker wages didn’t make the Big Three uncompetitive by driving prices up; poor value drove prices down. As prices and quality fell together, consumers fled. The UAW’s contracts were almost irrelevant. One way to show this is to compare the pricing of the competitors’ vehicles with the size of the labor cost differential bargained by the UAW.  Labor costs make up only 10 percent of the cost of a typical automobile. Before the auto rescue, the Big Three paid $55 an hour in compensation per auto worker while the Japanese paid only $46 an hour. (Company lobbyists and publicists inflated the total Big Three labor cost to $71 by attributing the unfunded pension and health benefit costs for decades of retired workers to the much smaller currently employed workforce2; the legacy costs for Japanese transplants were only $3 an hour.)3 But even if, for the sake of argument, we accept the unfairly inflated $71 figure, the difference in the cost of a vehicle attributable to the UAW (the UAW premium) would be 30 percent of the average 10 percent labor cost, or 3 percent of total cost.

In 2008, according to Edmunds, GM sold its average large car for $21,518. Assuming GM sold its cars at cost, the UAW premium would have been only $645 (3 percent of $21,518). Did the UAW premium raise the selling price so high as to make GM cars uncompetitive with Toyotas? Not exactly. Toyota sold its comparably equipped average large car for $31,753—$10,000 more than GM.4 It wasn’t price that made GM cars uncompetitive, it was the quality of the product and the customers’ perception of quality.5

For nearly 30 years, the Big Three’s market share fell steadily, from 77 percent in 1980 to 45 percent in 2009, almost entirely because the U.S. companies built cars that were noisier and less comfortable, had poorer fit and finish, poorer gas mileage, more defects, and a poorer repair record and resale value.6 Helper has documented the hostile relationships the Big Three developed with their suppliers,7 which led to the provision and assembly of parts that did not work well together, did not fit seamlessly, and whose inherent quality was sometimes substandard.8 In 2006, before the auto industry collapsed (and before gas prices skyrocketed), economists Kenneth Train and Clifford Winston did a careful econometric analysis of buyer preferences and concluded that:

“… the U.S. automakers’ loss in market share during the past decade can be explained almost entirely by the difference in the basic attributes that measure the quality and value of their vehicles. Recent efforts by U.S. firms to offset this disadvantage by offering much larger incentives than foreign automakers offer have not met with much success. In contrast to the numerous hypotheses that have been proffered to explain the industry’s problems, our findings lead to the conclusion that the only way for the U.S. industry to stop its decline is to improve the basic attributes of their vehicles as rapidly as foreign competitors have been able to improve the basic attributes of theirs.”

The authors conducted a simulation to determine “how much U.S. manufacturers would have to reduce their prices in 2000 to attain the same market share in 2000 that they had in 1990 and found that prices would have to fall more than 50 percent.” In other words, reducing the cars’ price by the UAW premium would have had no discernible effect on market share. The Big Three were building cars that most people simply didn’t want to buy, and only by cutting the price in half could they have retained their market share.

What happens to a corporation that sells its products at a low price while losing market share for 30 years? It goes bankrupt.

Fundamental mismanagement and building cars that customers didn’t want doomed the Big Three, not the UAW. Read more

Alan Simpson is at it again. Launching another off-color attack on people who oppose the Bowles-Simpson plan to bomb Social Security in order to save it, Simpson claims he is saving it for young people who would otherwise be “gutted.” In fact, Simpson’s overarching desire to protect rich Americans from paying their fair share of Social Security taxes (if wealthy earners paid FICA taxes on all of their income, most of Social Security’s solvency problems would be solved) leads him to propose cuts in Social Security almost as large as the automatic benefit reductions that will occur in 2033 under current assumptions.

According to an analysis of the Bowles-Simpson plan by Social Security’s chief actuary, middle-class workers with average earnings over the course of their careers (around $43,084 in 2010) would see a 22 percent cut in benefits by 2080, not significantly different from the 23.5 percent cut in benefits these workers would face if nothing were done to shore up Social Security’s finances. Our children and grandchildren will lose critical benefits under Simpson’s plan, while seniors like him are mostly protected.

Notwithstanding Simpson’s crocodile tears for young people, under the Bowles-Simpson plan, if someone who is born in 2015 retires at age 65 with a middle-class income in 2080, Social Security will replace only 28 percent of their pre-retirement earnings. By contrast, a 65-year old who retired in 1980 replaced 49 percent of pre-retirement earnings. It is Simpson himself who wants to gut the Social Security of coming generations.

This post originally appeared in the Huffington Post

If Latinos are to fully recover from the ravages of the Great Recession, they will need not simply jobs, but jobs that lead to increased earnings over time and that also have good benefits. In short, they will need what we call “good jobs.” Recent evidence from EPI research on state and local public sectors portends that getting good jobs will continue to be a major challenge for Hispanic workers.

From 2007 (the year the recession started) to 2011, Latinos workers’ wages in state and local public sectors declined more than the wages of whites and African Americans. The median wage of Hispanic employees declined 5.2 percent, compared with a decline of 1.9 percent for African Americans, and 0.7 percent for whites.

Since the 1970s, the rich have been getting richer as the rest of America has been suffering from a good jobs crisis. Wages have declined or stagnated and benefits have been cut. Just about everyone on Main Street has been hurt by the decline in the share of good jobs, but Hispanic men have been hit the hardest. From 1979 to 2008, the share of Hispanic men in good jobs declined 15.5 percent. For white and black men respectively, the declines were 12.8 percent and 9.3 percent.

Without a good job, it is very hard to keep one’s family out of poverty. A third of Hispanic children are living in poverty, nearly three times the rate for white children. Since the start of the recession, Latino child poverty has increased the most of the major racial and ethnic groups. To lower this high rate of poverty, we need to increase the wages of Hispanic workers. Unfortunately, Hispanics lead in the share of workers earning wages that cannot lift a family out of poverty.

In terms of benefits, Latinos are also in a dire situation. Hispanics have the lowest share of workers with employer-sponsored health insurance. Given that Latinos are underrepresented in good jobs that provide a retirement plan and overrepresented in jobs that do not provide enough for savings, it is not surprising that Latinos are very weak on measures of retirement security. The fact that Latinos have lost a significant amount of wealth over the recession does not improve the situation.

What can be done to produce more good jobs in the American economy and more good jobs for Latinos specifically? I discuss several policies in Getting Good Jobs to America’s People of Color, but here I will only address one: unions.

Recently, Knowledge@Wharton, the online business journal of the Wharton School of Business, published State of the Unions: What It Means for Workers — and Everyone Else (May 9, 2012). This article provided information about how a strong union movement helps provide good jobs.

Good jobs require good wages. Knowledge@Wharton cited recent research that has shown that the decline in union membership since the 1970s has played a significant role in the growth in income inequality. The journal quoted the sociologist Jake Rosenfeld, who observed, “It is hard to think of a way to tackle income inequality without a vibrant labor movement.”

Unions also help create good jobs by fighting for worker’s rights and for worker benefits. Wharton Professor Janice Bellace noted, “If you think of major pieces of legislation that have been very important to working persons, you will often see that the legislation was pushed by unions. The Employee Retirement Income Security Act of 1974 (ERISA) . . . was pushed by the unions and almost no one else. And the Pregnancy Discrimination Act of 1977 . . . was brought by the International Union of Electrical Radio and Machine Workers.” She added that unions are truly the “national voice for the average working person.”

Without a strong union movement, and without increasing Latino unionization, it will be difficult, if not impossible, to reverse the decline in good jobs in America. While all racial and ethnic groups are hurting from this decline, Latinos have been hurt the most.

House Speaker John Boehner’s (R-Ohio) high-profile speech at last week’s 2012 Fiscal Summit garnered much attention for its pledge to again hijack the debt ceiling; less noticed was his announcement that the House of Representatives will establish a fast-track process for expediting “tax reform.” Comprehensive tax reform could add much needed revenue and balance to a long-term deficit “grand bargain,” but that’s not what Boehner is talking about:

“If we do this right, we will never again have to deal with the uncertainty of expiring tax rates. We’ll have replaced the broken status quo with a tax code that maintains progressivity, taxes income once, and creates a fairer, simpler code. And if we do that right, we will see increased revenue from more economic growth.” (Full text here.)

Anything resembling the tax plan recommended by Ways and Means Committee Chairman Dave Camp (R-Mich.) and included in Budget Committee Chairman Paul Ryan’s (R-Wis.) fiscal 2013 budget resolution—Boehner’s chief fiscal policy deputies—is going to have a devilishly hard time meeting this laundry list of talking points. That’s because conservatives falsely equate a “simpler” tax code with cutting and consolidating tax brackets, which would confer big tax cuts to upper-income households in the top tax brackets. This is the bedrock of the Camp-Ryan tax plan: “Consolidate the current six individual income tax brackets into just two brackets of 10 and 25 percent.” Short of unspecified offsets, this would sap progressivity from the tax code and deprive the Treasury of $2.5 trillion over a decade—accounting for more than half of the $4.5 trillion of unfunded tax cuts proposed in the Ryan budget. Combined with the other major tenants—repealing the alternative minimum tax (AMT), cutting the corporate tax rate to 25 percent, exempting foreign profits from taxation, and repealing health care reform—the tax code would be markedly flattened at the top of the income distribution, as seen in the Tax Policy Center’s (TPC) analysis of the Ryan budget, again short of unspecified offsets:

The red bars show what regressive upper-income tax cuts and lower-income tax increases look like, not what tax reform looks like. The missing element is how the tax cuts would be financed—i.e., which unspecified tax expenditures would be eliminated in “broadening the tax base.” House Republicans object to eliminating or even scaling back the preferential tax rates on capital gains and dividends—the tax expenditures most disproportionately benefiting upper-income households—which would be the only feasible way to maintain progressivity at the top of the income distribution with a top rate of 25 percent and no AMT. Repealing exclusions—like that for employer-sponsored health insurance—would hit middle- and upper-middle class households a lot harder than upper-income households, and repealing refundable tax credits would wallop only lower- and middle-income households (see Table 2 of this TPC report). Itemized deductions are more regressive, but nowhere nearly as regressive as the preferential treatment of capital income. If substantial base broadening were added to the Camp-Ryan tax plan without raising rates on capital income, either substantial progressivity or revenue (likely both) would be lost relative to current policy. Many lower- and middle-income households would effectively foot the bill, subsidizing more upper-income tax cuts.

With respect to the budget, relying on “economic growth” for more revenue translates to, at best, revenue-neutral tax reform relative to the inadequate levels raised by current policy. Official scorekeepers—the Congressional Budget Office and Joint Committee on Taxation—rightfully reject the kind of “dynamic scoring” (i.e., changing economic projections and budget scoring based on potential macroeconomic effects of tax cuts) Boehner and others would cite to show more revenue. Economic growth is the only source of “increased revenue” that would not violate Grover Norquist’s Taxpayer Protection Pledge—signed by 236 members of Boehner’s caucus—because it’s a gimmick, not a revenue source, as my colleague Ethan Pollack recently explained.

Lastly, Boehner’s implied objectives of revenue and distributional neutrality—which guided the Tax Reform Act of 1986—are now wholly inappropriate benchmarks, as they would lock-in the past decade’s unaffordable and regressive Bush-era tax cuts and exacerbate Gilded-Age levels of income inequality. Much of our structural budget deficit and the ad hoc state of temporary tax cuts’ pending expiration stem from the 2001 and 2003 Bush-era tax cuts, which were, in a sense, “fast-tracked” with reconciliation (around the filibuster). Financing an extension of the Bush tax cuts with spending cuts (essentially maintaining revenue around 18 percent of GDP), as the Ryan budget effectively proposes, would require draconian spending cuts. Reducing revenue below current policy levels—the more likely outcome of the Camp-Ryan plan—would require implausibly deeper cuts and exacerbate the unsustainable long-run fiscal trajectory, grossly contradicting purported concern about budget deficits.

If Congress really is heading toward comprehensive tax reform in the next few years, policymakers need to be kept honest about what amounts to reform versus a tax cut. The United States simply can’t afford to let Congress fast-track another tax cut disguised as “tax reform.” And House Republicans are currently $4.5 trillion shy of proposing even revenue-neutral tax reform.

… but don’t lose any weight? You get unsightly bulges elsewhere and can’t breathe well enough to exercise.

That’s essentially the House Republican solution to the long-term budget challenge of escalating health care costs: Shift costs to individuals, and do it in a way that impedes measures that could actually help control costs in the long run.

Nevertheless, belt-tightening is the latest weight-loss fad to hit Washington, prompting Robert J. Shiller to ask in yesterday’s New York Times, “Why is there such strong political support for fiscal austerity, for government cuts and layoffs, at a time of widespread unemployment?”

Shiller thinks the reason austerity has caught on (at least inside the Beltway) is that the other side has better metaphors, like belt-tightening. His proposed alternative—”winter on the family farm“—may not resonate in a non-agrarian economy, but his point is a good one: When there’s no planting, fertilizing or harvesting being done, it’s time for infrastructure projects to make productive use of idle labor.

It’s not even necessary to increase the deficit, though this would be the quickest way back to full employment. Raising taxes to pay for infrastructure and education would still create jobs, because all the money would be spent, whereas some of the income that was taxed would have been saved. This is especially true if the taxes fall on higher-income households. These investments would also pay off in the form of a more productive economy in the long run.

Alas, Shiller notes that despite the fact that a balanced-budget stimulus was endorsed in the International Monetary Fund’s 2012 World Economic Outlook, politicians espousing such measures, such as France’s François Hollande, aren’t taken seriously. Meanwhile, extreme and counterproductive measures put forward by House Budget Chairman Paul Ryan (R-Wis.) have shifted the window of policies considered to be within the political mainstream in the United States, even though Ryan would actually reduce taxes on the wealthy and slash public investment. The House Republican budget may be a non-starter, but so too—for the time being—are balanced-budget measures to get the economy moving again.