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Death and …

We’ll skip over the death thing and go directly to taxes, a subject that allows at least a bit more optimism.

First, a few general comments:

- Our federal trillion dollar deficits come from recent increases in spending from about 20% of GDP to 24%, coupled with a decrease in revenue from an historic 19% to about 15%. Some of the revenue decrease comes from an anemic economy, but some comes from the “Bush tax cuts” which were extended by Barack Obama as part of the 2011 budget agreement in February. The increases, well … try just about everything.

- Within the Republican psyche there is a desire to “starve the beast” as well as a belief in the indefinite extension of the “Laffer Curve” which posits that reduced rates result in increased economic activity which actually produces more net revenue. At some point the latter is true – arguably demonstrated by President Reagan – but not indefinitely.

- Grover Norquist’s “Americans for Tax Reform” pledge has been signed by 236 of 242 Republican House members and 41 of 47 Republican Senate members as well as 2 House Democrats and Democratic Senator Ben Nelson of Nebraska. The pledge is to oppose any increase in marginal tax rates and any reduction in deductions not offset by equal reductions in rates. It has been signed by Rick Perry, Michele Bachmann, Mitt Romney and the other major Republican presidential candidates. President George HW Bush paid the price in for violating his 1988 “read my lips” pledge not to increase taxes if elected – and politicians remember.

But, there are a few glimmers of hope for either a Clintonesque redefinition of what “is is” or a courageous grand bargain.

- In the Senate 30 Republicans – led by Tom Coburn of Oklahoma – were willing to eliminate the subsidy for ethanol – effectively a tax increase – but the bill failed.

- A few Representatives have rescinded their commitmentto Norquist’s pledge.

- During the deficit increase negotiations John Boehner was apparently willing to offer up to $800 billion in tax increases over a 10 year period in exchange for major spending decreases and significant entitlement reform. The deal fell apart when Obama tried to up the ante to $1.2 trillion.

So, a couple of settings for the stage:

- Paul Ryan‘s 2012 budget proposal included a “revenue neutral” major restructure of the tax code, eliminating many deductions in the individual and corporate schedules in exchange for lower rates. Among the major puts and takes it would not be possible to attach specific increases to reductions with the overall impact being subject to assumptions about future economic activity. Ryan would change the game.

- The Republican appointees to the new Congressional Deficit Reduction Panel include Republican Dave Camp whose House Ways and Means Committee has jurisdiction over taxation, Social Security, and Medicare; Fred Upton whose Energy and Commerce Committee has jusisdiction over Medicaid and parts of Medicare; Rob Portman who was W’s budget director; and John Kyle of Texas who is retiring. Boehner and McConnell appointed members with conservative credentials and thorough knowledge of budgetary and tax matters. (The Dems appointed Patty Murray, the chair of the Democratic Senatorial Campaign Committee and John Kerry among others.) Both sides agreed on a Republican aide and chief tax counsel to the Senate Finance Committee to be the staff lead.

And a few more things in the optimism column:

- There are several easy targets upon which most can agree – hedge fund managers income being taxed at capital gains rates; ethanol subsidies; corporate jet tax breaks (created as part of Obama’s Stimulus Plan).

- Republicans would probably agree to big changes to energy tax credits – which go to solar, wind, and electric vehicles as well as oil and gas companies.

- The penalties for non-agreement by the new joint committee – gutting of the military; reduced Medicare payment rates without any real reform – provide a big incentive for a “grand bargain” if the parties demonstrate an interest in governing instead of building up campaign talking points.

It will take two to dance. If the Democrats bring serious entitlement reform to the dance floor, and the Republicans bring comprehensive tax reform, the Republicans may have enough conservative “cred” to do what Boehner was considering before President Obama moved the goal posts. One statesman on each side would get a proposal to the Congress for an up or down vote (no amendments.)

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This week’s video goes back to the “death” theme – the demise of “green energy” darling, Solyndra along with 1100 jobs and a half billion stimulus dollars. This is right down the street in Freemont, California, from Nummi, the last significant auto manufactuiring plant in California which closed in 2010. “Just bad luck”.

www.RightinSanFrancisco.com

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