More Evidence That Taxes Must Go Up

David Leonhardt, the prescient and hard-headed New York Times economics columnist, states flatly that "your taxes are going up" in his column of Feb. 25. Leonhardt's data and arguments reinforce those I have made in The End of the American Century, in my Op-Ed for the Christian Science Monitor ("This is not the time to cut taxes"); and in other posts here.

Leonhardt argues that if we want the government services that we have come to expect and rely on (like national security, infrastructure, Medicare, education), we need more federal revenues, because at the moment "we are not paying nearly enough taxes to maintain those programs." He sees taxes going up soon, "and the increase will be permanent."



On the upside, Leonhardt argues, there is room for such an increase, and it will probably not hurt economic growth. As he points out, for a half century federal taxes have remained fairly constant relative to the size of the economy--at about 18% of GDP. "But the 18 percent era has to end soon."

In The End of the American Century, I show that US tax rates are low in global comparisons.

"Compared to other wealthy countries, the United States has among the lowest rates of both individual and corporate income taxes, and total tax revenues in the U.S. (as a percentage of GDP) are lower than those in most of the affluent democracies that are members of the OECD [see OECD data here]. Thus, not only is the U.S. spending and consuming more than most countries, but it is not paying for the relatively few benefits that the government provides. This is the crux of the problem of the deficit and the debt."

Leonhardt argues (as I do in my CSM Op-Ed), the "despite all the scary stories you've heard, the evidence that higher taxes necessarily cripple an economy is somewhere between thin and nonexistent." He points out that the fastest postwar economic growth occurred in the 1950s and 1960s, "when the top marginal tax rate was a now-unthinkable 90 percent."

He also points out that it will not be sufficient to simply raise taxes on the very wealthy, as President Obama has proposed. The incomes and wealth of that group have soared in the last decade, as their federal tax rates have declined. So their higher tax rates should be restored.

But, as Leonhardt says, "the problem can't be solved just by taxing the rich." That top 1% pays only about one quarter of federal taxes. So the tax increases will have to spread more widely.

This will be a very difficult task politically. No politician wants to raise taxes. But not to do so will simply pass the problem onto our children, and burden them with an even bigger mountain of debt. We need to start paying for what we get. And especially now, as we launch huge new spending programs for health care, education, infrastructure and banks, we need to shell out for what we are getting.

Indiana Governor Has "No Idea" of Costs of Commercial Flights

Indiana's Governor Mitch Daniels, using a $1000 per hour state aircraft for a trip to Washington, appeared clueless when a reporter asked him if it might be cheaper to fly commercial and stay an extra night in DC.

Last weekend, Daniels was flying to Washington for the annual meeting of the National Governors Association when the plane developed a crack in one of the windows, forcing it to land in Columbus. He flew on from there on a commercial flight.

The state-owned plane, a King Air prop, costs $791 per hour for fuel plus $184 in maintenance costs for each hour of flying. The flight from Indianapolis to Washington takes about two hours.

According to the Indianapolis Star, when he was asked why he didn't fly commercial in the first place, Daniels said there was no commercial flight that would have gotten him to Washington on time. "I would've had to come the night before and buy a hotel room and I don't know what else." When asked whether it still wouldn't have been cheaper to fly commercial, even if it meant another night in a hotel, Daniels said "I have no idea."

This seems a peculiar response from the former director of the national budget, and a man who President Bush referred to as "The Blade" for his acumen at budget cutting. But even then, Daniels was not so good at keeping spending under control. During his tenure as director of the Office of Management and Budget from 2001 to 2003, the federal budget flipped from a $236 billion surplus to a $400 billion deficit.

So I took the liberty of checking up on prices for the gov. The Governors Association was meeting at the J.W. Marriott hotel in DC. A king size bed on a weekend night costs about $200--though almost certainly the governors attending the conference received a reduced convention rate. A commercial roundtrip flight from Indy to DC--non-stop and at least as fast as flying a smaller turboprop--also runs about $200.

So to fly commercial and stay an extra night would have been roughly $400. To fly the 9-seat King Air, without having to "buy a hotel room and I don't know what else" costs about 2k each way, for a total of $4000. Ten times as much, Mr. Governor.

Maybe this is trivial, but Daniels' cavalier dismissal of the question on costs betrays an arrogance and profligacy that is unbecoming of a public servant. Some of our Congressional representatives have grilled the bailout CEOs about their use of corporate jets. Surely our elected representatives should be held to at least the same standards, particularly in this time of deficits, belt-tightening, and sacrifice.



(Scott Adam's 2/25 "Dilbert" strip.

Guns on Campus Would Add to the Mayhem

One of the themes of The End of the American Century is the exaggerated and destructive aspects of "American Exceptionalism"--the tendency for Americans to see themselves as exceptional, different and better than other peoples and countries. This takes extreme form in the combination of individualism and violence in this country, which is manifested in the peculiar (and exceptional!) obsession with individual gun ownership. The prevalence of firearms in the U.S.--almost as many as there are people--contributes to some 30,000 firearm deaths each year, and a homicide rate that is far higher than any other industrialized country.

For people in other countries, the levels of violence and the prevalence of guns in the U.S. invoke both amazement and horror. Global opinion surveys show that the two most common negative characterizations of Americans by foreigners are "greedy" and "violent." They contribute to the growing disillusionment with the U.S. (and with American citizens) in other countries, and to the view of the U.S. as being violent both in its foreign policy and inside its own borders.

In recent years, the National Rifle Association (NRA) has been pushing for the adoption of "conceal carry" laws in the states, and lately has been arguing for laws that would allow more guns on college campuses. They claim to see this as a way to avoid tragedies like those at Virginia Tech where a student killed 32 people in 2007. But few experts believe that arming students could prevent such a tragedy, and that it will simply lead to an increase in campus firearms injuries and deaths.

The NRA-sponsored bill in my state, Indiana, was introduced by a lifelong NRA member who wrote a letter to the Indianapolis Star arguing in support of the bill, Senate Bill 12. Below is my response to his letter, which appeared on the Star's website at the following link.

-----------------------
Nothing positive to gain from guns on college campuses

Posted: February 13, 2009

In his recent letter to the editor, state Sen. Johnny Nugent contends that "allowing guns will make our campuses safer." He is a sponsor of Senate Bill 12, which would "prohibit a state college or university from regulating in any manner the ownership, possession, carrying, or transportation of firearms or ammunition." Nugent believes that

"the only thing that can stop a bad guy with a gun is a good guy with a gun."

It would seem, though, that the best people to ask about security and safety on campus are the campus safety and police departments. Nugent would find that they overwhelmingly oppose this measure, as would almost all faculty and staff on campuses (as I am). Butler University Public Safety Director is Ben Hunter was formerly an officer with the Indianapolis Police Department. When I asked Hunter his views on this, he wrote "I am against the idea of carrying weapons on campus" and continued as follows:

"As a lifelong supporter of responsible gun ownership, I can attest that educational institutions and employers should be allowed to regulate their buildings and properties. Having students, faculty and staff possibly carrying guns on campus could result in accidental discharges, a false response to a threat and untrained persons that create an operational danger for (police). Proponents of such legislation will often talk about how well trained persons can assist with these threats; the only issue is that their training does not come close to what police officers are required to undertake."

College campuses are already much safer than the community in general, with far lower levels of both homicides and suicides. Surely, this is due, in part, to the prohibition of guns by most universities. Probably the biggest consequence of allowing guns on campus would be an increase in the incidence of suicide. Suicide is already the third leading cause of death for Hoosiers of college age, but suicides are much less common on college campuses than off. Since the most common means of death in suicides is a gun, increasing the number of guns on campus will only make suicides more likely.

Before pushing this law onto colleges and universities, our legislators should consult with those who are most familiar with the situation: the public safety departments, mental health professionals, and the deans of student life. I can't imagine that any of them would want to see more guns on campus.

Russian Reflections in a U.S. Mirror

A prominent Russian professor and former KGB analyst,Igor Panarin, predicts that the U.S. will collapse and break into six pieces next year. His forecasts are “all the rage” in Moscow and Panarin has become a media celebrity in Russia. As interesting as his theories are though, and as bad as things are in the U.S., his predictions are way overblown, reflect a shallow understanding of the United States, and actually tell us more about Russia than about the U.S.

In December the Wall Street Journal reported on an interview with Panarin, entitled “As If things Weren’t Bad Enough, Russian Professor Predicts End of U.S.” The Russian sees mass immigration, economic decline and moral degradation in the U.S. leading soon to a civil war and a collapse of the dollar. Soon thereafter, the richer states will withhold funds from the federal government, effectively seceding. The country will break into six pieces, based mostly on ethnicity, and foreign powers will move in to gobble them up. (There is a map of the future Un-United States in the WSJ article).

As with many such apocalyptic scenarios, there are bits of truth in Panarin’s analysis. He points to the problem of U.S. debt, and foreign debt in particular as a “pyramid scheme” that is unsustainable. In an Izvestia interview in November, he predicted the U.S. financial crisis would worsen, that unemployment would grow, and that people would lose their savings. He sees the revival and growth of both Russia and China as major political and economic powers. All this is pretty accurate.

However Panarin’s more extreme predictions about the U.S. seem more like a reflection of what has happened in Russia—-he is “projecting” as psychotherapists like to say. His concern about “moral decay” in the U.S., for example, is hard to fathom given the extremely high levels of alcoholism, divorce, crime and corruption in Russia. And the breakup of the US seems more a reflection of Russia’s own past—the 1991 breakup of the Soviet Union into 15 separate countries. But the parallels are few: each of these 15 “republics” of the USSR were based on entirely different nationalities, or ethnic groups, with little holding them together but the centralizing force of the Communist Party. As contentious and fragmented as the US can sometimes seem, almost all people here still consider themselves, first and foremost, Americans.

What is most interesting about Panarin’s predictions—and their popularity in Russia—is what it says about Russia’s desired place in the world. The country has been through some very rough times over the last two decades, and under Putin has begun to revive and reassert itself. Vladimir Pozner, a prominent Russian tv journalist, says Panarin’s vision “reflects a very pronounced degree of anti-Americanism in Russia,” which, he says, is “much stronger than it was in the Soviet Union.”

In The End of the American Century, I point to Russia as one of America’s potential “New Rivals.” One can not ignore that Russia is the largest country in the world, occupying almost twice the territory of the U.S. Within those borders it contains the world’s most abundant array of natural resources. It is the world’s second largest producer and exporter of petroleum and has, by far, the world’s largest reserves of natural gas. Russia’s economy has been growing at about 7 percent annually. It also has the world’s largest stockpile of nuclear warheads.

Both Russia’s citizens and its leaders want Russia to play a bigger role on the world stage and to be more respected by other countries. Premier Putin has been particularly vocal and critical of U.S. efforts to dominate the globe, referring not so subtly to a “world of one master, one sovereign.” He has said that “the trust in America as the leader of the free world and free economy is blown for ever.” (See The Economist's special report on Russia, "Enigma Variations," for more on this theme).

Russia has its share of problems, as the U.S. does. But it will be a force to reckon with, and the U.S. will have to learn to deal with Russia, as with other countries, as partners or competitors, rather than subordinates or enemies.

Galllup Poll Widget

I added a Gallup Poll widget to the sidebar of this page (scroll down on the right), which shows the latest favorability ratings for President Obama, and has links back to the Gallup home page for results of some of Gallup's recent surveys. Interesting and nifty!

The Measure of America

The Social Science Research Council and Columbia University Press have published a remarkable and eye-opening book, called The Measure of America: American Human Development Report 2008-2009, which could function as a companion and statistical supplement to The End of the American Century. In analyzing the domestic situation of the U.S., The Measure of America has many of the same themes, and similar (and supporting) evidence as my book. Like my book, it shows that on most measures of societal development, the U.S. has declined over recent decades, and lost ground compared to other countries.

The Measure of America is modeled on the annual Human Development Report published since 1990 by the United Nations Development Programme. That series attempted to get away from the raw economic indicator of Gross Domestic Product, and to determine the level of human development in each country. The “human development index” used by UNDP, an alternative to GDP, was “a composite index measuring average achievement in the three basic dimensions of human development—a long and healthy life, knowledge, and a decent standard of living.” (From the Human Development Report 2006).

The Nobel Prize winning economist Amartya Sen was instrumental in developing the Human Development Report, and wrote the Foreword to The Measure of America. There, he writes that

“we have to judge the success of a society, including its economy, not just in terms of national wealth or the ubiquitous GNP, but in terms of the freedoms and capabilities that people enjoy to live as they would value living” (p. xi).

Sen observes that this approach has been “remarkably neglected in the United States in particular” and notes in this country “a major discrepancy between opulence and achievement.” The U.S. may be on some measures the world’s wealthiest nation, but “its accomplishments in longevity, secure health, fine education and other such basic features of good living are considerably below those of many other—often much poorer—countries.” He also notes, as I do in my book, that the position of the U.S. relative to other countries has been “steadily falling” over the years (p. xii).

The book itself assembles data in clearly presented tables on the three main “building blocks” of the human development index: a long and healthy life; access to knowledge; and a decent standard of living. In all three areas, the U.S. fares poorly in comparison to other countries. Compared to other wealthy countries, for example, the U.S. ranks #24 in life expectancy; #18 in high school graduation rates; and #2 in poverty rates (you don’t want to rank high on that one!).

The data shows the downward trend for the U.S. over time in most of these measures as well. And for the overall index, the U.S. world rank dropped from #2 in 1980 (behind only Switzerland) to #12 in 2005. Countries ahead of us include much of western Europe, Canada, Australia and Japan.

(The American Human Development Project also maintains a useful website at this link.)

These are all trends and themes presented in The End of the American Century, where I also use authoritative data (including many of the same measures used in The Measure of America). They point out how far the U.S. has fallen, and how much work we have to do. The problems of the U.S., both economic and social, predate the disastrous Bush presidency, which simply exacerbated them all. It took more than eight years to dig us into this hole, and will take at least that long to recover. But we have to recognize these problems and understand them before we can begin to solve them.

The Measure of America: American Human Development Report, 2008-2009 (A Columbia / SSRC Book)

Obama Imposes CEO Pay Limits

Limiting CEO pay must be in the air! I posted a blog with such a proposal on Saturday, before learning that Senator McCaskill had introduced a bill with similar provisions on Friday. Then yesterday President Obama himself announced executive pay limits, along very similar lines as my own "modest proposal." (Do you think the Prez reads my blog?!!).

According to the New York Times story, these executive pay limits "seek to alter corporate culture" which in my view is long overdue and would be a major accomplishment. According to the Times, "the new rules would set a $500,000 cap on cash compensation forthe most senior exeutives, curtail severance pay when top executives left a company,[and] restrict cashing in on stock incentives until government assistance was repaid."

President Obama observed that "This is America" and "We don't disparage wealth" or people achieving success. But "what gets people upset--and rightfully so--are executives being rewarded for failure. Especially when those rewards are subsidized by U.S. taxpayers."

"For top executives to award themselves these kinds of compensation packages," the President said, "in the midst of this economic crisis is not only in bad taste, it's a bad strategy, and I will not tolerate it as president." He pointed to this kind of CEO extravagance reflecting "a culture of narrow self-interest and short-term gain at the expense of everything else."

Bravo, Mr. President. This may be mostly a symbolic gesture, but symbols are important. What this country needs now, even more than an economic stimulus package, is a change of heart, and a change in the way we think, believe and behave. Just as when the President said "The United States does not torture," he is sending a message to Americans and to the rest of the world that the United States is changing.

(See my previous entries on CEO pay by clicking on the "CEO pay" label in the right sidebar).