Thursday, September 9, 2010

On Mandates

Megan McArdle writes:
Democrats seem to have genuinely believed themselves that winning the election meant that voters wanted what they wanted, at least along major dimensions. Those of us who protested that they were passing these bills against substantial political opposition were told, "Elections have consequences."

Well, it will be interesting to see if elections still have consequences when Republicans win them. I am in no way enthusiastic about having Republicans back in office; the current platform of extending the Bush tax cuts and . . . um . . . well . . . er . . . seems beyond childish to me. But I can't say I'll be sorry to see Democrats leave. It's healthy for parties who overinterpret their mandates to be badly chastened.

FLG totally agrees. Here's what he wrote over a year ago:
It is true that Obama has a mandate. One of every politician's most crucial jobs, and one very relevant to their re-election, is to interpret that mandate. A strong case can be made that the mandate includes health care reform because it was such a large part of the campaign. However, I think that Democrats overestimate the size of the health care mandate because health care was an even bigger part of the Democratic primary process. It was definitely talked about in the general election debates, but less so. So, I'd argue the mandate is definitely there, but Obama needs to tread carefully. The Clintons thought they had a mandate to reform health care and it bit them in the ass in 1994.

I would point out that both sides overestimate the size and scope of their mandates, and presidents in particular push it and their branch of government's power as far as they will go toward their goals. It's pretty much expected, but, as the Clintons found out, it can hurt you. Bush, I think, made the mistake of misreading his mandate with Social Security reform.

In hindsight, FLG thinks he was actually kind. Health care made sense to an extent, but the Democrats over-interpreted the mandate on a variety of things.

2 comments:

Anonymous said...

?

Why is extending the Bush tax cuts "beyond childish"?


Mrs. P

Anonymous said...

A not so childish explanation of what could happen next January:

"On or about Jan. 1, 2011, federal, state and local tax rates are scheduled to rise quite sharply. President George W. Bush's tax cuts expire on that date, meaning that the highest federal personal income tax rate will go 39.6% from 35%, the highest federal dividend tax rate pops up to 39.6% from 15%, the capital gains tax rate to 20% from 15%, and the estate tax rate to 55% from zero. Lots and lots of other changes will also occur as a result of the sunset provision in the Bush tax cuts.

"Tax rates have been and will be raised on income earned from off-shore investments. Payroll taxes are already scheduled to rise in 2013 and the Alternative Minimum Tax (AMT) will be digging deeper and deeper into middle-income taxpayers. And there's always the celebrated tax increase on Cadillac health care plans. State and local tax rates are also going up in 2011 as they did in 2010. Tax rate increases next year are everywhere.
[laffer]

"Now, if people know tax rates will be higher next year than they are this year, what will those people do this year? They will shift production and income out of next year into this year to the extent possible. As a result, income this year has already been inflated above where it otherwise should be and next year, 2011, income will be lower than it otherwise should be.

"Also, the prospect of rising prices, higher interest rates and more regulations next year will further entice demand and supply to be shifted from 2011 into 2010. In my view, this shift of income and demand is a major reason that the economy in 2010 has appeared as strong as it has. When we pass the tax boundary of Jan. 1, 2011, my best guess is that the train goes off the tracks and we get our worst nightmare of a severe "double dip" recession.

"In 1981, Ronald Reagan—with bipartisan support—began the first phase in a series of tax cuts passed under the Economic Recovery Tax Act (ERTA), whereby the bulk of the tax cuts didn't take effect until Jan. 1, 1983. Reagan's delayed tax cuts were the mirror image of President Barack Obama's delayed tax rate increases. For 1981 and 1982 people deferred so much economic activity that real GDP was basically flat (i.e., no growth), and the unemployment rate rose to well over 10%.

"But at the tax boundary of Jan. 1, 1983 the economy took off like a rocket, with average real growth reaching 7.5% in 1983 and 5.5% in 1984. It has always amazed me how tax cuts don't work until they take effect. Mr. Obama's experience with deferred tax rate increases will be the reverse. The economy will collapse in 2011.

"Consider corporate profits as a share of GDP. Today, corporate profits as a share of GDP are way too high given the state of the U.S. economy. These high profits reflect the shift in income into 2010 from 2011. These profits will tumble in 2011, preceded most likely by the stock market.

"In 2010, without any prepayment penalties, people can cash in their Individual Retirement Accounts (IRAs), Keough deferred income accounts and 401(k) deferred income accounts. After paying their taxes, these deferred income accounts can be rolled into Roth IRAs that provide after-tax income to their owners into the future. Given what's going to happen to tax rates, this conversion seems like a no-brainer.

"The result will be a crash in tax receipts once the surge is past. If you thought deficits and unemployment have been bad lately, you ain't seen nothing yet." - Authur Laffer WSJ June 6, 2010

Mrs. P

 
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