September 21, 2011..........................................................
.(comments)
Last Sunday, Bob Brinker's third-hour guest was Menzie Chinn who is with the University of Wisconsin. You will either love this guy's views or you will be infuriated by them.
Bob Brinker started the interview by reminding Chinn that the national debt is now over $14.5 trillion, with $9 trillion of it being held publicly -- which includes the paper held overseas. He said there doesn't seem to be any "true political will" to do anything about it because for the third consecutive fiscal year, we are going to chalk up well over a trillion dollars in national debt.
Chinn replied: "I think this is the natural outcome where you have a debt-lead boom that's unsustainable. There was an accumulation of house debt in the private sector under the premise that housing prices could go up indefinitely......A lot of that debt has been transferred to public sector. Where times were unnaturally good before are now unnaturally bad now. A big chunk of that shortfall is not specific discretionary measures but rather the fact that tax revenues have collapsed.....A lot of it that tax revenues are way down.....If we just let the current law stay in place a lot of these problems will be solved in the next two years if you let the tax-cuts of '01 and '03 expire. You pull up tax revenues back up toward historical levels and that will shave off a lot of the accumulation of debt that we see."
Bob pointed out that things seem to be going the other way because the president has proposed a 50% payroll tax cut on both sides for 2012. He asked Chinn if that doesn't make these policies at odds.
Chinn responded that it appeared so on the surface. In the short-run, we don't want to stall the economy, but we need to look at the longer horizons where there are real problems with debt.
Chinn said: "It's the fact that entitlement will explode in after the next decade, particularly in the health area. What's true is even if we get tax cuts ended, the president's proposal was for temporary tax cuts, then let's also let the Bush tax cuts expire, that's good for a few years and that solves a lot of our problems. Then going forward into, let's say 2025, 2030, everybody agrees that's where the big problems are. And it's not really Social Security, that could be solved with relatively minor adjustments. It's really health care, Medicare..... A lot of the rhetorical right now is let's cut discretionary spending, let's cut defense, NOLA, the weather service, things like that. That may have the feeling of doing something good, but that's not going to face the true debt problem that the nation faces......We saw this debt coming a long time ago. I was in the White House ten years ago, serving as a staff economist and we saw that entitlements would explode in the 2020, 2030's. All that's happened is we've moved that up with the Bush-era tax cuts. It's a problem that's always been there. It's not really a debt problem that's completely because of the short policies we've had in the past three years."
Honey EC: Personally, I am sickened to know that this blindly-biased man was an "economist in the White House" ten years ago and is now teaching these ignorant views in University. If he bent over any further backwards to keep from putting any blame for the state of our economy and national debt on the current administration, he would have been a pretzel.
Bob pointed out that in the first half of this year, real GDP grew at only 0.7% annualized, and that his estimate is 1 to 2% for 2011.
Bob asked: "I need to ask you what would we be looking to to justify a massive tax increase, an exceptionally massive tax increase when you consider this proposal to cut the payroll tax next year. Some of which, if not all, is going to go into law. So you go into 2013 and the payroll tax goes back to where it was prior to this year, and then you also have the expiration of the tax cuts.....The question is, why should we believe that the economy will be ready for that kind of a tax increase?"
Chinn replied: "At some juncture, we do have to raise revenues. If you look at a graph, you know we're at an all time low in terms of total federal and payroll income tax revenues.....
.I have a feeling that a lot of the measures in the tax code right now are giving a gift to certain individuals and households without necessarily spurring economic activity. So what you want to do is raise revenue in a smart way that doesn't hurt growth over the longer-term."
Honey EC: Looks like Mr. Chinn believes that the money that the government doesn't take from "individuals and households" is a gift from the government! Now where are my smelling salts??
Bob abruptly changed the subject and reviewed everything that he said earlier about Warren Buffett (please see Sunday's summary for Bob's take on this).
Chinn's response: "The fact of the matter is you have to get additional revenue. Where is the additional revenue? It's people at the higher income deciles. Personally, I'd say don't stop at millions. Go further down on the income distributions, but it sounds like those at one million and above is at least a reasonable place to start."
Honey EC: Obviously, Chinn does NOT agree with Brinker's take on Buffett or the phony-baloney about how he pays less than his secretary. Just the opposite, he totally contradicted what Bob said.
Chinn went on to blame the exorbitant increase in debt between 2007 and 2011 on President Bush. He blamed the Bush tax-cuts, the Afghanistan and Iraq Wars, but mostly Iraq -- no doubt because Obama has been in charge of the Afghanistan War. He blamed Medicare Part D, which of course gave Bob another chance to complain about it.
Chinn also said he would be all for doing away with the household mortgage deduction and claimed that we could double income tax revenue, as of 2010, if you got rid of "every expenditure of that nature." But he said that won't close the deficit gap -- that we absolutely have to raise tax rates unless we want to do without "a national weather or US geological survey."
Honey EC: LOL! Mr. Chinn, while you're at it, you could threaten to close all first-responders, fire, police and libraries. And don't forget the young sprouts who will never eat again when we're forced to close public schools. Come the think of it, not a bad idea. Why not start with the University of Wisconsin. :)
Some of the callers disagreed with Chinn, but the best caller was Jackie. FrankJ has written some excerpts from that great call:
Menzie D. Chinn from the University of Wisconsin was the guest in the 3rd hour. He co-authored a book titled, “Lost Decades: the Making of America’s Debt Crisis.”
In his response to some of Bob’s questions, the guest referred to certain deductions as “giving a gift” to the taxpayer. This is what might have gotten Jackie’s attention. She was calling from Atlanta, and was about the 4th caller for this guest, coming in at about 44 minutes into the third hour.
Jackie: “Bob, first I want to tell you how much I like your program and I’m on my way to work, I work all night…I’m close to retirement age so I have a lot of mental history about this country and the times we’ve gone through.
It’s a good thing I didn’t come on first, because I would have said some things about this person that I would have regretted…”
Brinker: “Wait a minute, now I want you to talk directly to Manzie our guest, he’s on the line with you.”
Jackie: “OK, well the only 2 deductions I can take on my income tax are the mortgage deduction and charitable giving. I take my return, because I have a sizeable mortgage and I pay my local property taxes which amounted to $13,000 last year, and I work very hard, I work all night.
I have just retrained myself at my own expense to become a respectable person in the healthcare industry and I spent $250,000 of my own money to go back to school. I didn’t take one penny of unemployment when the company for which I worked, after 128 years in business closed because the entire textile industry went to China.
I don’t know what you think my political leanings are, but I can tell you they are in contradistinction to you, Menzie.”
Brinker took over and told the guest author that there were millions of people like Jackie who are sick and tired of the whole thing and they feel they’ve paid their taxes and now with this huge debt, the government wants more, and they’re unhappy campers.
The guest said he understood the anger and then went on to say that he thought it would be good to make income taxes more progressive. People making $1 million and above can bear an extra burden… he’s not proposing to raise taxes on the lowest income deciles… people below median income, “I’d prefer they have no increase in income tax.”
Honey here: Thank you for that, FrankJ!
Bob never contradicted or blatantly argued with Chinn, but his voice seemed stressed at various times, and he often spoke in a clipped manner. You can download the third hour (3-4pm slot) of Moneytalk from KGO if you want to listen to it.... It will be available until next Saturday.
Moneytalk on demand and to go with Bob Brinker, is available for FREE audio/podcasting at KGO810 radio for seven days after broadcast. (At the KGO website, go to "listen/podcast" to download.)
FrankJ's daughter took this beautiful photograph at Gilpin Lake, near Steamboat Springs, Colorado. Click to enlarge: 
