Allen Hubbard, president of the National Economic Council (Bush's economic advisors), wrote to the Washington Post yesterday on a familiar subject- tax cuts (emph. mine).

There is no denying that the president's tax cuts and other pro-growth policies have played an important role in spurring the economic expansion we've seen under this president. More than 6.8 million jobs have been created since August 2003; the unemployment rate is 4.4 percent; and real wages have grown 2.8 percent over the past 12 months. We've also proved that you can have tax cuts that result in robust revenue growth.

It's hard to pin down exactly what factual claim Hubbard is making here, but the message is clear: trickle down economics works, the Laffer curve has been borne out, and all that. But none of this has been proven. If anything, it's been disproven.

Now, of course, the Bush administration and Congressional conservatives have been saying this sort of thing for a while, despite all evidence to the contrary. What's new is that the election does not seem to have changed their position. And if Hubbard's letter is any guide, neither has the election changed their position on the Bush tax cuts.

We look forward to hearing the Democrats' ideas to promote continued economic growth. We will be looking for common ground while remaining true to the president's principles -- most importantly, keeping taxes low.

TaxAnalysts has just announced that it's suing the IRS to get suspiciously withheld documents on the tax gap.

Last week, IRS commissioner Mark Everson said that IRS enforcement efforts had brought in more money, and that the IRS was paying more attention to high-income earners who avoid paying taxes. However, the IRS won't release the documents on which it's been basing these claims. So TaxAnalysts is suing them for the documents under the Freedom of Information Act.

Kudos to TaxAnalysts for trying to get these important reports. Still, it wouldn't really matter much even if the IRS is telling the truth. Whatever progress IRS has made recently is only the beginning. The tax gap is in the $300 billion range; IRS enforcement efforts still only pick up around $40-odd billion of it.

Plus, much of the money owed to the IRS is staying with publicly-traded corporations, which Everson has not said the IRS is focusing on. From today's BNA ($):

As the Internal Revenue Service focuses on getting companies to reconcile the differences between the profits they report to shareholders and those they report for tax purposes, figures from 2004 showed a big discrepancy among publicly traded companies, an IRS spokesman confirmed Nov. 27.

He confirmed that according to data done by IRS researchers, in 2004 publicly traded companies reported $554 billion in profits on their financial statements but told IRS that for tax purposes they earned only about $394 billion.

The IRS and the new Congress will have plenty of work to do on the tax gap. Nothing short of sweeping reform should get them off the hook.

The Center for American Progress points out that President Bush is responsible for perhaps the most expensive jobs program ever:

Based on the administration’s estimate that its tax cuts should be credited for creating approximately one-quarter of all new jobs...we can attribute 1.3 million jobs out of the 5.0 million newly created jobs since the start of the recovery in late 2001 to the White House’s tax cuts...According to estimates by the Congressional Joint Committee on Taxation, the tax cuts during the same time period totaled $1.1 trillion.

This means that even under the most optimistic assumptions about the relationship between tax cuts and jobs pushed by the White House, the Bush economic brain trust managed to spend $871,000 on every new job it claims to have created since 2001.

Government policies that create jobs are certainly laudable, but surely there are more efficient means by which the government could go about achieving this goal. And considering that the current recovery’s job and wage growth records has been somewhat short of stellar, one wonders if Bush’s massive tax cuts might have been inspired by other aims.

(hat tip Inclusionist.org)

Incoming Senate Finance Committee chair Max Baucus (D-MT) has announced the panel's Democratic members for the 110th Congress, as follows:

CHAIR: Baucus, Rockefeller (WV), Conrad (ND), Bingaman (NM), Kerry (MA), Lincoln (AR), Wyden (OR), Schumer (NY), Stabenow (MI), Cantwell (WA), Salazar (CO).

Notes on the Newbies:

• Stabenow -- was offered a seat on Finance in return for her agreement to step down from her current leadership post as conference secretary, which Sen. Patty Murray (D-WA) will assume; she also gives her up Banking, Housing and Urban Affairs Committee spot to take the Finance seat
  
• Cantwell -- some have speculated that Cantwell's choice reflects leadership interest in adding women to the panel; others believe that Baucus' sharing Cantwell's interest in an estate tax cut and other poilicy positions may have helped her bid
  
• Salazar -- the freshman Senator leapfrogs over some second-term colleagues, notably Sen. Carper (D-DE), who had expressed interest in joining Finance and represents a state with a nationally important financial sector; gives up his seat on Veterans Affairs

We have previously reported (see here, here, and here) on the IRS's bizarre plans to outsource some of its tax collection responsibilities to private companies. The plan has received strong opposition from many in Congress and ended up costing taxpayers money the last time the IRS tried it. But they are pushing forward, nonetheless, and even talking about expanding the program before it has even been tried.

Now the Government Accountability Office has weighed in on the program and they seem to think something doesn't smell quite right:

IRS has not documented criteria that it will use to determine whether the limited implementation performance warrants program expansion. IRS officials indicated that they are considering criteria that could trigger a go/no go decision, such as the amount of taxes collected and indications of PCAs [private collection agencies] abusing taxpayers or misusing taxpayer data. IRS has not decided on whether these targets will include comparing the taxes collected to program costs, which was a key reason for canceling a 1996 PCA pilot program.

GAO goes on to say that the IRS is planning a comparative study to determine whether the private collection agencies are doing a better job than the IRS could do if it invested its resources in collecting the taxes itself. But get this - under the design of the study, the IRS will exclude the fees paid to the private agencies (up to a quarter of the revenue collected) in their analysis comparing the two different approaches. Because of this strange exclusion, GAO concludes:

[The study] will not compare the results of using PCAs with the results IRS could get if given the same amount of resources, including the fees to be paid to PCAs, to use in what IRS officials would judge to be the best way to meet tax collection goals. Adequately designing and implementing the study is important to ensure policymakers are aware of the true costs of contracting with PCAs and know whether PCAs offer the best use of federal funds.

So not only has IRS rushed forward with plans to implement this program despite heavy criticism, it has also skimpted on designing the process to guage the program's success, and then in order to stack the deck, decided to exclude the actual costs from its lone study - thereby rendering the evaluation essentially useless? This definitely smells fishy.

We noted, prior to the midterm election, Democrats’ moderate and conciliatory tax and budget agenda rhetoric.

Today’s New York Times features a piece chock full of post-election quotations from incoming 110th Congress committee chairs echoing that rhetoric.

The peace-pipe palaver hints at a “grand bargain”:

If business groups support the Democrats’ efforts to increase the minimum wage, extend student loans and expand affordable housing programs, [Cong. Barney Frank, D-MA, in line to become House Financial Services chair] said, then the Democrats would support efforts to reduce trade barriers and burdensome regulation. “We are liberal internationalists,” Mr. Frank said. “Businesses know they have an interest in working with us.”

Even soon-to-be House Ways and Means chair Charles Rangel is sounding accommodating notes:

Rangel said he would seek to avoid a confrontation that would pit Republicans who want to extend tax breaks on large estates and investment income beyond their scheduled expiration in 2010 against Democrats who want to rescind those measures ahead of time. “Why should we be talking now about 2010?” Mr. Rangel said. “I’m 76 years old, and I don’t buy green bananas.”

The Cato Institute has a thoughtful blog post challenging a National Review article that said a Democratic-majority Congress means we can say goodbye to the Bush tax cuts.

I think the Cato blogger's probably right on the merits; the vast majority of the Bush tax cuts probably will be around at least until they expire in 2010. I would add that Rep. Pelosi has said repeatedly that the Democrats will review some of the most regressive Bush cuts, but certainly not all. And the Democrats do seem ready to pass a PAYGO rule or statute, which could make it more difficult to renew the tax cuts as a complete package. So the Dems may find some way to make an impact on the tax cuts.

My main beef, though, is with the timing of the post. It was posted at 4 p.m. yesterday, long after it would could clarify things for voters. And it's not like the National Review is the first to make this argument; Republicans have been screaming about the threat of Democratic tax increases for the last month. Cato had plenty of chances to say something. Did they just figure out that this national talking point is totally off base?

If Cato was interested in setting the record straight, they should have posted this piece a long time ago. Protesting so late in the game seems like a hollow attempt at demonstrating the intellectual freedom that Cato should -but doesn't- have.

Via a great blog called The Inclusionist, The Center for American Progress has put out a review of public opinion surveys that reflect changing opinions on the economy. One interesting finding: generally, American public opinion trends optimistic when it comes to personal prospects for getting ahead, and pessimistic in terms of the economy as a whole.

The dual nature of this economic viewpoint may be summarized as follows.

I. When it comes to their own individual and family situations, most people say that they are succeeding (and expect their kids to succeed), thanks to their hard work and personal sacrifice in the face of great obstacles. This allows them to tell a story where they and their families are the heroes and where their difficulties redound to their credit.

II. But, when they talk about how the economy is actually performing for “people like me” or for the entire nation or for the next generation as a whole, people are more forthright and forthcoming about the challenges that they themselves face. Now, they are not pitying themselves, but rather expressing concern for their children, their friends, their neighbors, their co-workers, and their fellow citizens.

In an op-ed today in the San Fransico Chronicle, Bill Frenzel and Leon Panetta call for a "Budget Summit" to hash out the difficult budget issues:

What is needed now is for members of both houses, both parties, and the president to roll up their sleeves and grapple with these issues. No more denial. No more happy talk. No more delay. An equal number of Republicans and Democrats, along with the president, should participate, no matter how Congress is divided following the election, no matter which party is the majority, so that no single party will dominate the discussions or bear sole accountability for the choices.

Republicans (excepting the 2 years when the Senate was split) have controlled the Executive Branch and both houses of Congress for the past six years, and instead of "rolling up their sleeves" to make tough decisions, they instead chose to break the bank an make a run at ending Social Security.

Frenzel and Panetta continue...

While disappointing, it is not surprising that there has been bipartisan foot-dragging in confronting the realistic solutions to the nation's budget problems -- the fixes are difficult. Even the suggestion of the real choices -- increasing taxes and cutting spending -- is met with outrage, accusations and political attack ads.

This may be too rosy a bipartisan picture to paint, even for Frenzel and Panetta. While they are probably referring to Democrats rejection of Bush's Social Security overhaul proposals to complete their "bipartisan foot-dragging," it's certainly hard to drag your feet and have it make much of a difference when you are not in the majority. Particularly, I'm wondering if they missed the past few months of legislative action in which Republicans held hostage a popular package of tax cuts that enjoyed bi-partisan support in an attempt to push through a $750 billion dynasty tax cut?

While it would be nice if we could somehow get the relevant powers-that-be together in a room and force them into a compromise that everyone is happy with, we might as well wish for a few ponies as well, because balancing the budget to meet short- and long-term fiscal health will not happen as long as either side continues their no-exceptions ultimatums about possible solutions (i.e., no changes to Social Security, no tax increases at all). Republicans and Bush in particular are resolute about not rolling back the tax cuts, and as long as tax cuts are off table, there’s just not much point in attempting a compromise because it simply will fall short in the long run.

Until our elected leaders are willing and ready to make difficult policy decisions and devise a comprehensive solution that is focused on the long-term fiscal health of the nation, we will face an ever-narrowing range of options available for debate. Wishing upon a star is just not warranted.

Today's Washington Post profiles a House race in Connecticut where the Republican incumbent, Rep. Nancy L. Johnson, is hitching her candidacy to tax cuts. Problem is, nobody seems to care.

A 24-year incumbent from Connecticut who sits on the tax-writing House Ways and Means Committee, Johnson has run at least three television ads on fees and taxes, accusing her Democratic challenger, Chris Murphy, of raising "our taxes 27 times." She presses the point in speeches, telling voters that while Murphy was hiking taxes as a state lawmaker in Hartford, she was helping President Bush cut taxes on Capitol Hill.

But it's not clear the tax boat is going to float in this western Connecticut district, where Johnson, like Republicans nationally, is having trouble turning the economy into a winning issue. Murphy, 33, a lawyer and state senator, has opened a narrow margin in the polls by painting Johnson as a pawn of big business and attacking administration policies -- including the tax cuts -- as giveaways to millionaires.

To the extent that this is happening nationally, this election could be a significant test of how effective tax cuts continue to be as a campaign issue. Not only are candidates running on them, but tax cuts have been President Bush's signature domestic policy. Republicans have made cutting taxes generally their highest-profile fiscal policy for better than 20 years. But could it be the public is losing interest in them? Has the conservative fiscal policy program of "any tax cut anytime" lost its resonance with the American public?

Recently, neither tax cuts nor productivity gains have produced broadly-shared prosperity. The false promise of productivity gains, in particular, is causing many prominent thinkers inside the Beltway to reexamine some assumptions embedded in recent economic policy. Yet it may be that regular Americans are ahead of the curve — having long ago grown tired of the same old policies. The question then is, which alternatives are people ready for?

Democrats of late have been making hay out of proposals to clean up taxes on businesses and the well-heeled. But there may be a more profound shift happening in the American electorate that politicians, both Democrats and Republicans, will have to respond to.

Some good news: The Government Accountability Office (GAO) will be investigating the Interior Department's decision to drop claims that Chevron has been cooking the books, as well as the entire program for oil royalty collection. And let's give credit where it's due, as the Republican leader of the House Government Reform Committee, Darrel Issa (R-CA), ordered the investigation.

As a former student of Latin American history, it doesn't surprise me much that an oil company would try to defraud a government. Heck, they've been doing it in Latin America (and all over the world) for ages. But for U.S. companies to do it in the U.S.? It doesn't make it any more wrong to do it here, but come on! Show a little loyalty!