Friday, August 29, 2014

The Geithner-Hubbard spat shows how conservative wonks try to have it both ways on taxes

Here's how it is, Glenn Kevork Djansezian/Getty

Over the weekend, a weird dispute broke out between former Treasury Secretary Tim Geithner and former Bush administration economist and Mitt Romney advisor Glenn Hubbard over the question of whether Hubbard secretly favors tax hikes. The entire dispute is taking place as if fuzzy recollections of years-old private conversations are the only way to gain insight into this matter, when in reality Hubbard's views on this question are a clear matter of public record — Hubbard favors low taxes, but thinks conservatives should be willing to embrace tax hikes as part of an overall budget compromise.

Geithner's version

The dispute is prompted by the retelling, in Geithner's new memoir, of a story about an encounter between the two men at a 2012 Economic Club of New York event. Hubbard was allegedly complaining to Geithner about the Obama administration's initial reluctance to embrace the Simpson-Bowles budget plan. According to Geithner, he responded "when you guys are willing to raise taxes, we can talk about Simpson-Bowles."

Hubbard then allegedly said "well of course we have to raise taxes, we just can't say that now."

Hubbard's version

Speaking to Politico's MJ Lee, Hubbard disputes this. "Geithner is making it up," he said, adding "it's pretty simple. It's not true."

But Jenni LeCompte, who ran communications for Geithner at Treasury and is now working with him in the private sector says it is true: "Mr Geithner's memory on this exchange is crystal clear."

The public record

Fortunately for posterity, it is in no way necessary to go into a he-said she-said dispute about private conversations held in 2012 to discern Hubbard's views on the Simpson-Bowles plan and its relationship to tax increases. It is, instead, necessary to recall just two things. One is that the Simpson-Bowles plan contained tax increases. The other is that Hubbard wrote an entire op-ed column — in the New York Times no less — about the Simpson-Bowles plan and why he likes it.

Here's the relevant part:

What of the critics on the left and right? I understand the complaints of liberals. The proposal essentially claims that maintaining a broad welfare state is inconsistent with planning for a long-run fiscal trajectory that includes economic growth and social insurance. This idea is anathema to Democratic Congressional leaders. The proposal also lays bare the fallacy on the left that any lowering of marginal tax rates is necessarily "tax cuts for the rich." The plan's limits on tax deductions and cutbacks in the generosity of entitlement benefits for upper-income households render the plan a progressive reform.

The right's criticisms are more puzzling. Groups like Americans for Tax Reform insist that any member of Congress who supported the proposal would be voting for a tax increase. It is hard to share the view that no tax increase of any sort can figure in a fiscal solution. The proposal calls for taxes and spending to be capped at 21 percent of gross domestic product, which, while higher than I might design, is a serious suggestion worthy of debate.

So there is Hubbard, in public, saying that it is wrong of conservatives to say that tax hikes should be entirely off the table in terms of a fiscal solution. Hubbard does not endorse a 21 percent of GDP revenue target, but like any sensible person he is willing to swallow some things he does not favor as part of an overall package that contains other ideas that he likes.

The bottom line

There is no way of knowing whether Geithner's recollection of the private conversation with Hubbard is accurate, but the entire controversy here underscores the points he was making.

One point is that conservative economic policy elites like Hubbard are often trying to have it both ways on Simpson-Bowles — criticizing the White House for not immediately endorsing the commission's proposal while also adhering to a rigid "no tax hikes" line that makes discussing Simpson-Bowles pointless. The other is that conservative policy elites like Hubbard know that the rigid "no tax hikes" line doesn't make sense either practically or conceptually, but are unwilling to challenge it head on. Hubbard's angry insistence that he never deviated from the party line on taxes — even though he did, very publicly, in the country's most famous newspaper — is emblematic of those trends.

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