233 Comments

Great piece, Matt. I split my time between conservative Pensacola, FL and conservative, small-town Livingston, TN. As someone who identifies as center-left, thoughtful pieces like this really help me understand the issues and, just as importantly, talk about the issues with my center-right and far right friends and neighbors. I really think many center-right folks are reachable and persuadable and I desperately want Dems in Washington to understand this reality and, as you say, put in the hard work to reach and persuade these folks. Keep up the good work.

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Aug 1, 2022·edited Aug 1, 2022

Many of the conservatives that were primarily motivated by business concerns seem to have been dislodged from the GOP under Trump. Or at least those bonds were weakened significantly.

I think that a decent % of the GOP base is basically okay with more state investment/intervention/whatever in the economy...as long as they don't see their cultural values being harmed or undermined in the process.

So for that group, Matt's method of framing and explanation and persuasion could be pretty valuable.

Also, it's going to be kind of trippy if this realignment continues and the Dems become the de facto pro-rich-people party in a few more years.

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"realignment continues and the Dems become the de facto pro-rich-people party" I totally get what you're saying, but in all honest almost all politicians in the US, from the far right up to and including Elizabeth Warren, are out and proud pro rich people. They just differ on what's best for rich people, and some of them don't care *only* about rich people, esp. some of them don't care only about the super duper rich people. The debate is basically between those who think we should have our richest people i.e. many millionaires and even quite a few billionaires living in a nice society with public healthcare and a pretty generous safety net, giving our rich people the advantages of lower crime, a more prosperous country and economy (better competition thanks to strong anti trust laws etc) and mostly I guess better conscience about their ridiculous wealth as they "give back" in their taxes (the Warren vision), and those who think taxes are theft and delude themselves to think the state is the enemy (the standard GOP vision).* Both sides are actually pro rich people, because both sides are quite wealthy themselves and have even wealthier friends.

*You can obviously tell from my totally unbiased presentation where I lean...

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It highlights the differences between liberal and conservative definitions of 'fairness' for sure... =)

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I live in a purple area adjacent to a big blue dot and have a similar situation where a lot of my friends and neighbors are more conservative. MY approaches things in a way that is at least potentially sensible to a lot of center right folks, when the exact same policy arguments made by further left progressives fall on deaf ears mostly out of misguided framing. Thanks Matt!

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+1

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Matt attributes Democratic opposition to SALT cap repeal to Democratic lawmakers having been bamboozled by Republicans (as in If Paul Ryan thinks it is good it must be bad).

But isn't a more likely explanation that Democratic lawmakers pushing for SALT cap repeal want to serve their wealthier constituencies who serve to benefit. Roughly one-in-four NJ taxpayers stands to benefit from SALT cap repeal, and Bob Menendez wants to serve tham and not the other 75%. I don't know anything about Josh Gottheimer's district, but I would guess that more than 1 in 4 of his constituents would benefit from repeal.

This is no different than Sinema's reported objection to closing the carried interest loophole - she wants to help her donors, Gottheimer wants to help his.

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These guys have to know that if SALT is their redline, there is likely to be no IRA passage and no SALT cap lifting. So they'll get nothing either way, but also become the most hated Democratic House members in history.

Whereas they can agree to vote in favor, with a secret promise from leaders to take up the cap in possible future legislation. Maybe that's an empty promise, but at least there would be a chance for them.

They may think they can get SALT changes *and* still see the IRA passed, but that would be delusional if for no other reason than that the Democrats could never let a handful of rich voter-supporting legislators successfully hold the party's most important priorities -- and their future hold on the White House -- hostage.

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I think both can be true.

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I've never understood the double taxation argument. States need taxes to operate; why is it double taxation if it collects those taxes on income but suddenly not double taxation if it collects those taxes on commercial transactions or property values? Obviously, since the state and the federal government have separate tax regimes, they can interact in ways that might be overly burdensome on a narrow slice of people in some cases. But in that case, lobby your lowest level of government to fix the problem. It's going to be much more responsive to individuals with unique circumstances.

And I think the reason most people don't object to foreign taxes being exempt is because there's a recognition that you're not receiving services for those taxes. If you live in a state with an income tax, you're probably receiving services from the state.

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Most double taxation arguments don't pass muster.

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AFAIK SALT _does_apply to taxes on property values. Texas has no state income tax but I used to bother to deduct my state property taxes (the increase of the standard deduction eliminated this).

I believe it also applies to sales taxes(commercial transactions) - again, prior to the increase in standard deduction there was a formula I could use for assuming how much sales tax I paid (I _could_ itemize that but it becomes prohibitive)

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This doesn't make any sense.

How is it any different from being 'doubly taxed' when I pay both income tax and then sales tax at point-of-sale?

State and local governments need revenue.

The federal government needs revenue.

I don't see why the federal government would reduce its collection based on whatever the state and local taxes are.

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Aug 1, 2022·edited Aug 1, 2022

The trouble with the SALT deduction is pretty straigthforwardly that people's income per annum is a fixed-size pot and so anything taken by SALT taxes can be pretty fairly argued to be just the states robbing the federal fisc (above the standard deduction threshold, which admittedly is a pretty enormous asterisk) - which in addition to being a problem per se also creates a massive incentive problem because it has the potential to negate (again above the standard deduction threshold) the disincentive for states to just raise taxes and engage in profligacy because it's "free."

I might have a little more sympathy for the latter (even if I think the on-paper analysis suggests it's a budgetary problem either way) if I thought there were some reason to expect a positive correlation between the size of a SALT tax burden and the quality of governance, but at least my personal experience living in a wide variety of state tax regimes has led me to...not think that.

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The median NJ taxpayer would not benefit from SALT cap repeal, according to the evidence present by Matt in this very post..

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Interestingly, the IRS has denied my 2019 foreign tax credit because I couldn't tell them what foreign governments my foreign tax was paid to. All I knew was what Vanguard provided to me on my foreign index funds: foreign income, foreign taxes paid and QDI foreign income. Should have been enough, but apparently it isn't.

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Joe Manchin is really good at politics. I will say that. He is still really popular in WV.

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Yep. WV is among our very reddest states. Trump won it in 2020 going away. And yet Manchin just keeps on failing to get defeated statewide. Not a unintelligent man.

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I think that's more because Manchin is a pre-realignment holdover West Virginian politician rather than some great indication of his intelligence. Airdrop Manchin into any similarly red state and he wouldn't stand a chance of being elected.

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Would you prefer "shrewd" to "intelligent?" And sure, there's an argument to be made that his basic strategy doesn't require all that much in the way of complex strategizing. It's something to the effect of "Come across as an ornery, mavericky centrist who likes to own DC libs" or somesuch. And yet, for all that, he votes with libs a fair amount! Already multiple times this Congress. And he's a pretty dependable rubber stamp for liberal judges. And again, West Virginia is *very* red (quoting from memory but it gave Trump a higher vote share in 2020 that Mississippi, Louisiana, Arkansas and a number of other quintessentially hard-MAGA states).

When he's gone, we're gonna miss him when we see his replacement. Or at least I will.

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Aug 1, 2022·edited Aug 1, 2022

How much would it cost for some Democratic-supporting billionaire (or set of billionaires) to just pay enough people who dependably vote Democrat (e.g., longtime registered primary voters for the Dems in deep-blue states) to move to Wyoming to pick up two Senate seats?

Per Wikipedia the Wyoming vote totals in 2020 were 193,559 Trump, 73,491 Biden (Senate results similar), and the 2018 Senate election was 136,210 Barrasso (R), vs. 61,227 Trauner (D)

So let's call it a margin of about 120k votes needed in a presidential election year to tie, say 150k votes to contest with a decent margin of victory, and 200k votes should be a plausible guarantee of victory

I'm going to guess that people who are willing just move to Wyoming to be paid to vote D aren't going to be super high-income, -- plus they can always try to find jobs or start businesses in a state suddenly experiencing a massive population boom so it shouldn't ideally be a 100% income replacement--so let's assume optimistically about 30k / year per person[2] [3]

For 150k this gives us 30k * 150k = 4.5 Billion [18 billion over 4 years]

for 200k this gives us= 6 Billion [24 billion over 4 years]

Google gives Jeff Bezos's net worth at $160.6 Billion - so it looks like Bezos could literally just buy two D Senate seats several times over (better yet, open a cheap datacenter or warehouse there if there's some way it makes sense to have warehouse logistics in the middle of Wyoming and turn the cost of subsidizing the move into a profit once the "UBI" part of it ends).

Is anyone seriously considering this as an option? Has it been proposed to Bezos?

[1]note: you obviously have to condition some portion of payment on D vote totals so that even if the ballot is secret everyone knows they (1) have to vote and (2) have to vote the right way in order to actually see full payment

[2] Housing is obviously going to experience a massive demand influx, so maybe you try to build houses for folks if you're a cabal of billionaires, or otherwise try to find a way to soften the blow

[3] Not sure how long you'd want to pay people a salary to vote D, but maybe say four years?

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If this was such a good idea, why haven't Republican billionaires done the same thing with Vermont yet?

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Damn. Having written why this seems like a great idea, it turns out the answer to your question is probably "18 U.S. Code § 597."

It looks like our hypothetical billionaire would probably be limited to just paying (D) voters to move there, but it's unclear at best as to whether they could legally offer a general payout in response to a desired electoral outcome (seems dubious but please retain counsel before making any calls).

If you think paying likely voters of a given persuasion to move would work, however, I think the answer is "they either don't think big enough, aren't rich enough, or don't perceive the benefits to be worth the cost." (Bezos can eat $6 billion but he's also the second richest guy in the world. $6 billion is a *lot* of money. Charles Koch is apparently estimated at 1/3rd of Bezos's wealth)

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Where are they going to get shelter? Sure, some of them will cohabitate, but $30K per year isn’t going to go very far when the demand for housing spikes on a scale of a refugee crisis caused by a major war.

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Aug 1, 2022·edited Aug 1, 2022

A reasonable concern, as I noted in [2] above. One thought that might actually be even more robust, and cheaper, and require no one to move:

(1) Allocate a *big* pot of money - say, $3 billion - ahead of time

(2) Commit that *if* (and only if) a given Senate election in Wyoming goes (D)[1], all people who voted (based on the rolls this should be easy to figure out), get the pot divided by the number of people who voted [note that since the typical turnout in WY is 200-300k, this is like $10,000 per vote minimum, and since WY's population is < 600k, even if everyone in the state somehow voted it's still a ton of money for a single vote)

(3) All of sudden, personal *and* social incentives to vote (D) are huge, and you're fucking both yourself *and your neighbor* to do otherwise (is your commitment to a midterm Republican Senate seat more than $5-10,000?)

(4) Voila: Senate seat without anyone having to move -- in fact, this strategy is much more robust when fewer people are in the state! (You also want to do this close to an election so people can't move, register and dilute to pool - maybe limit it to people who are registered as of some date in the recent past when you announce the award)

The more I think about it, the more I think that this version has significant advantages in the short-to-medium term and I think might work, assuming it's legal. (In the long term, demographic fighting might work better).

[1] Note that you'd have to do some level pre-vetting to make sure the candidate was actually D, not some straw-democrat to win the pot. I guess if you're paying you can just pick your candidate, or maybe even run yourself?

EDIT: having written the above, not clear that this is legal in view of 18 U.S. C. § 597. Get a lawyer.

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I think it was Roose Bolton who said "The Manchins may seem simple, but they are not without a certain low cunning."

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Disagree. He seems much better at listening to blue collar voices than other Dems. This is sbout disalignment of the left and the reason why, for example, former red mine workers from North England now vote Tory.

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When Collin Peterson retired, I joked that you could Freaky Friday swap him into any random Dem in the District and even he wouldn't be able to win the seat back for Democrats. Manchin being able to establish his brand before the completion of the realignment in WV and plus the power of incumbency is how he's able to still be there. Does he do a good job to make sure he maintains the seat? Yes definitely, but he also wouldn't have ever had a chance to show that if he was just coming up now.

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Oh, I don't doubt that Manchin could win any parliamentary constituency in Derbyshire (and have said so on many an occasion), but what red states do you believe that Manchin could win a Senate election in if he moved there tomorrow?

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There have been a lot of pre-realignment holdovers in states across the country. The others all lost.

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It is absolutely false that all the others have lost. Many retired or died!

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Most of those who retired did so because they knew they were going to lose.

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Yeah, but that is not how this works. You could airdrop lots of people into different states and they would lose. Manchin has done an excellent job being seen as a fighter for WV. Had he lived elsewhere, he would have been different.

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Senator Manchin (I-VT) would have been a sight to behold!

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Aug 1, 2022·edited Aug 1, 2022

He's certainly better at understanding his constituency than most Dems are.

It drove me nuts when people shouted "racist!" over his concerns about increased spending for families with children. West Virginia is an epicenter of white poverty, with high rates of addiction. *Of course* some people would use the additional funds for drugs. It's okay to be concerned about that!

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If Sinema scuttles the IRA to save the carried interest loophole, I suspect many, many people are going to become the Joker

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I'm puzzled -- has the Manchin bill already passed the Senate? Do we know that Sinema will not scuttle it?

If not, then there seems to be a lot of premature celebration, here and elsewhere.

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The only thing I’ve heard from her camp is that her spokesperson said they were “waiting on the Senate parliamentarian’s review,” which sounds to this pessimistic ear as if they’re looking for a way to spike carried interest without doing it themselves. Doesn’t inspire confidence!

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My hope is that in their negotiations, Manchin and Schumer prepared a sacrificial lamb piece of the bill -- something they were sure Sinema would kill, but that they could live with. My concern is more than any tax provision, Sinema sees Manchin being deemed the Hero of the People with her role merely being good soldier who falls into line, whereas she may see herself as his equal in being the deciding vote and mover/shaker.(*) That is, for her to sign on, she'll have to get her pound of flesh but that this was always part of the script.

(*) Reports are that she was the critical person in getting the majority together for the infrastructure bill and the gun control legislation. That suggests she actually has been more influential than Manchin.

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"My hope is that in their negotiations, Manchin and Schumer prepared a sacrificial lamb piece of the bill...."

Okay, I'll hope along with you. That's my plan.

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If she wants more credit for her work in the press, she should talk to the press more. Duh.

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Yes, I've been very confused over the way this bill has been treated in the media as practically being as good as passed, especially when NPR had some wishy-washy quote from Sinema over the weekend that to me made it sound like she was probably going to vote against it.

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The dominant media narrative for over a year has positioned Manchin as vote #50. This may or may not be correct, but I understand why they are treating the agreement as having the votes to pass.

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Yeah, you just hope that we are not all being suckered by "the dominant media narrative."

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"...she was probably going to vote against it."

Some right-wing substack has already teed up the headline, "Sinema to the rescue."

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Just retweeted by Matt:

https://twitter.com/maxpcohen/status/1554145424679772163

"Here's Manchin making the case why Sinema should back the bill:

'[Sinema] has a lot in this bill. She's the one that negotiated basically, and no one changed, the Medicare negotiations.. She's been very adamant in this bill on no tax increases. I take that very seriously.'"

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I still can't figure out whether this is me being a sexist ass or not, but Sinema simply strikes me as being entirely unserious and/or outright corrupt, whereas Manchin is an ornery git, but one who can be reasoned with all the same.

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"I still can't figure out whether this is me being a sexist ass or not,..."

I hear you. Honestly, I can never figure out whether I'm being a sexist ass or not. I mean, a lot of women *tell* me that I'm a sexist ass, but, you know, consider the source.

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Let's hope that Manchin has a better handle on Sinema's commitments than Schumer had on Manchin's.

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It drives me crazy that the huge historic achievement of the bipartisan infrastructure bill is all but forgotten about and basically unfamiliar to voters (Dems really know how to make a loss even out of their wins!) and moreover it’s driving me crazy that it’s forecasted that so many billions in one of key parts- the Amtrak money, will go down the drain. Can there be no kind of mobilization of some sort to prevent this and use this once a generation windfall to get America the rail it deserves (or at least get it on track to get there)? It’s super important socially, environmentally, you name it !

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It makes me tear my hair out when I see every progressive negging the IIJA as "just a highway bill" when those of us in public transit are basically over the moon at how much transit funding there is (not just rail either). Never mind the fact that a) most people still do actually drive on roads to get around and b) so do buses. Really, Democrats just cannot take a win.

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I mean with all those various bills being passed, gun control, infrastructure, COVID relief, tech innovation to counter China, it *feels* like Biden actually got a lot more legislation in congress in two years than Obama did in 8?

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Obama got a lot passed. But if the IRA gets passed (and who knows, maybe even the gay marriage bill) then Biden will have had a very impressive two years before it all shuts down and we have the joy of watching Kevin McCarthy fill the airwaves with whatever crap his rabid House majority demands he do for the next two years.

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In short I have a lot of criticism of Biden and his administration, but in his own humble way I think he is actually handling both congress and foreign policy far far far better than Obama ever did. His real problem is the lack of a public presence and charisma (which Obama was epically good at). This is indeed a serious issue in the nation's no. 1 leader, but it's not the *only* important quality in a president.

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Aug 1, 2022·edited Aug 1, 2022

compared to his super majorities i don't think he did that much in his first two years. He certainly got the historic ACA, and a crucial stimulus package, but both were really far less than he had the political power to do AND he undersold even that, leading to the catastrophic 2010 loss, which the nation is STILL suffering form (the malaise of gerrymandering). He then spent 6 years selling the nation on a toxic quasi-myth that bipartisanship is dead and that congress is basically unable to ever do anything ever again, so that executive action is the only way. Turns out its only very partially true and a large part of it was Obama's own incompetence/inexperience in handling the GOP.

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Biden, through a combination of electoral reality and personality, seems more willing to make deals with Republicans than Obama, and Pelosi is more effective at kicking House Democrats into submission than Boehner did to House Republicans.

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Obama meant well and did ok but he was arrogant and inexperienced. He was far too bright and successful for his and the nation's own good and so really really squandered his enormous potential and that of the political moment, to very troubling consequences. The objectively less talented Biden, who also got to the presidency very late in life, can do better with worse cards dealt him, methinks.

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Aug 1, 2022·edited Aug 1, 2022

There are two problems here: One is rail's biggest supporters are unrealistic *rail fans* who think it is feasible to build a 300 mph bullet train from Minneapolis to Seattle, and the other problem is most of the people actually in charge are not from the rail industry and have no idea what they are doing.

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Aug 1, 2022·edited Aug 1, 2022

Seems to me to be a single problem then: lack of professionals who know their sh_t. Import some people from Spain or Italy or wherever and get it done right. My question is therefore , what can concerned SB types do to get such reform to happen ? To first alert the public to the problem and then get whoever’s o charge to address it (e.g. by replacing the entire cadre of planners etc in the us by Europeans/Asians who actually understand modern rail )?

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Once low cost air service exists, it’s hard for high speed rail to compete on all but the shortest routes. Consider Montreal and Toronto. They are both big cities and the trains between them take 5 hours and average 62mph. It’s not that the Canadian government is in the pocket of airlines or libertarians, it’s just that the fixed costs of high speed rail are a huge ask when good air service already exists.

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Idk it seems to be working very well I. Europe and? China also Japan I believe. Certainly much of the us is to sparsely populated and big for to to be feasible as an alternative to air travel (even more so in Canada) but surely there are quite a few bits where it certainly could be a great alternative. Air travel is a huge hassle after all with security, it being outside city center etc. the whole ne corridor in the us could definitely use updated rail and would see huge uptick in ridership as a result. Probably also trains connecting some of the main cities of ca (esp of accompanied by serious in-city public transit solutions)

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was there established, low cost air service on medium level european routes (eg munich to berlin, florence to turin) before high speed rail? my impression is air travel was very expensive in europe in the pre-tgv era. yes, the eurostar has outcompeted established air service, but it connects two cities of 9 plus million each and there aren’t any comparable city pairs in north america. the fact that montreal and toronto don’t have an hsr connection despite being equivalent to philly and boston (without nyc in between) suggests this isn’t just an american problem

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This is true, but there’s also really nothing in between Paris and London, whereas the NE corridor has like 75 million people and could easily support high speed rail.

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also, the eurostar has a short spur that goes to brussels. the london paris infrastructure made it cheap to have paris-brussels and london brussels hsr. brussels is the capital of belgium and the eu, it’s at least as important as philly or boston. also your 75 million figure is off. it’s more like 40-45 million in the nec

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yes, it absolutely could, the problem is we have forgotten how to build train tracks for less than 300% of what they cost in spain

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How do you know it’s working very well in China?

Japan and Europe are considerably denser than North America.

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Italy has a population density of 206 per square km and New Jersey, Rhode Island, Massachusetts, Connecticut, Maryland and DC are denser than that. If you go down to Spain's population density of 94 per sq km, then Delaware, New York, Florida, Pennsylvania, Ohio and California are denser than that. Illinois falls slightly below that, but only because of it's large downstate - norther Illinois is quite dense (1318 per sq km in the Chicago CSA). The US is very large and while it does contain vast, thinly populated areas, it also contains plenty with population densities comparable to Europe.

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I put a question mark next to China, as to the density question, I qualified the North America bit, I thought, to the denser parts, which I think are more comparable.

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It doesn't drive me crazy. Sure, voters don't know anything about the legislation -- most voters don't know who their senators are. And politicians who think voters will reward them because some bill passed are unlikely to continue to be successful politicians.

The great thing about the BIB is that it is now the law of the land and we'll actually be doing things to improve our infrastructure, maybe even Amtrak.

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Believe me I am a fan of that but it's precisely bc most voters don't know that the people who ARE engaged should not be sending out the message that this bill is a big nothing. Which is both inaccurate and unhelpful.

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Agreed!

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I would like the SALT deduction to come back because I would benefit personally, but I understand why this may not be the best idea.

What the Dems should do instead is make the expansion of the Standard Deduction permanent. Right now, most people aren't suffering from the loss of the SALT deduction b/c of this expansion, but it expires in a few years, at which point a lot of the middle class beneficiaries of the old SALT dedudictuon are going to take a hit, and so will plenty of other middle class people.

I assume that the GOP idea is that this will ultimately be made permanent, but as part of a package that makes other tax cuts permanent and/or bargain for additional tax cuts that really are designed to be regressive. If the Dems extend it or make it permanent now, they will be helping the middle class people who would otherwise be hurt by SALT while denying the GOP this bargaining chip.

EDIT: Looks like the SALT cap is also temporary, expiring at the same time as the expanded Standard Deduction. It still may make sense for Dems to try to make both permanent to lock in the current status quo and avoid giving thr GOP the SD increase as a bargaining chip for other tax cuts.

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Aug 1, 2022·edited Aug 1, 2022

I was on this train - I love policies that help me personally! But a couple things changed in the tax code, mainly the huge increase in the standard deduction from the TCJA and something happened to the mortgage interest deduction. Now it matters to me exactly zero.

Edit - Shoulda read further lol - didn't realize the standard deduction increase was temporary. Now I care again.

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Someone else pointed out that the SALT cap is also temporary, and ends at the same time as the SD increase. This makes it particularly weird thing to blow up the Dem legislative agenda over.

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Doesn’t the SALT deduction return at the same time (ie tax year 2026) as the standard deduction going back down?

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I was of the understanding that the cap was permanent, but looks like you may be right (See, https://taxfoundation.org/tax-basics/salt-deduction/) If so, I don't ~really~ understand all the concern over this, unless there is an expectation that the increased SD will expire while the SALT cap is made permanent. We are just talking about 3 years.

I'll add that, my main objection to the SALT cap when it passed was that it was sold as intentionally screwing states that didn't vote for Trump, which I think is a very toxic way for politics to work.

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Your views on natural gas / methane make me wonder if you haven't gone too far with your prior that "the groups" are wrong about everything all the time. You can't look just at emissions from burning - methane leakage is a big issue. Even if I buy your (dubious) argument that new methane infrastructure is emissions negative on the margin today, there will come a point soon when it's not.

And we'll then have to eat that investment or wait another thirty years we don't have for that infrastructure to age out. Politically, I'm fine with giving Manchin what he wants to get his vote. But don't piss on your readers and tell them it's raining.

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I believe the IRA, as written, does increase fines on oil and gas producers who leak methane.

But, the reality is that the entire world is not going to be off of oil and gas in 30 years, regardless of whether this pipeline is built or not built. Even if New York, itself, uses 100% renewable energy for electricity by this time, the developing world is always technologically behind countries like they united states, so they will be continuing to burn fossil fuels. And, if the gas can be exported to them, that means less reliance on more problematic sources of energy, such as coal (or gas from countries we do not want to support, such as Russia).

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Double check the economics - investors in fracked oil and gas have collectively lost their shirts, which is why American production has not increased despite the recent spike in gas prices. I can't think of a product that's receive more of a dumb investor subsidy except perhaps your last Uber ride. If you want to put your "realist" hat on, the best way to geld problematic petrostates is to accelerate rather than impede the energy transition.

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We definitely want to accelerate the energy transition. The problem is, as Matt has said many times in past articles, blocking pipelines doesn't really do that. Blocking pipelines goes after the *supply* of oil, the problem is not the supply, but the demand.

Constraining supply of oil in the United States won't work in solving climate change because other, less-environmentally-conscious countries will simply increase their supply, and the net result becomes much more of a shift from domestic oil to imported oil than from domestic oil to clean alternatives. In some cases, without scalable green alternatives, higher gas prices can end up encouraging a switch back to coal, which would be moving backwards. There have even been cases (e.g. North Korea) where extreme oil shortage has resulted in vehicles getting modified to burn wood.

In my opinion, the only way global carbon emissions can be reduced by enough to make a meaningful difference is to develop technology that makes the burning of fossil fuels obsolete, to the point where people and governments acting purely in their financial self-interest, who don't care at all about stopping climate change, will still make the switch, for no other reason than that everybody likes saving money.

We are starting to make progress, with solar, wind, batteries, etc. But, we have a long way to go (particularly on batteries). I personally think humanity will be able to count itself lucky if it can simply hold global carbon emissions *flat* between 2020 and 2050 - in the midst of the developing world demanding modern luxuries, such as cars and air conditioners, this will already require significant emission reductions in the developed world. Maybe by 2080 or 2100, global carbon emissions will actually be in a steep downward trajectory. And, of course, warming by then will have blown far past 1.5 or 2 degrees C. Humanity is just going to have to adapt to whatever it is, and hopefully, whatever it is will be within a range where adaptation is still possible.

The real problem with oil and gas pipelines, I believe, is not so much real, but psychological. In order for temperatures to rise less than an average of 1.5 degrees C by 2100, we need a sharp reduction in global oil consumption in 10 years, which, in turn, requires burning oil to already be technologically obsolete for just about everything. The construction of new pipelines reminds progressives that the illusion that 1.5 degree warming is avoidable to be just an illusion, which is not something they want to contemplate. But, the reality is, 1.5 degree warming being avoidable to begin with is already just an illusion, pipeline or not pipeline, all the pipeline does is just shatter that illusion.

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1. Don't start by assuming failure.

2. Review the difference between "blocking" and "subsidizing."

3. Matt can be and occasionally is wrong.

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"The argument for this was bog standard conservative tax policy analysis: conservative economists think that marginal tax rates are a really big deal, and the SALT deduction, like all tax deductions, gives people a tax break while doing nothing to lower their marginal tax rate. "

I am confused by the claim that SALT does nothing to lower my marginal tax rate.

Currently, my marginal dollar of income is taxed by both the city/state (~10%) and federal government (~40%), so my marginal tax rate is 10%+40% = ~50%. With SALT, my marginal dollar is still taxed by the city/state (~10%), but only ~90% (=100%-10%) of my marginal dollar is taxed by the federal government (90%*40%), so my marginal tax rate is 10%+90%*40% = 46%, which is less. So it seems like SALT lowers my marginal tax rate by ~4%?

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It really depends on which taxes you are talking about - income tax deductions will lower your marginal tax rate, as you indicated, while property, sales taxes etc. will not.

So it's not accurate to say SALT either will or won't impact your marginal tax rate - it depends on the tax you are deducting!

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founding

Come to Florida, Jonathan! (Pay no attention to Milan's comments on the heat.)

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Beware how many of those marginal dollars saved will get spent on air conditioning!

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Last January I turned the heat on exactly once, for about 45 minutes in the morning. In New Jersey my heat would be on for hours a day, every day.

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Air conditioning is a lot more efficient than heating (until heat pumps are de rigueur, anyway).

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I refuse to give the mosquitos their pound of flesh.

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That's OK, they only want a "jot of blood".

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It's not that simple. First, SALT is one deduction of many. Secondly, marginal rates do not apply to all your income - you're taxed in stages. The top marginal rate of 37% only kicks in after ~650k of income and only applies to adjusted income above ~650k. Like any deduction, the advantage of SALT is that it lowers your taxable income and lowering income reduces the amount of income in the highest bracket you are subject to.

So how much SALT would benefit you depends on a lot of factors but this aspect of how marginal rates work is a big reason why it is so regressive - the benefit doesn't scale linearly.

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So isn’t Matt’s claim that deductions in general (and SALT specifically) don’t affect marginal rates just wrong? As you say, it affects the marginal rate the most! I’m still kinda confused why Matt said this wrong thing.

I still think my toy model is basically accurate. I agree the impact on the average rate is less and that restoring SALT would be very regressive.

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What he's suggesting is that Republicans do not want to increase revenues by increasing marginal rates for longstanding political reasons. Instead when they need to increase revenues, they will do so by going after deductions which will increase revenues without increasing marginal rates.

In short, reducing or eliminating a deduction doesn't affect the marginal tax rate, but it does affect the effective tax rate (ie. what you actually pay which is always less than the marginal rate).

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I think we are using “marginal rate” in two different ways. I mean “how much of my last dollar of income goes to taxes” whereas you mean…”the number corresponding to the highest federal tax bracket”?

I think my version is the economically relevant one.

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I don’t think we are using it in different ways.

In our current system there are two primary ways to raise revenue: Increase marginal rates or reduce deductions and credits. Either method increases the effective tax rate. Matt’s point is simply that Republicans never raise marginal rates, so if they need to increase revenues, they turn to deductions and SALT was an easy target for them.

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Deficit reduction is very important for long term growth. It means that the Fed can have a more “expansionary” monetary policy given (and it should be given) its inflation target. It does not reduce inflation.

Similarly on reducing drug prices. If done right it will just transfer income from the owners of drug company stocks to consumers with, hopefully, little disincentive to develop new drugs. But that income transfer will NOT reduce inflation.

Now since Republicans have lied about the Biden increases in the deficit and freeze on off shore leasing causing inflation, it is pretty hard to ask Democrats not to lie about deficit reduction drug pricing changes reducing inflation. But for the sake of good policymaking, Progressives need to understand that it is a lie: an untruth, known to be un true and uttered in order to lead hearers to believe that untruth.

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And that's just one of the things to dislike in how Democrats are approaching drug pricing reform. They are pushing a simple-minded policy that's about the worst way to go about this. If it were up to me I'd scrap the prescription drug portion of this bill, and take the time to do a well-designed thoughtful bill to address prescription drug pricing the right way. That probably can't be done through reconciliation, so in some ways this is another case of the filibuster distorting substantive policy in harmful ways.

A good prescription drug pricing bill would start with supply and market exclusivity issues to promote competition and reduce the times where one or a handful of mfgrs hold a monopoly on drugs that are the standard of care (patent and FDA approvals -- a big part of the insulin story is that until just recently there was no generic/biosimilar approval pathway, inhibiting price competition); reform Part B drug reimbursement to move it into competitive insurance contracting like drug reimbursement under Part D and Part C, and reform those contracting processes to make them more competitive and capitated; and reform PBM transparency and fee regulation -- where there are multiple drugs in a therapeutic category, forcing mfgrs to compete can be an effective way to reduce prices and drives spending towards actual value through actual market negotiations (rather than a sham "negotiation" as in the current bill where if a mfgr doesn't agree it's hit not just with the loss of a potential sale but with confiscatory civil penalties, which is so over the line it might be struck down in court). But currently PBMs have an exception to the anti-kickback laws which this bill actually extends (!) where they collect percentage-based fees that mean they make more money when prices are higher -- a blatant conflict of interest for entities that are supposed to be negotiating for lower prices.

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The healthcare sector had decades to come up with something more constructive. Instead you got ever richer while Americans’ life expectancy progress went into reverse. Now you’re reaping a very small fraction of what you sowed. No tears will be shed for you.

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Precisely my thoughts. If Allen and half a million other interested people had gone on record in 2004-08 with "here's how my industry is fucked up and what we should do", I would take him seriously.

As is, when he talks about the industry about which he's ostensibly the local SME, I just think "Oh, good, further self-serving justifications for rent-seeking to be permitted to continue."

If it can be sold profitably in a basket of comparable countries at a given price, it can be sold profitably in the US at that price. Period, no exceptions.

If industry-wide ROIC falls from the high 20's to the mid-teens as a result (and it won't, this might shave a percentage point or two off that figure), well, wah. That'll be no disincentive to innovation.

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As a mere resident SME, I stand corrected by the superior knowledge and wisdom of the resident Expert in Everything.

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I'd like to clarify; I know I often sound hostile, and reading through this morning's comments in hindsight I do here as well.

My concern, and I see it replicated across wide swathes of our economy including the 1-2 in which I myself have a degree of expertise, is that the "expert communities" have been so thoroughly engaged in scratching their own backs for so long that for the informed layperson, it's just impossible to parse out when the sophisticated arguments being trotted out are more of the same.

When that is the case, and it seems Congress and a great number of other policymakers are in the same boat, the temptation to just blow you off completely and do whatever the hell seems to be a simple fix is undeniable.

I honestly lack the ability, without extended study, to evaluate whether your proposal is self-serving or correct on the merits. But when you discuss insulin, the fact that there was no competition in the market for a product that has been produced for human use for more than 70 years suggests that more is broken than just the need to "facilitate competition." The phrases "patent thicket" and "predatory monopoly" come to mind.

The fact that there's never a mea culpa, nary a mention of patent corruption, and the phrase "regulatory capture" never features anywhere, when everything I've read says those are pretty fundamental features of modern American pharmaceutical firms, means that my trust level on this particular issue is just very, very limited.

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This bill was written by Democratic leadership -- they could have written a better bill but they didn't and they are responsible for it, not anyone else. It's a copout for them to shirk responsibility and say the reason we didn't write a better bill is because we didn't get more industry cooperation. And "industry" isn't monolithic. This bill isn't good for mfgrs that innovate and create the technologies that drive real improvement in healthcare outcomes, but it is good for the middlemen in the drug supply chain who skim off billions without creating much if any value, and that's the group that Democrats have chosen to side with. For more on the insulin story in that regard, see this:

https://www.drugchannels.net/2021/11/why-pbms-and-payers-are-embracing.html?m=1

This bill not only doesn't fix the distortions discussed here; it affirmatively, actively makes them worse. It's inexcusable.

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founding

Politics is always a fight against human nature. To determine good policy in the face of complex systems filled with imperfect people is hard work, but worth it. Defaulting to either turn over the reins to the insiders or to ignore complexities in favor of the simplistic are both bad.

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I share your frustration in this regard: when I see how badly Democrats are bungling "technocratic" policy in the area I know best, and then realize I have to just take it on faith that they're not similarly bungling other areas I don't know as well, it's not overall very confidence inspiring. Yet the other party is even worse. That is frustrating.

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Hardly.

I simply do not trust you or almost anyone else in the field. Everyone has been screaming "that'll break everything" for so long that we're done paying any attention to cries of "Wolf!"

Y'all have earned that, and if we break things because we don't trust you and others to be doing something other than buttering your own bread, so be it, we'll claw back from it.

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You think it's the healthcare industries fault that life expectancy isn't going up?

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Aug 1, 2022·edited Aug 1, 2022

I think they play a role, yes. If I was part of an industry that was a negative outlier in both the resources it consumes and the outcomes in its field, I'd show at least a little humility and self-awareness when complaining about efforts to ameliorate that situation.

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>>>Deficit reduction is very important for long term growth.

A lot sure can change in two short years!

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No. It was important two years ago, too. The relief package would have been better if it had been revenue neutral, letting the Fed shift more credit to the private sector, for banks to be tiding over business and rental property holders.

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Of course deficit reduction reduces inflation (vs. spending the tax revenue). Spending money is inflationary. Tax collection is deflationary. If you collect taxes and don't spend them, the result is deflationary. This seems pretty obvious.

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You are assuming that the the Fed does not exist or has a strange monetary rule that does not include an inflation target.

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Not so obvious to me. As Matt noted, if you collect more taxes from Social Security-dependent folks, that will clearly reduce demand and be disinflationary (not, probably, deflationary). I'm not sure you can say the same thing for taxing corporations and very rich people. Good to do, helps keep interest rates low, but why disinflationary?

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Obviously who you collect taxes from changes the multiplier (just like the fiscal multiplier for spending to combat recessions). Nevertheless, it is assumed that with a sufficiently large sample-size, at every level of taxation and income, some percent of taxation will be reflected in reduced spending (reduced demand).

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Sure, but taxing rich people seems the least efficient way to reduce spending.

Good to do for many reasons, but not so much that one. But if you can sell it that way, then great!

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I am not sure exactly how the tax component breaks down (by income bracket). But yes, it may well be quite inefficient. My objection was to the blanket statement that "deficit reduction is not disinflationary." It is (disinflationary), essentially by definition.

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Aug 1, 2022·edited Aug 1, 2022

It depends on whether government spending is/has been constrained. If a state raised taxes on the wealthy and spent that money on goods and products, then it would be inflationary. But its been quite a while since federal tax receipts and federal spending are linked in any meaningful way.

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Is it, by definition? I may be obtuse here, but I'd like to understand why deficit reduction in the abstract is disinflationary.

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"The multiplier" is zero of the Fed is doing its job.

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This is ridiculous. The amount of compensation that the fed would need to make to hold inflation at any given level depends on the level of taxation and the level of spending and the multiplier associated with each.

Your statement is akin to, "Buying expensive items doesn't effect your financial state so long as the market is compensating by rising at exactly the same rate."

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I agree with the first part, I think. The amount of policy umph that the Fed has to do depends on the deficit. It's job is to supply than umph and keep inflation on target. It is not supposed to "accommodate" -- change the target -- according to what the Treasury is doing.

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founding

Milton Friedman: “Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”

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Sure, but that covers a host of sins on "output". If output falls sharply due to external factors, then the quantity of money is increasing rapidly in relative terms.

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Right, "always and everywhere" has been defeated by COVID-19

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That's right. He did NOT say that inflation is ever or anywhere a fiscal phenomenon unmitigated by monetary policy.

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deletedAug 1, 2022·edited Aug 1, 2022
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"All the innovation and business growth of the last 10 years"

Have we... been living in parallel universes this whole time?

It would explain so much...

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It cuts both ways though. Low interest rates can also serve to prop up zombie companies that would otherwise fail. Allowing those companies to stagger along unproductively, instead of more effectively redeploying the resources they suck up, can also be a drag on long-term growth.

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I don't think this is an argument for higher interest rates, though. Maybe for smarter VC firms.

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I think if SALT-ers really want to reimplement the deduction, what they need to advocate is the opposite of *everything* Paul Ryan put into the TCJA, and not just this piece. That is to say, if they want to raise or eliminate the SALT deduction cap *in exchange for raising the top marginal rate so as to be revenue-neutral or revenue-positive*, then I guess that's ok. I do not really care if some rich people get a tax break, as long as it's on the backs of some other rich people. But yes, repealing the SALT cap alone is nonsense.

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I feel like we hear a lot less about automatic stabilizers than we did a couple years ago.

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Aug 1, 2022·edited Aug 1, 2022

I think this is a great article.

In the future I would like to see a more detailed look at the stupidity of ignoring Manchin's July 2021 statement signed by him and Schumer and the weird, quixotic attempt to force Manchin to support a progressive bill with historically high spending numbers. It's really remarkable that in the rush to paint Manchin as this uniquely bad politician, that Schumer and others have avoided criticism.

Also a comment on deficit reduction. Let's be honest that this will have pretty much no effect. First, the deficit reduction is $300 billion over 10 years. That's $30 billion a year which is very little considering annual deficits are well above a trillion dollars and growing. Even assuming we have inflation for the next two years, $60 billion is a drop in the bucket. And this won't actually reduce the budget deficit at all - it will just slightly decrease the growth of the deficit, even under rosy economic assumptions.

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Sure, but it's a good bill on the merits, and the deficit language allows to market it very well. 300b reduction looks really impressive for 99% of people who don't read the fine print and understand how budget works like you do :)

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.... or that 300b over ten years is chump change in a 20 trillion dollar/year economy.

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There's a rule of large numbers. Most of us would know very well if a price tag of 100$ or 1000$ for something makes sense and what it means, but 10m, 10b and 10t. These are just words for most of us (Certainly the latter two)

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Yeah, I think it's a good bill on the merits - I just hope people don't take the deficit reduction thing too seriously.

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Prioritization: I'd like to see Progressives prioritize more equitable growth. Higher incomes for low income people is good and higher incomes for high income people is also good (just not AS good) and it can be taxed. Fighting over a static pie is Trumpism.

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I'd like to see a breakdown of the horrible progressive tactics and their justifications for it. What stands out most was the refrain that "Manchin was never going to agree to a bill anyway." Wasn't AOC one of those who said that? That's a pretty huge thing to get wrong, considering you might as well not even try to get this bill done if you believe that.

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"bill includes tax credits for buying electric cars but not for buying e-bikes."

In what universe is subsidizing EV a sensible way to reduce CO2 emissions? Will it be popular in even one marginal voter in even one Congressional district? Who ordered that?

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