Suppose you walk into the supermarket and are confronted with a sliding scale of discounts on all your purchases. If your income is below the threshold common to the vast majority of Americans, you get a 15 percent discount. If it is in the higher range enjoyed by the happier few, you get a 35 percent discount. Alternatively, suppose we had individualized currency. When you spend a dollar, you get 15 cents cash back, so your dollar is worth $1.15. But your rich uncle spends a dollar and gets back 35 cents, so his dollars are worth $1.35.

Ladies and gentlemen, I give you the Republican economic policy. That flaming radical Barack Hussein Obama proposes to moderate this class warfare by reducing the higher discount to 28 percent.

I will explain.

We've already alluded to the Right's incomprehension of the difference between an average and a marginal tax rate. The current top marginal rate of 35 percent does not mean you give up 35 percent of your income to the IRS. It means you pay 35 cents on the dollar for every dollar of taxable income in excess of the income threshold where 35 percent kicks in (currently $357,700 of taxable income).

Obama would like to return the top rate to the 39.6 percent that prevailed before 2001 (that was a "statutory" rate of 36 and a 'surtax' of ten percent on top of 36, or 3.6). "Taxable income," by the way, is not income subject to tax. It is income subject to tax after subtracting deductions and exemptions. So you can appreciate that the top marginal rate, whatever it is, applies to dollars that spill over a threshold that applies to income well below gross income. Hence anybody who equates the top marginal rate to the average rate (taxes divided by gross income) does not understand the income tax, not even a tiny bit.

Now I must scream myself for a second:

THE OBAMA ADMINISTRATION DOES NOT PROPOSE TO RAISE TAXES DURING THE RECESSION. Anybody who says the president wants to raise taxes in a recession should be immediately taken out and shot. But I digress.

Now what about those itemized deductions? Roughly a third of taxpayers itemize, but only .4% (point 4, or less than half of one percent) of all taxpayers are in the top two brackets and looking at a marginal rate increase. What is the likely impact of a rate increase?

The grand doctrine of supply-side economics holds that the impact of changes 'at the margin' -- in this case, the marginal rates -- are powerful influences on economic activity. In this context, a higher marginal rate is said to discourage work, savings, and investment. Regarding the Obama proposal, we are talking about a change of 4.6 cents on the dollar -- an increase from 35 to 39.6. This is supposed to cause the wealthiest among us to scale back their brilliant entrepreneurial contribution to the economy, to stop laying the golden eggs.

For lack of that nickel on the dollar, you divert income from savings to consumption. (For example, if you are making a healthy return of ten percent on something -- I know these days this requires imagination -- instead of your after-tax return being 6.50 percent, it becomes 6.04 percent. Oh noes!). You liquidate wealth and buy lots of stuff you didn't already have. You decide you don't want to start a new business after all; you'd rather continue working for someone else. You cut back on hours of work, even though you're making two hundred dollars an hour. In other words, you're an idiot.

Putting aside the obvious question of just what has happened to those golden eggs, let's consider the deductions. With any system of graduated rates, as noted at the outset, the value of a deduction, or the amount of tax savings, rises along with your marginal rate. A higher top marginal rate in and of itself would be relieved somewhat by the higher value of deductions, but Comrade Obama would push those tax savings in the other direction, limiting the value of deductions to a top rate of 28 percent.

Now we should first note a change in the value of deductions has no bearing on the incentive to work, save, and invest. Your top marginal rate is the same, the impact on the marginal dollar of income is the same regardless of the deductibility of anything, excluding the unlikely case where a reduced value of deductions fails to bump you into a lower tax bracket.

Where the 28 percent cap is relevant is in your deductible activities. The biggest deductions for most people are mortgage interest and state and local income and property taxes. But there is also charitable contributions, and that may become the poster child of resistance to Obamatax.

The logic is that the difference between 35 percent off and 28 percent off ($70,000 for every million) will deter charitable donations because of the reduced marginal incentive. Let's see. You can afford to give away a million bucks. How much less do you give away because it raises your taxes $70,000? (In this case the difference between 39.6 and 28 does not apply because the increased price effect pertains to what could become the old rate of 35.)

Economists love to talk about marginal impacts or price effects, and we know how much they have contributed to our present excellent economy.

First off, this difference only affects those in the relevant brackets, which means very few people. It is true that as a group they donate more to charity. In 2005 those with over $200K in annual income account for 30 percent of itemized deductions claimed, or about $53 billion.

Second, what is in question is some reduced incentive to donate -- an increased expense, if you will -- not any wholesale obstacle to donations. Note 2/3rds of taxpayers do not itemize but do donate, so the $53 billion is much less than 30 percent of all contributions. For the wealthier, the price of donating could go up from 65 cents per dollar (1 - .35) to 72 cents, or an 11 percent increase. If we generously assume a percent response to a percent increase in price, they reduce contributions by about 11 percent, or $5-6 billion in 2005.

Third, some piece of the Obama spending will be going to non-profit organizations involved in social services. I can't prove it, but I would bet the spending juice in the Obama budget dwarfs the reduced donations in the tax proposal. We might also note that attenuating job loss by deficit spending will increase incomes and the ability to donate to charity.

Fourth, the same clowns obsessing about marginal impacts on charitable deductions were making contrary arguments in the case of the estate and gift tax. Charitable donations are deductible against the estate tax, so abolishing that tax would eliminate an incentive to donate. It is easy to google "death tax" and "charitable contributions" and find wingnut arguments that in this case prices don't matter -- that eliminating the tax would not reduce charitable donations, nay, it would increase donations.

One of the blind alleys here is the proposal to allow charity deductions to everyone. This would not eliminate the unfairness of different discounts described above. It would provide tax savings to those unable to itemize. More broadly, however, it would take a component of the income tax that is currently impossible to enforce and compound that impossibility. The fact is the IRS has no clue whether your claims of donations are accurate unless they perform a root-canal audit, which they do less and less often. The better solution is just get rid of the deduction altogether. A lot of charity is jive in any case. Even better, if we're going to have deductions, provide the same rate of offset to all taxpayers.

In summary, the organizing principle of supply-side tax doctrine is feed the rich. Take away a subsidy to charitable donations enjoyed by the rich (repeal the estate tax), donations go up. Reduce a subsidy to donations (cap deductions at 28 percent), donations go down. That's the party of ideas for you. Or is it the potty of ideas. We prefer to eat the rich.

Bloomberg reports 2.6 million households in the top two brackets. Urban says 661,000. The years are different, but not enough to account for the discrepancy. It doesn't affect my argument.

The most recent report on Social Security says the gap between cash income (mainly payroll taxes) and scheduled benefits rises to as much as 1.44 percent of GDP from 2016 to 2080. It actually peaks in 2035 at 1.32%, goes down a bit, then heads up again. All these numbers are strictly cash, abstracted from Trust Fund accounts. The numbers are here (fourth column, under "OASI," which stands for Old Age Survivors Insurance, a.k.a. "Social Security").

During the campaign, President Obama proposed to fill any impending shortfall by increasing the payroll tax on high-salary workers. From the table linked above you can plainly see the HI piece -- Medicare -- is over twice as large as the SS shortfall. Moreover, HI is not the whole story. There are other components of Medicare not funded by the payroll tax, and there is Medicaid on top of that. So why is Mr. O getting Overwrought about Social Security? And why are so many TPM commenters so bereft of information?

These numbers do not contradict the statement that the program is fully funded through 2040-something according to Baker and the CBO. The cash deficits starting in 2016 are covered under current law by drawdowns from the Trust Fund, financed by general revenue, mainly the income tax. In this sense there is no more of a crisis in Social Security than in the defense budget, since there is no dedicated cash source for that either. And by the way it's an odd crisis that creeps on you over two decades. I'd say we have a vocabulary crisis, if anything.

Perhaps the upcoming "entitlements" conference will conclude that accounting changes or measures scheduled to kick in ten years from now will solve the so-called problem. Perhaps the president's diabolical plan is to get an easy painless fix that positions him better to tackle the really hard job of health care. Or maybe he's going to screw us over. Not me, I'm 167 years old, but my progeny. That will be an audacity of hope deal-breaker.

All I want for Christmas is New York's Senate seat. And I don't mind telling you my father was a very distinguished person, though nobody ever heard of him. His main failure was to be the son of a man who declined to enter the bootlegging business. More's the pity, who knows where I might be today.

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I would like the eulogy at my funeral to be delivered by a national socialist, as a commitment to dialog and a symbol of reconciliation. Because Nazis are part of America too.

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Steve Waldman of belief.net applauds the famous bigoted minister Rick Warren for his commitment to the poor. This commitment consists of support for tithing. In other words, there is nothing wrong with the fundamental rules of Capitalism, it is merely suggested that those who prevail in this execrable, crooked contest dispense a modest portion of their ill-gotten gains on a purely voluntary basis. In this respect, the Minister Warren's posture on economic issues is inferior to that on gay rights, abortion, and so on.

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Lose a hundred grand and it's tough sh#t for you. Lose a hundred billion, you're a new government program.

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Another bad thing about the financial crisis: Tom Friedman's book output may increase.

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In light of Bill Clinton's economic honchos, not to mention the mainstream of the economics profession, supporting financial deregulation, can we really blame George Bush for failing to position himself to their left on this issue?

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I'm sure there's nothing untoward about this.

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One good thing about the financial crisis: nobody can ever start blathering about Social Security as a Ponzi scheme without exposing themselves to ridicule.

And it has a senator by the name of Richard Shelby to sabotage the competition. Shelby and other peckerwood princes block aid to U.S. auto companies, while they suck in dollars for pork and their state government does for foreign companies what Shelby won't let the Feds do for Detroit. My personal favorite project of Shelby's, who has a long career of pork-sucking, is the Federally-funded statue of Vulcan.

Harold Myerson is good on this today.

Of course the idea of the Left is elastic. Left of Richard Nixon is not the same thing as left of George W. Bush. Harry Truman supported national health insurance, the same sort of scheme criticized in Obama campaign advertisements. Nixon supported a national, guaranteed annual income, while Bill Clinton ended welfare, crappy as it was, as a Federal entitlement. Where does center end, and left begin? Where does center-left end, and disreputable, crazy left begin?

This is not socialism; it's not all that radical. The public's uneasiness over these two premises is testament to its enduring conservatism. So much for the 'center-left' nation. I might add that the surging, ambiguously 'center-left' voted down the right to gay-marry in deep blue California and failed to turn out for the Democratic candidate in the recent Georgia Senate run-off.

I was charmed and a little stunned by Obama's reaction to the Republic workers' sit-in. Ordinarily any such maneuver would be met by obnoxious oinking about private property and the rule of law. It was as if BHO was photographed carrying a copy of Gramsci's Prison Notebooks. It was nice, and it fortifies my optimism about the new administration. But in terms of the bigger picture sketched above, Obama is not down with the program. That he should be is a reasonable political position. Criticizing his failure to move in this direction is reasonable. So why does such criticism met with the dumbness? Why can't the discussion dwell on the substance?

The varieties of stupidity

Assertions of criticism draw criticism of the author as on an 'ego trip.' Criticism is described in cartoonish, emotionalist terms. Criticism is never sober, it is always angry. Leftists are gnashing their teeth and tearing out their hair.

It's not a question of being angry or not angry. In general we're pretty mellow and we're not surprised. We expected something like what is going on. It didn't stop us from voting Democratic. It is a question of pointing out serious implications of the Obama Team's decisions, as they take shape. Personnel matters. The Obama teams on economic and foreign policy are deficient. Vision is not enough. Obama needs others to inform his vision and to carry it out faithfully, and the ideological predispositions of his appointees will affect the way policies are designed, implemented, and carried out. They always do. This is ABC. It's why informed people obsess about appointments.

We the laid-back left would like to take political advantage of the fact that left criticism of the economic and national security policy has been upheld by events. Capitalism is not so good at allocating capital and risk. Imperial overstretch is proving an impoverishing debacle. Joe Stiglitz was right, Larry Summers was wrong. Baker yes, Bernanke no. Noam Chomsky and Chalmers Johnson have a sharper bead on U.S. foreign policy than Hillary Clinton, Susan Rice, or Samantha Power. It's not a matter of being more or less progressive; it's a question of being right or ruinously wrong. We would prefer President Obama be remembered for the former, not the latter.

Between elections, partisanship has to afford some space to governance. What are you for? Do you want to replicate Iraq in Afghanistan? Do you want the U.S. to stick its thumb in Russia's eye with NATO expansion and missile defense? Do you want to bail out everyone but the workers? AIG yes, General Motors no? Do you want a competent version of George Bush? The election is over. Now we want, we need good things to happen. It doesn't pay to be fussy, but blindness, refusal to grapple with substance stands fair to make the 'center-right' notion a reality.

If you're really left, you've been angry long enough to get over it, without forgetting why you were angry. There is no angry left. There is a critical left which can, in good faith and with substantive support, point out problems in Obama World. Get used to it. And by the way, you'll need us as 'Son of Arkansas Project' comes into view.

Bill Clinton's campaign genius, James Carville, was once a populist. He was quoted as saying "I do politics; I don't do government." Arcane matters of political economy he left to the best and the brightest -- folks like financial master of the universe Robert Rubin and Harvard (Harvard!) wunderkind Larry Summers. The best and the brightest. The very same people who can claim a liberal share of the blame for the collapse of the world economy and its leading financial institutions. Because they're so brilliant, didn't you know?

Now we have this nebbish, this shmendrik, one Steve Hildebrand, presuming to lecture the nation about public policy, a topic concerning which, as his post reveals, he ought to just shut his stupid face.

Am I being unfair? I really don't think so. Unfortunately, the words of this simpleton are an echo of the campaign. (Hey it worked! I know, I know.) But now the play-acting is over. Being elected is one thing; being successful is another. The skill-sets are not the same. George Bush sure proved that. Great credentials are not enough. You have to be right. Who is right? Obviously that's hard to know, which is why the sensible leader collects some diversity of advice. There is no intellectual diversity in the Obama White House. The left brain of the party is missing. As smart as Obama is, he cannot personally supply the 'Team B' expertise he will need in economics, finance, and other matters not found in law school curricula.

Of course qualifications matter. But so does ideology. Ideology might be understood as the summary of a view of how the world works, a set of predispositions, rules of thumb, and yes, biases, all informed by intelligence, study, experience, and practice. The "Team of Rubins" has ideology too, and now we are living with its fruits. How is that working out for us? What does it take to discredit these blokes? If their policies resulted in hordes of flesh-eating zombies roaming the countryside, would that be enough? I fear not.

The joker missing from the deck of Obama's brilliant team is a single, solitary person with an eminent track record of scholarship reflecting a critical understanding of the shortcomings of markets. Joe Stiglitz is the most obvious example, but there are others no less qualified than Obama's choices. On the domestic front, the critical missions are combating recession, reconstructing the nation's financial institutions, devising new rules for financial markets, and recasting our health care system. Infrastructure, sure; but that's relatively easy.

If being president of all the people means synthesizing solutions to grave problems with ingredients of bat-sh#t insanity from the 46% of the great American public who thought Gabby Hayes would make a good president, we are in for a bumpy ride.

You have to be right. Creating our own reality is so 2003. You have to be right.

Bob Reich provdes an upbeat roundup on the Obama economic team, but it's missing the main character, the aforementioned Larry.

Prospective Treasury Secretary Tim Geithner was elevated from Treasury department obscurity by Summers. Top economist-apparachniks Jason Furman and Austan Goolsbee adhere to the mainstream school of economic thought of which Summers is king. It is impossible to think of them not deferring to him. The same goes for the brilliant Peter Orszag, on his way to the Office of Management and Budget.

As I've mentioned before, there is no ideological diversity in this team of rivals -- no industrial strength liberals. Don't we deserve at least one? Geithner's chief qualification is experience in managing the financial crisis, the success of which is by no means assured. He has no visible political orientation. He is not the one to initiate new thinking about economic policy. Furman, Goolsbee, and Orszag are moderates with economically correct views on free trade, deficit reduction, and monetary policy.

Governor Bill Richardson may become Secretary of Commerce, but a) he is an economic lightweight; and b) I can't remember a single thing any Secretary of Commerce has ever done. It's like one of those ambassadorships awarded to some bigfoot campaign donor.

So it's going to be all Larry, all the time, until his fabled people skills provoke denizens of the White House to gather before his office wielding torches and pitchforks. In the meantime, what can we expect? I'm actually of two minds. I would say something great or some awful.

There seems to be little doubt we will be treated to a crusade of job creation founded on government spending, which is all to the good. But what will be more crucial are the basic tenets of long-term economic policy, especially in financial regulation.

In this field, Larry's record is like Geithner's, only worse, since he was captain and TG was just first mate. Like his colleagues on "The Committee to Save the World," Bob "What meltdown?" Rubin and Alan Greenspan, he championed deregulation in international capital flows and finance. That hasn't worked out so well.

The glimmer of hope is that Larry is capable of thinking big about reform. The question is what sort of reform is in prospect. I have no idea, but these are desperate times.

As loyal partisans of Spartakusbund, we have nothing in principle against government ownership of industry, nor against government subsidies to for-profit companies. Today's quandary: are the Big-3 auto companies for-profit companies?

I'm no auto aficionado. I've owned three cars in the past 20 years, so feel free to correct what follows. I know you will.

Wages paid by foreign car corporations operating in the U.S., largely with non-unionized workforces, are said to be roughly comparable to American-owned firms. It should be understood that this is in part due to the competitive labor market pressure of union-supported wages and benefits in the other plants. Notwithstanding the above-average wages (compared to overall U.S. pay), the foreign companies are making cars that people are buying.

Another point to keep in mind is the bugaboo about the legacy of retiree health benefits. These benefits are burdensome but they do not affect the marginal cost of making new cars. Only insofar as the companies try to defray the legacy costs with new sales revenue, which of course they must do to get profitable, are the prices of new cars inflated. The legacy cost can be offloaded with a health insurance reform that provides insurance to all retired workers, auto included. The 1994 Hillary plan for all its deficiencies would have done that. U.S. manufacturing's competitiveness is hampered by other nations' more effective health care systems.

The bottom line is that U.S. workers and the plant and equipment with which they work can produce cars at a profit. The question is whether another 1980s-style bailout plus health care reform will be adequate. I don't know. Do you?

Alternatively, maybe we just need to gently usher the management and their lackeys into tumbrels and ride them away. The holders of equity and bonds get the maximum haircut. The Gov works out deals with foreign companies to buy up the plant and equipment, employ the workers, and negotiate with the unions.

The pending alternative, throwing a rope to a drowning man (and letting your end go) will quiet people down but may not look so great in a year or two. If the companies are doomed, that should be mercy-killed. Maybe not immediately, but before much money gets flushed.

As Rachel says, talk me down!

If President O wants to keep the base fired up, he needs to elevate some new people. The incoming crowd we've seen thus far is going to wilt enthusiasm faster than Harry Reems contemplating Ann Coulter.

On the meager plus side there is labor stalwart David Bonior and Clinton refugee Robert Reich. They are both good eggs, but they are heavily outnumbered. It is said that there is no bench to go to for appointees but the ghosts of Democratic administrations past. This is simply not true. To begin with, we could have seen some highly respected mainstream (mild) dissenters from neo-liberal orthodoxy like Joseph Stiglitz, Alan Blinder, Jeff Sachs, Brad DeLong and not-so-mild James K. Galbraith. I don't expect radicals. But we have a right to expect some strong liberals.

If we have to see a parade of corporate weasels, a couple of trade union presidents would have been nice. After all, there is not much point in avoiding corporate lobbyists like the plague if you just turn around and hop in bed with their bosses.

Obama was reputed to like the idea of a "team of rivals." Did he mean rivals in the sense of personal ambition? It's easy to put a group like that together. Or did he mean people ready to think anew, with philosophies reflecting the diversity of the people who vote Democrat? Otherwise, just what is the big fat change we are in for?

To start with, how about a few economists who weren't gigantically wrong about economic liberalization, deficit reduction, and free trade, as Summers, Rubin, Volcker, and Tyson were?

On the foreign policy side, the latest shoe to drop is the delegation of Mad Albright and Jim Leach. Apparently Warren Christopher was not up to the trip, and Cyrus Vance didn't feel like rising from the dead. Maddy along with President Poontang helped get us into Iraq, you ought to know by instituting a sanctions regime whose necessary victims included hundreds of thousands of children.

Should we be surprised that developments have begun to unfold as they have? Sure. Do we have to sit back and watch? No. Next time you get one of those emails, hit return and tell them the change you have been waiting for.

The ordinary meaning is when the Gov takes ownership of the "commanding heights" of industry. (Not my preference, by the way.) That's the definition children should be learning in the schools. Obviously that is not the Obama program. To the contrary, one of his missions will be to unwind the Bushists' embrace of the financial system, where just who is f**king whom is an abrasive topic of debate.

What is Obama's mandate? The Right is saying BHO is a dangerous socialist, and they are also saying he ran as a centrist. Told you they are dumb. But what about us? Rarely is the question asked, is our bloggers learning?

The Internet Left is still fulminating against the premise that the U.S. is a 'center-right' nation. That's because it lacks ambition, not to say perspective, since there remains oh so much room on the Obama Democrats' left. Anybody remember the Obama campaign triangulating against the extremism (sic) of single-payer health insurance? Harry and Louise II? They traded intellectual hygiene for political advantage. I know I know, it worked, water over the dam. So the Obama-crazy Internet Left is not all that left. And there's nothing wrong with that. But here we seek to foster enlightenment, truth, and soul.

In spite of it all we come not to bury Obama, but to praise him. A century ago, the Bolsheviks spoke contemptuously of "gas and water socialism," in reference to reformers who sought to bring Russia into the 20th Century. Well that is just what the doctor has ordered now, though instead of gas and water we are talking a modernized electrical grid, crazy free municipal broadband, high-speed rail, and sustainable energy production, among other things. Obama is positioned to begin delivering. He has committed to do so. People go for this stuff. But kids, it will cost money, not all of which can be gouged out of the defense budget and the health care system. We will see just how much is center and how much is left.

Concerning the new peace dividend, we have seen this movie before, in 1992. Eventually the Clinton Administration restrained defense spending, but it took a while. You want to downsize the Pentagon/defense workforce, while unemployment is rising? Much of the hardware inventory has been depleted and will be replaced. Getting out of Iraq will be expensive. There is still that Afghanistan thingy and whats-his-name skulking around in Waziristan. Obama has indicated support for missile defense. Hardware acquisition in the pipeline is established in contracts that cannot simply be abrogated. And there are well-paying manufacturing jobs behind those projects. In the past there was talk about conversion, easing the transition for workers and communities. Forget it. That stuff never came to anything. Adjustment is hard, so spending cuts are discouraged.

Concerning health care, spending will have to go up before it goes down. In other words, coverage has to be extended before there is much hope of reducing the rate of growth of health care spending. Obama is on this too, but do you get my drift?

So in general the next Administration is pointed in promising and important directions. Progressive outcomes should be hoped for. The public mind is consumed with center-right nostrums, such as we should all be getting tax cuts whoopee, but the force of events, necessity, agitation, and leadership can change that.

The paramount American social/economic problem is not the maldistribution of disposable income (though maldistribution is a fact). Our chief shortcomings are a diminished public sector and impoverished tax system. Getting past that is the change we need the most. When that poll question comes up 60 percent "Yeah!", we will be a center-left country.

P.S. Interesting bit about G&W socialism, in Birmingham, England, here.