On debt and pie holes

One of the headlines on the front page of the Washington Post yesterday turned out to be an irritating brain-worm.  I just glanced past it at the time, scanned the attached article by Edwin Cody.  And I don’t want to criticize Cody himself; the text of the piece did have some interesting data---nothing that could surprise anyone who is following Europe with any interest at all, but nothing very wrong either.  I know Cody didn’t write his own headline.  

But the headline was this: “In impatient Europe, some see more debt as answer”.  And that line has festered.  A little.  It has festered a little.  I woke up this morning thinking about it. 

I don’t want to get all caustic or anything.  I mean I don’t want to say something to the headline writer like: “if you don’t know the difference between deficit and debt, then shut your &^*% piehole about economic issues”.  Still, I would like to remind the headline writer that there is a difference between debt and deficits, and that there is no economist that I am aware of anywhere on the political spectrum who thinks that “more debt” is good, or that debt on its own will solve anything.  A few of the more ardent of the MMT community might follow Abba Lerner’s original formulation that government debt doesn’t hurt, that debt is harmless in an economy with fiat money where (they might claim) the government can always cover the interest on the debt and also achieve its policy goals with respect to employment and inflation.   And many on the left, and even increasingly through much of the right side of the political economic landscape, would say that the long run risk imposed by massive and continuing unemployment may be larger than the risk imposed by short run deficits, since long unemployment causes skills to atrophe and creates the habit and expectation of unemployment among the young.  But no one, no one, claims that a large government debt by itself actually helps.  

The people in Europe have no desire for more debt.  They don’t even have a desire for more deficits, although I believe that they would accept deficits if that’s the only way to stimulate the economy.  It’s not, at least not in Europe: there’s still scope for monetary expansion there, and certainly scope for a modest increase in inflation in Germany as an alternative to grinding deflation in Spain.  

What I think the headline writer meant to say was that in Europe many people are very sensibly tired of the stubborn advocates of austerity and recurring dips into recession.  I don’t think they care whether the stimulus is fiscal or monetary or exports to mars.  They just want someone to recognize that economic stimulus is necessary, and that it should come soon.  

Here are some graphs from this source.  

Unemployment since 2008 in the United States:

A big surge in 2008-2009, followed by a slow but steady decline.  It’s still just under 8%, and long term unemployment is dangerously high; the clear cause of initial unemployment and decline of output was lack of demand, not distribution of skills.  But the longer the unemployment rate stays high, the more this becomes structural, rather than cyclical.  It gradually becomes a permanent change in our ability to produce.

Now here’s the unemployment rate since 2008 in the Euro area:

A big surge in 2008-2009---and pretty much no decline.  In fact, the recent trend is dramatically up.

Now here’s the unemployment rate in Spain:

Notice the scale, on either side of the graph.  In the United States unemployment is just under 8%, and we’re pretty anxious about that.  In Europe in general, it’s over 12%.  In Spain it’s over 27%, and among the young its over 55%.

No one wants debt.  In the long run, debt may indeed be a burden.  It may, although there really is no evidence that it's decisive at anything close to the levels we see in Europe.  But the continuing austerian terror of debt is causing a certain burden, both short run and long.  For the economies of the GIPSIs (Greece, Italy, Portugal, Spain, Ireland) it’s creating a structural change that will last for decades.  For the young in those countries it is causing a catastrophe, a burden from which they will not recover within the span of their lives.
 

Eliminate the Corporate Income Tax

It’s been a few weeks since I posted here, for a variety of personal reasons.  It’s hard to get back into harness again after a pause.  I thought about writing about the potential long run economic benefits of crowding out private investment, but that’s complicated and I’m tired.  I thought about writing about the worldwide Excel Depression, but that’s been covered exhaustively by others, and I have nothing exceptional to say about it.  I thought about writing about the chained-CPI controversy, and I probably will soon in an effort to get my fellow progressives to mellow out about it a bit.  But I’m taking the easy way out: I’m transferring a discussion on corporate income taxes from email to here.
 

A few days ago my brother in law Craig sent the text of an opinion piece in the New York Times by James Livingston to me and my nephew Dan, wondering what we thought of it as economists.  Livingston’s point is that since corporations have now, by Supreme Court edict, been promoted from having some of the legal rights of human beings to having all of them, to being almost embedded in living flesh, then they should pay the personal income tax rates too.  He points out that the share of federal revenues paid by corporations has fallen from about a third in the nineteen-fifties to about 9 percent now, and so that seems like a good place to look for new revenues that we clearly need to reduce our deficits in the future.
 

But, economically speaking, I’m uncomfortable with all of this.  My response to Craig’s question (why shouldn’t corporate incomes be taxed like personal incomes, since the Supreme Court and Mitt Romney say they are people) was this: 
 

“Well, because corporations are not people.  They are legal fictions created by the states.  That's why I didn't support Citizens United, and that's why I don't think corporations should pay any income tax at all.  (That doesn't mean they should pay no taxes---they should be the collectors of Pigovian taxes for us, because there isn't any more efficient way to collect them.  And they should also be the recipients of Pigovian subsidies...)”
 

To which he responded that he thought Pigovians were characters in Angry Birds.  And he very reasonably questioned the ability of the state to calculate a correct level of Pigovian taxes.  

I was too brief in my response to him, so let me be a bit more complete.  Corporations should pay taxes that internalize the full cost of creating the products they sell.  Pigovian taxes account for externalities.  For example, a carbon tax helps increase incentives to find less carbon-intensive processes and products.  But corporations should also pay user fees or excise taxes for the public goods they directly use up as inputs to their business efforts (such as gas taxes to pay for maintenance of the roads they use to deliver goods to market).  And I’m sure that’s not a complete list of taxes they should pay.  But they shouldn’t pay income taxes because strictly speaking, as non-persons, they don’t have personal income.  Their revenues pay their workers or buy equipment or inputs, and their profits belong to their shareholders and creditors. 
 

My primary objection to corporate income or profits taxes in general is that they are just a pass-through.  Real people, not legally constructed fictional people, pay all taxes in the end.  It might feel as though raising revenues through taxes on corporate profits would reduce the need to tax personal income, but it doesn’t.  It just changes the way those taxes are collected. The corporation's customers, or workers, or owners will pay corporate taxes in higher prices, lower wages, or reduced dividends, or in some other way.   And by applying income taxes at the corporate level we are allowing the corporate managers to decide who will pay them.  Corporate managers are unlikely to distribute the tax burden in any very equitable way, or in any progressive way.  They’re more likely to try to shield their owners, and collect the tax from someone else.
 

I appreciated Craig’s point about the limits to information available to any central authority; in a perfect Hayekian world prices would supply all the communication required for local actors to act in globally optimal ways.  Consumers don't need to know the details of how the product is made, or what resources are used in producing it.  They (and only they) know how much they will benefit from purchasing a product.  If the product’s price reflects the cost to strangers in distant places of creating and transporting it, then the consumer’s choice about how much of the product to purchase at the market price achieves a cost/benefit optimization that no central authority could possibly have enough information to solve analytically.  And producers also know how much to produce; producers of rolled steel don’t have to know the details of every household’s personal consumption choices to know how much they can profitably produce at the price the market will pay.  
 

But the Pigovian criticism is that there are some situation, such as, for example, pollution leading to global warming, where prices don't fully provide that information, because producers are not required to pay for costs (or can’t capture benefits) external to their own direct transactions. Just because it's difficult for a central authority to gather information to estimate that external cost doesn't mean it shouldn't try, because the long run cost of ignoring global warming could be catastrophic.  And public fees or excise taxes can be used to make companies reflect the cost of providing public goods that truly are inputs to the creation and delivery of their products.  
 

So I don’t mean that corporations should not pay taxes.  They should pay taxes to make prices provide better information about the costs of productions, and those may be substantial.  These taxes should not be applied to raise revenue, exactly, although we can certainly use the revenue they produce.  They are applied to make sure that the price system functions well, and provides both consumers and producers with the real and complete information they need to make globally optimal private decisions about what and how much to consume, and what and how much to produce.

But corporate income taxes don’t improve local decisions; they just increase the cost of doing business, and reduce the incentive to produce, without providing either corporations or customers with any improvement in their ability to make good choices.  
 

I didn't make this idea up.  I've forgotten where I first ran across it long ago, but I found it convincing then, and I still do.  It’s a bit lonely, though.  I don’t see a lot of calls for the elimination of corporate income taxes in the econoblogosphere.  Even the conservative blogs seem to call for the reduction of corporate income taxes, not their elimination.   But until someone explains where the flaw is in the argument above, I still say, as a progressive: eliminate the corporate income tax.  We should demand that our elected representatives decide which real flesh-and-blood people should ultimately pay for the cost of providing government investments, services, and protections, rather than ceding that power to corporations animated by the profit motive.  And we should be wary of actions that reduce the incentive to produce, to create, and to hire without providing any corresponding good economic effect, particularly when the result may be a distribution of the tax burden that is likely to be less progressive, and will certainly be no smaller.
 

JoScar and Krugman and Sachs!

 

Joe Scarborough and economist Jeffrey Sachs wrote an opinion piece in yesterday’s Washington Post (here), in which Scarborough continued his month-long obsession with Paul Krugman that began when Krugman was a guest on Scarborough’s MSNBC show.  In the original discussion on Morning Joe, Scarborough talked about the great, accelerating and unsustainable rise in federal spending that he claimed has been rampant over the last few years: Scarborough is a conservative, and this idea that spending is out of control, that it is (as Scarborough said elsewhere) “exploding”, is an accepted view in his world.  But Krugman corrected him, telling him that while there was a substantial increase in spending early in the recession  (in 2008 and 2009), federal spending has been fairly flat since then, and total government spending (including state and local) has declined. 

In this dispute I’ll come down (with a reservation) on Krugman’s side, which will surprise no one, but I’ll add a caveat on Scarborough’s side, which may surprise my friends.   But I’ll put that question off for the moment.  Because what I want to write about here is an assertion right at the top of the Scarborough/Sachs opinion piece. Krugman wrote a response to the column here, and again here; Mark Thoma responded here.  So I’m late to this discussion.  I meant to say something right away, but work other responsibilities have delayed me.  But there is one point to make that I think has been underplayed in all the discussion.  It’s the reaction I had immediately when I read the very first line of the Scarborough/Sachs column, which says:

“Dick Cheney and Paul Krugman have declared from opposite sides of the ideological divide that deficits don’t matter, but they simply have it wrong.”

The emphasis is mine. 

Now, Dick Cheney did say that deficits don’t matter, but  Krugman most emphatically did not.  Just the opposite.  In fact, between the two of them, it’s Scarborough that claims that deficits don’t matter in any extended sense, that is, apart from their impact on the national debt. But Krugman, and many others, would say that deficits and surpluses do matter very much, and have significant economic impacts not only on debt in the long run but on general economic activity in the short run.  This is an important and misunderstood point.

A bit later in the piece, Scarborough and Sachs say this:

“It has become part of Keynesian lore in recent years that public debt is essentially free, that we needn’t worry about its buildup and that we should devote all of our attention to short-term concerns since, as John Maynard Keynes wrote, “in the long run, we are all dead.” But that crude interpretation of Keynesian economics is deeply misguided; Keynes himself disagreed with it.”

Yes, Keynes did disagree with it, and so does almost everyone else, including Krugman. Krugman has said in many places that he is concerned about debt in the longer run, and deficits do add to that long run burden.   In fact he explicitly said so in the link that Scarborough and Sachs provide.  He says:

“The key thing to remember is that current conditions — lots of excess capacity in the economy, and a liquidity trap in which short-term government debt carries a roughly zero interest rate — won’t always prevail…once we’re no longer in a liquidity trap, running large deficits without access to bond markets is a recipe for very high inflation, perhaps even hyperinflation. And no amount of talk about actual financial flows, about who buys what from whom, can make that point disappear: if you’re going to finance deficits by creating monetary base, someone has to be persuaded to hold the additional base.”

But the important point is that for Keynes, and Keynesians, that is not the only impact of deficits and not the only way that deficits matter, and that while deficits “matter” in the long run by adding to the debt, they also “matter” in the short run by adding to demand.  And while austerity may matter in the long run by decreasing the future debt, it also matters in the short run by decreasing demand, and as a result decreasing economic activity.  Debt as a share of GDP may even rise, since GDP declines under austerity.  Both the numerator and the denominator in that fraction are important.

Scarborough, though, seems to see the impact on debt as the only way that deficits matter. Scarborough is not alone in this; many (very good!) conservative economists claim that deficits crowd out other spending, and have little impact on overall demand even in the short run, and that therefore deficits have no positive short run impacts to counter their negative long run impact on debt.  But the alternative view, the one that is promoted by Krugman and others, is that in the short run deficits, in the absence of any counteracting force or policy, increase total demand, and so they stimulate the economy, while surpluses do the reverse. What Krugman has argued repeatedly is not that the long run debt issue doesn’t matter, but that the short run positive impact of deficits right now, while unemployment is still high and we are up against the lower bound on interest rates, matter more. 

Now, on the facts of spending over the last few years: contrary to almost universal belief among both conservatives and progressives, while federal spending did grow in 2008 and 2009 it has not “exploded” in the last few years.  In fact, it been fairly flat since the end of 2009.  Here’s the graph from FRED, showing the natural log of federal spending since 1959, which is as far back as this series goes:

The gradual upward slope is a result of many things, including population growth and inflation, but of course also because of increases in spending on entitlements due to an aging population and rising health care costs, and during the Reagan and Bush II years increased spending on defense.  The thing to look at here is the deviations from that long upward trend.   There was a significant rise in 2008 and 2009, the last year of the Bush administration and the first of the Obama administration. Then the line becomes as flat as it has been in decades.  In fact there since the beginning of this series in 1959 it has never been this flat for this long. 

It’s easier to see this if we look at the graph only in this century.  Here is that shortened graph, with the Bush years trend line added in red:

In this graph it’s clear that even though there was a large expansion of spending in 2008/2009, we are now below the trend of federal spending from the bush years.

But the other side---the Scarborough/Sachs side---of this picture shows up in the graph below, which shows federal spending as a share of potential GDP:

 

In this graph you can see that spending as a share of potential (full employment!) GDP did “explode” at the beginning of 2008, at the start of the biggest recession since the Great Depression.   In my opinion that was natural and appropriate.  But you can also see that the explosion is long over.  Spending/Potential GDP  has been dropping like a rock in the last few years.  You can attribute that to Obama or to the Republican House at your whim.

Spending as a share of potential GDP is still high, though. It is now, finally, below the peak, which occurred in 1985 under Ronald Reagan.   At the last measured point, at the end of 2012, it was still near the highest it has been since to the beginning of this series.  On the other hand, that last measurement was before the fiscal cliff, which both cut spending in increased revenues, and before the sequester cuts which cut spending even more.

So JoScar and Sachs have---or had, at the end of 2012---some data on their side. 

The direction is wrong for them, though.  We’ll see how that goes over the next few months.    

Sequester again

So.  We are now officially into sequestration, and I don’t see any immediate incentive for either side to get us out.  The thing was designed to contain at least one thing that each side disliked, to force them to the table to compromise, but the designer, probably Jack Lew, made a mistake: he also fenced off for each side the one thing they simply could not accept, the one thing they not only disliked but abhorred.  The Republicans are afraid that any new compromise will raise taxes, and the Democrats (at least the more progressive Democrats) are afraid that any new compromise would devastate support for the old, the sick, and the poor.  For each side sequester, sour as it is, is still sweeter than the compromise they fear.

In my last post on sequester I waited until the end to say this, and from a facebook conversation I know that there are people who didn’t read to the end.  Not surprising.  I do the same kind of thing whenever I try to read Charles Krauthammer; I can never get past the first paragraph of pompous sneer and misdirection before revulsion pushes me on to the next column.  For all I know Krauthammer may say brilliant and insightful things in the third and fourth paragraphs, but I never get that far.  So let me put this quote from the end of my last sequester post right up front here:

“For the average person in an average day, going to the job he or she still has and going home, cooking dinner and watching TV, caring for children, there will be no immediate cataclysm they can point to and blame on sequester.” 

Translation: I think it’s a serious mistake for Obama to overstate the short run cost of sequester, in part because most people won’t really feel any significant short run cost.

The consensus estimate is that it will reduce economic growth this year by one half of one percent.  So it will slow growth down, but on its own it probably won’t sink us into a new recession.  It will just mean that the long slow recovery will just be a little longer, and a little slower,  a little more grinding, and a little more fragile to external shocks.  With interest rates at the zero lower bound, I don’t think the Federal Reserve can do much to save us if external shocks---say, an economic crisis in Europe---do come along.  But if the world continues to limp along as it has been doing, there is no impending cataclysm.

The house Republicans have created a long series of crises, and we still have at least two ahead of us over the next few months.   But if they had to pick one of their crises to allow to ripen and bear fruit, this was the one to choose.  The others would either shut down the government completely (if they fail to pass a budget or a continuing resolution), or throw the Treasury into default (if they fail to pass a debt ceiling increase), so this is the one that will cause the least damage, and for most people the least pain.

But if it’s a mistake for Obama to overstate the costs, it’s also a mistake for others to understate them.  in that former sequester post I also said that:

“I expect the usual jokes about how the government shut down and no one noticed.  But those jokes are ignorant, and dangerous.”

And of course we are already hearing those jokes, and seeing them in political cartoons.  And we’re seeing columnists and others (such as George Will here, or today’s interesting op-ed piece by a former Republican hill staffer named Mike Lofgren here) claiming that the sequester is trivial, that the $85 billion total that will be cut from our $3.6 trillion budget is only 2.3%, so it’s nothing to worry about. 

Yes, the total budget is huge---we’re a huge country---and compared to that huge budget the sequester is small.  But the sequester cuts don’t come from the total budget.  They can’t.  We can’t at a whim just cut the interest payments on our national debt, for example, or our Medicare or Social Security payments, or military retirement, or military pay for active duty personnel, or a host of other non-discretionary spending.  The sequester spending cuts have to come out of a much smaller pie.  And as a result the great majority of federal civilian employees will face unpaid furloughs, generally of one day per week, starting in late April.  That’s not 2.3%.  That’s a 20% cut in income, and so for the whole of the federal government’s labor force the sequester, if it endures, creates a quick and significant hurt.   And for the rest of the country, those furlough days will create risk and stress, not for everyone, but in patches here and there.  Food inspection is one area that has had a lot of play in the news.  The result of fewer food inspectors will not be riskier meat, because risky meat cannot be sold.  The result will be less meat available, smaller supply and so, at least in theory, eventually somewhat higher prices.  Not catastrophe, but irritating to us omnivores.  And other scenarios will play out in many areas where public services will diminish.  Border security, embassy security, FAA, FEMA, wildlife fire management, child nutrition, student financial assistance, and on and on.  Refugee assistance.  Aging and disability services.   Air marshals.  $372 million from the FBI; $102 million from the DEA.  $45 million from the Small Business Administration disaster loan programs, and $24 million from the SBA business loans program.  On and on.  A few million here and there, as the total $85 billion gets parceled out to the lowest level.  You can download the whole list here; this is a PDF of the letter sent to John Boehner outlining the specific sequester cuts. 

Do all of these cuts spell disaster?  No, certainly not, at least not for those who are not directly effected by furloughs or sudden loss of services or support they need.  Not in the short run, anyway. Vegetarians won’t care if there is less meat.  People who don’t fly much won’t care if the FAA budget is decreased.  Those who do won’t even notice the absence of air marshals, unless there is a hijacking that could have been prevented; in an ordinary flight we don’t notice when they are on the plane, so why would we notice when they are not?  It’s all just a little more grit in the gears for most people.  Is it 2.3% more grit?  Is the pain greater than the cost savings?  I don’t know.  I would guess yes, probably a good deal more. 2.3% increased pain, or even twice that, isn’t Armageddon though.

But the half-percent growth slowdown that is the consensus forecast is just the short run, just this year or next year.  That’s just the loss of demand, and presumably, hopefully, we will recover from that eventually.  But the impact that concerns me most is long run, not short run.  The general Republican urge to make the government small and powerless, so small, as Grover Norquist is famous for saying, that they can “drown it in a bathtub”, means that we are all left with less power to cooperate in investing in long term research, in infrastructure improvements, and in general in providing public goods, or suppressing public bads.  And that can mean lower growth and create more meager prospects not just this year or next year, but forever.   

Republicans in the House are concerned about a few percentage points in the tax code; they would count it a great victory to reduce the top tax rate by, say, 10%.  But if the determined pursuit of reduced taxes also reduces public investment in infrastructure and research, the money they save in lower taxes in the short run would very quickly be overwhelmed by the loss of income growth in the longer run.

At least one real difference between my view and the view being expressed by a lot of the Grover Norquist branch of the Republican party who want to shrink government until they can drown it in a bathtub is that one.  I think there are public investments that matter, and that can increase growth, and that only government is likely to make those investments.  They don't think that, or at least they think that those government investments are displacing private investments that would provide an even bigger return to us.

If they're right, then what just happened hardly matters.  It's only 2.3%, after all.  

If I'm right, then it’s foolish to slash wildly away at government expenditures without considering what future costs are implied by current savings.  The long run costs could be much bigger than the small cost savings that are visible on the surface.

Woodward Blowback

 

There’s been quite a bit of blog chatter about the Woodward article I cited in my last post.  And the chatter has a point.  Ezra Klein was very polite---Woodward is one of Klein’s colleagues at the Post, after all, and a senior colleague with a historic resume.  Yes, it’s the same Woodward who, with his partner Bernstein, broke the Nixon Watergate story four decades ago.   But Klein respectfully disputed Woodward’s last paragraph, in which he claimed that Obama was “moving the goalposts” by requesting revenue increases in any new budget deal to replace sequester.  Since I cited the Woodward article, I think I should also cite Klein’s response, and support its premise: Obama is not moving any goal posts or changing any part of the dialogue when he asks for new revenue.  It’s what he asked for in 2011 when the sequester was passed, what he asked for before the 2011 debt ceiling debate ever arose, what he asked for during negotiations, and what he has asked for ever since.  A combinations---a “balance”, in his words---of new revenue and expenditure cuts has been his constant theme, and the Republicans’ constant theme has been resistance to any new revenue at all, and those two goal posts have bounded the playing field from the start.  So far no one has moved them.

Klein was far too nice.  Klein’s words:

“I don’t agree with my colleague Bob Woodward, who says the Obama administration is ‘moving the goalposts’ when they insist on a sequester replacement that includes revenues. I remember talking to both members of the Obama administration and the Republican leadership in 2011, and everyone was perfectly clear that Democrats were going to pursue tax increases in any sequester replacement, and Republicans were going to oppose tax increases in any sequester replacement…

Think back to July 2011. The problem was simple. Republicans wouldn’t agree to raise the debt ceiling without trillions of dollars in deficit reduction. Democrats wouldn’t agree to trillions of dollars in deficit reduction if it didn’t include significant tax increases. Republicans wouldn’t agree to significant tax increases. The political system was at an impasse, and in a few short days, that impasse would create a global financial crisis.

The sequester was a punt. The point was to give both sides a face-saving way to raise the debt ceiling even though the tax issue was stopping them from agreeing to a deficit deal.”

Klein “doesn’t agree”, emphasis is mine.  

No.  It’s not possible for anyone with a working memory to agree with that paragraph.  It’s completely, absurdly, insanely wrong.  And other writers have not been nearly so restrained.  This is from Timothy Noah in The New Republic, on whether this bad idea was Obama’s:

“That’s true in roughly the same sense that it was Charles Lindbergh’s bad idea eight decades ago to fork over the equivalent in today’s dollars of $840,000 to a German-born carpenter named Bruno Hauptmann. Faulting Obama for inventing the sequester is like faulting Lindbergh for inflating the local price paid for carpentry work in Hopewell, N.J….

Lindbergh drove a harder bargain than Obama did. Hauptmann demanded a current-dollar equivalent of $1.2 million, but he got only $840,000. The House Republicans got $2 trillion in spending cuts, which is what House majority leader Eric Cantor had repeatedly said he wanted, and they avoided the tax increase they didn’t want... Except for having to accept defense cuts in lieu of entitlement cuts, the Republicans got all the ransom they demanded.

On the other hand, Lindbergh’s partial payment to Hauptmann failed, tragically, to save his young son’s life. Obama’s full payment to the Republicans did avert a default on U.S. Treasuries and the onset of a global depression.”

But the real problem is not just that the claim is cross-eyed, through-the-looking-glass wrong, it’s that Woodward has to know that.  No one could have lived through the debt ceiling stress in this town without understanding that the whole sequester concept was a way to avert the immediate crisis created by the Republican House majority without waiting for a final agreement on terms: that was explicit, in fact.  The same deal created a Congressional Supercommittee (remember that?) whose whole job was to find a bargain between the President’s stand that revenues had to be raised and the Republicans insistence that tax rates should decline.  The Supercommittee, of course, failed.   But there was never anything secret about the intent.  Obama made it clear at the time, and Congressional Republicans made it clear that they understood.  Not only that, Obama ran on raising taxes for people with incomes over $250,000 in 2008, and ran on it again in 2012, and both times he won the election.   

Why would Woodward have offered this strange, false history?  Klein, diplomatically, just says he disagrees.  The rest of the blogosphere, those who bothered to write about it, took a sterner stance, and one that I think is closer to the truth: either Woodward has contracted some kind of early dementia, or he is flat out fabricating this idea, knowing it is not true but saying it anyway.  I don’t believe that he has lost his mind.  So I have to go with the alternative view: he has, apparently, joined forces with the Fox News alternative-reality construction team.  

Could anything be sadder than this?