Tag: Starve the beast

A Tale of Two Taxes

I just tweeted this thought but wanted to elaborate here. I’ve noticed a dichotomy in how the Left talks about tax cuts.

With the Bush tax cuts, allowing them to end is simply “ending tax cuts for the wealthy”. It’s portrayed as the government ceasing to give something away. However, with the Obama payroll tax cut, allowing it to expire constitutes “raising taxes on the middle class” — i.e., taking something away. The policy is identical — a temporary tax cut is allowed to end. However, the rhetoric changes dramatically. Raising taxes on the wealthy is taking back what’s ours; raising them on the middle class is stealing what’s theirs.

This is a big reason why I think the payroll tax cut should simply be allowed to expire. Otherwise, we will hear this shit every damned year until the taxes are permanently fixed below sustainability. The more people get used to payroll taxes that are too low to support Medicare and Social Security, the harder it will be to put them back at the level they need to be.

Moreover, keeping the payroll tax low will hamstring efforts to cut entitlement spending. I have long argued that the “starve the beast” tactic exploded in our faces. The idea of Starve the Beast was that Congress should cut taxes first. Spending cuts would then magically appear because Congress wouldn’t allow the debt to explode. What we discovered, instead, was that Congress would allow the debt to explode, no problem. And spending cuts don’t just happen. They have to be implemented by … Congress. Starve the Beast was Congress trying to punt the ball to itself.

But the more insidious effect of Starve the Beast is that it has sapped the public’s will to cut spending. Because we are only paying $0.60 or every dollar of government (and most of us are paying far less than that), government seems like a good deal. Huge oceans of spending cause us no pain whatsoever because taxes are never raised to cover them.

If we keep the cut in payroll taxes, the public will feel less pressure to cut the entitlements those taxes supposedly pay for. End them.

The Big Graph

The NYT ran this graph yesterday, showing the cause of the debt we have and our piling up this century.

A number of thoughts:

First, several policies are placed entirely in the Bush column that should really be shared. Barack Obama owns the wars and the tax cuts now, having continued both. Obama supported TARP and has only expanded Medicare D.

I do think it’s a good illustration of which policies are driving the debt. I’ve been encountering way too many people who think the debt is being driven by stimulus spending or Obamacare. But these are dwarfed by the war and the tax cuts (so far). Still … it’s been 2.5 years. Obama has not stopped any of the policies driving the debt. Blaming Bush can only go so far.

I would also point out that the graph represent eight years of actual spending from Bush against eight years of assumed spending from Obama. But even now, there is huge resistance to cutting spending down to pre-stimulus levels, as all the budget projections assume will happen. Obamacare is supposed to cut spending; but most people are extremely skeptical. And there is no accounting in that tally for unexpected spending, such as from a major natural disaster.

We’ll see how it works out in reality. Bu remember — almost all projected budgets are optimistic.

Second, the biggest contributor to the debt they list is the Bush tax cuts, which currently have the fed a 15% of GDP, eight points below its spending and three points below Cut, Cap and Balance. Ed Morrissey tries very hard to argue that the tax cuts have actually increased revenues. To my mind, it doesn’t work. The tax cuts corresponded to the biggest drop in revenue since the end of World War II. After a brief “recovery”, driven mostly by the housing bubble, we fell back down to revenue levels close to what we were getting 15 years ago. I’m all in favor of keeping taxes low, but the Laffer Curve is not a line. And “starve the beast” never works. On the contrary, it makes the public more receptive to new spending because they are getting it at a discount.

Third, the NYT leaves off the biggest contributor to the debt, which is the economy. I’ll let you argue amongst yourselves who is to blame for that. I think there may be about two people in Washington who bear no responsibility.

Finally, I’m not sure what the point of this is. As I said on Twitter:

Once again, it’s not all Obama’s fault. And once again, the problem is the problem, however we got there.

What matters now is how we move forward. If we need higher taxes to pay for our commitments, we need higher taxes. We do not need higher taxes just because Bush cut them. If we need to cut spending, defense and entitlements are the place to start immaterial of who spent what on whom and why.

Democrats and Republicans don’t get their own separate economies. We’re all in his foxhole together. If Bush fucked things up beyond all recognition, Obama chose to become Presidet under those circumstances and has chosen to do nothing to right the ship so far. He hasn’t knocked as many holes in the hull, yes. But then again, he hasn’t had as much time to. If the Democrats had won in 2010, we might — God help us — be talking about Stimulus IV: the Search for More Debt. And that graph would be even more irrelevant.

How we got here is interesting in an academic and political sense. But right now, I’m interested in how we get out.