A little late to this party, but a couple of people asked me to comment on the Jon Kyl/Mitch McConnell tax-cut business. As Dan mentioned on The Corner, Senator Kyl does seem to be engaging in nefarious starve-the-beastism, while Senator McConnell seems to be endorsing naïve supply-siderism.
Kyl is particularly bothersome here:
“Who does the money belong to?” Kyl asked rhetorically. “The money belongs to the taxpayer, to the people. The money does not belong to the government, and yet that’s what this kind of a rigid paygo rule would assume: that the money belongs to the government, and therefore if you’re going to deny the government some of that revenue through a tax cut, you have to make the government whole, because the government can never lose any money. That would mean that you could never reduce the size of government. Each year, when it gets bigger, it stays at that level or it gets bigger yet, but you can never reduce it.”
You know what? Kyl is right: The money does belong to the taxpayer. You know what else? The money Jon Kyl and his colleagues are spending belongs to the taxpayer, too. Jon Kyl’s been known to pork up a highway bill in 2008 — even as he voted against one of the worst of them in 2005. (And Kyl’s one of the good ones.) If you spend the taxpayer’s money, you have to tax the taxpayer, at some point. You cannot magic that money into existence. As I’ve been arguing — ad nauseam, forgive me — taxes are a secondary issue. The primary issue is spending. As ye spend, so shall ye tax. The rate of spending is the rate of taxation; debt and deficits only push the date of tax collection into the future. You can collect the taxes today or you can collect the taxes tomorrow — but what you spend, you will have to collect.
At least, somebody will. And that’s the real problem here. So long as appropriators enjoy carte blanche to spend today while deferring taxes until they’re out of office (or even until they have shuffled off this mortal coil), then they will have bad incentives, and they will act in accord with those bad incentives. That’s a pretty intuitive proposition, but there’s good empirical evidence for it, too: for instance, the performance of the United States Congress for the past 60 years or so.
Now, Republicans might as easily turn the question around and ask: How is an unfunded tax cut today different from an unfunded stimulus-spending bill today? Both increase the deficit, both perform a wealth transfer from the future to the present under the theory that doing so will increase growth and spur the economy. Both are irresponsible. Both are rooted in magical thinking: Naïve supply-siders believe tax cuts pay for themselves, naïve Keynesians believe spending pays for itself through the magic of the multiplier effect.
Tax cuts without spending cuts, spending increases without tax increases: These are not merely irresponsible, they are impossible — unless you think that nobody is going to pay the debt. You might make a reasonable case that tax cuts without spending cuts are, in some cases, preferable to deficit stimulus spending, especially since the stimulus spending has been channeled to a lot of dumb and wasteful projects. But, broadly speaking, the two things are equivalent. The Democrats prefer unfunded spending, the Republicans unfunded tax cuts. And almost nobody is serious about reducing spending, because spending is where power dwells in Washington.
Not to go all 1776 on you, but: You want to talk about taxation without representation? That’s exactly what we’re engaging in: taxing the future to meet present wants, without ever having the common courtesy to ask the future whether it wants to accept a social contract that is radically different from the one we inherited. Picture a bunch of angry babies with muskets and tri-corner hats: You think the tea-party protesters are overflowing with high dudgeon, just wait until you see the poor people who actually get the bill. They don’t get a vote, which is why we have to look after the interests of the future today. And looking after the interests of the future in the present is one possible working definition of conservatism, is it not?
I like Gov. Rick Perry’s theory of economics: Don’t spend all the money.
I like the sentiment expressed here. However, Mr. Williamson has no practical suggestion on how to cut spending. Everyone agrees that the federal government spends too much money in the abstract. It is cutting actual government spending where you run into opposition.
The GOP tried to cut federal spending in the 1995-1996 budget stand-off with President Clinton and they nearly lost their Congressional majorities. I think the American people continue to have no appetite for spending cuts because the consequences of huge indebtedness have not manifested themselves yet.
We will have to experience a default and hyper-inflation before the political will for balancing the budget will come into existence. Unfortunately, that is such an unstable moment (and the left largely controls the means of mass communication), we are likely to see large tax increases as part of the mix. Those tax increases could easily tip our economy into depression like the federal tax increase of 1932.
The only practical way of managing this horrible situation is for the GOP to do its best to restrain the growth of government, and keep taxes as low as possible so that the economy will hopefully grow faster than the government. Any other approach is likely to be politically unsustainable or could lead to national catastrophe.
Reply to this commentLinkReport AbuseCDSCOTT: Concentrating on taxes instead of spending already has led to a national catastrophe, and the GOP shares the blame.
Here's how you start balancing the budget: Means-test Social Security and Medicare into practical non-existence (appending an opt out), eliminate Medicaid, eliminate farm subsidies and other corporate welfare, close a few Cabinet departments (Energy, Education, HHS), and clear-cut some of the smaller agencies (NEA, SBA, OPIC, Ex-Im), and then, having established a lower baseline: Start cutting 2-7 percent a year across the board, including military.
Tax all kinds of income (personal, business, cap gains, inheritance, dividends) at a single rate, raised or lowered as necessary to accommodate actual spending.
That's my idea, anyway.
Reply to this commentLinkReport AbuseKevin,
I never wanted to be forced to pay into social security system....previous generations decided that for my generation, and we are unlikely to ever get that money back. Why does my generation have to take responsiblity for everything? THe reality is, we can't, and so we will "kick the can down the road", if kicking the can means we pay less taxes now and future generations have to pay more. I'm not going to eat grass to pay high taxes to help pay off the debt...that's not in my self interest.
I don't think it's naive to say that lower taxes do spur economic growth.
I think you should rename your blog "Deficits Suck" so your average fool like me knows what it's about. :)
Reply to this commentLinkReport AbuseConor F,
I know you are out there....my last post calls for an obligatory Open Letter to National Review, yes? Keep them honest. We don't want nice little old ladies thinking tax cuts are awesome. :)
Reply to this commentLinkReport AbuseMatt X: Our generation has to take responsibility for the same reason that other generations have had to take responsibility for the crises of their times. Look what happens when one generation -- in this case, the Baby Boomers -- drops the ball. This is really their mess, but good luck getting them to take care of it.
Reply to this commentLinkReport AbuseKevin,
My comment was kind of bouncing off a Walter Williams theme in a lot of his columns. I dug one of them up:
Walter Williams
Yours or mine?
DURING A MANY-YEARS-AGO HEATED EXCHANGE, a congressman told me that each American owned public property. As an example, he insisted that I was part-owner of the Washington Monument. I insisted it was none of mine.
We insisted back and forth until he asked me for the why of my position. My answer was a question, "Can I sell my part?" My test of whether I own something is whether I can sell it. Indeed, the working definition of private property is the rights held by the owner to keep, acquire and dispose of property.
Private property serves a vital social function often ignored or trivialized. You don't have to be a keen observer to notice that privately owned property tends to receive better care than communally owned property. I've often said that I don't care that much about future generations. After all, what has a kid who's going to be born in 2050 done for me? If he hasn't done anything for me, how then am I obliged to do anything for him? Where's the quid pro quo?
My actual conduct belies that sentiment. I own a nice home that is well cared for. Trees have been planted, rooms added, and many other improvements have been made that will outlast me and be available for that kid born in 2050. Part of the reason I made sacrifices in current consumption to improve my house is that the longer it provides housing services, the more I get when the house is sold.
Would there be the same set of caring and improvement incentives if the government owned my house, or if there were a 75 percent transfer tax when I sell? Obviously, anything that reduces my property rights in the house weakens my incentives to do the socially responsible thing: use carefully and conserve scarce resources. If the house is cared for, the market rewards me with a high selling price. If it's not, the market punishes me with a low selling price. Private property rights, coupled with a free market, forces me to behave as if I actually did care about that 2050 kid.
That's one of the blessings of the free market: People serve their fellow man without coercion or caring. For example, I think it's a wonderful thing that Texas cattle ranchers and Idaho potato farmers take the time and effort to ensure that New Yorkers have beef and potatoes. Do you think they do it because they care about New Yorkers? They may hate New Yorkers, but they make sure there's beef and potatoes on New York supermarket shelves.
The why is easy. They want more for themselves. In a free market, the best way to have more for yourself is to serve others. How much beef and potatoes do you think New Yorkers would have if it all depended on love and caring? I'd fear for New Yorkers.
Think about the millions of goods and services that others produce for us, whether it's cars, clothing, food, entertainment or shelter, and think about their motives. You'll conclude that most good things get done as a result of self-interest, profit motive, private property rights and exchange opportunities. Think about the things that we are dissatisfied with, such as public schools, post office, police services and vehicle registration. There's an absence of profit motive and private property rights.
The free market and private property rights do not produce a Utopia; we'll have to wait for Heaven for that. But here on Earth, private property rights and free markets beat any other social arrangement in serving mankind's needs.
Reply to this commentLinkReport Abuseex·cheq·uer /ˈɛkstʃɛkər, ɪksˈtʃɛkər/ Show Spelled[eks-chek-er, iks-chek-er] Show IPA
–noun
1. a treasury, as of a state or nation.
3. Informal . one's financial resources; funds: I'd love to go, but the exchequer is a bit low.
I'm going to try to weasel out of something using the line "I'd love to go, but the exchequer is a bit low". Teh heh. :)
Reply to this commentLinkReport AbuseI don't disagree that we need to cut spending and taxes. Means testing SS is a problem since it changes the dynamics of the program. If we means test it as the basis for eventually eliminating it, I'm with you. If not - its just another tax increase.
Medicare should be completely moved to a voucher subsidy system - with the vouchers fixed so as to eliminate the exposure to the medical cost increases. Then allow private interests to offer a variety of options, at different costs with different benefit designs - the govt just verifies their capital position. Then people can take their subsidy and add how much of their own money they choose. I would means test this one - for subsidy level. The reason why I differ on this one than SS is because most expense in health care comes in the last 18 months of life. Just being able to get health care in retirement is a public good. Until we get a fully functioning private health care market (and 45 years of govt meddling has it really screwed up) we need some help there.
If you got rid of the departments you noted - you could raise military spending which will be required until we can defeat radical Islam - we have already been cutting the military since the end of the cold war - it was the basis for Clinton's decent budget experience - he cut the military and nothing else.
Then, every public employee will take 2 1/2 percent pay cuts for 4 straight years except for military personnel and all pension programs will be frozen and capped with only defined contribution plans into the future. This is a common situation in the private world. Congressional offices will be required to reduce the number of staff to a chief and two LDs plus 2 admin - no more. No more franking either. Websites can keep people in the know.
You do that - great position financially.
Reply to this commentLinkReport AbuseAs a boomer, I agree that the boomers must take responsibility. We must balance the budget and pay down the debt.
To avoid this task is, well, irresponsible.
While I'd like to see it all happen through spending cuts and I personally believe that will result in a healthier society, tax increases probably have to be part of the political mix.
With a little good will towards all, including the left, we can do this.
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