Google+

Tags: Taxes

Let’s Give Wall Street a 70 Percent Pay Raise



Text  



It is time for the myth of Warren Buffett’s secretary to die a quick death. If it is true that Mr. Buffett pays a lower effective tax rate than does his $60,000-a-year secretary — and I am not sure that it is — that is anomalous. The average effective tax rate for people making more than $10 million a year is nearly 21 percent; the average effective tax rate for people making $60,000 a year is 8.4 percent. If anything, the people who should be complaining about Buffett’s tax rate are those lowly $1 million–$10 million guys, who do pay a higher rate on average: 24.5 percent.

Warren Buffett is of course a poor example. He is the second-wealthiest man in the country, the third-wealthiest man in the world. There is a very large difference between his gross income and his taxable income, largely as a result of the fact that he gives away so much money. As Arthur Laffer points out in the upcoming issue of National Review, we could remedy that by taxing gifts from billionaires at 50 percent. But then we’d simply be transferring money from philanthropic purposes to government purposes. I’m not sure I agree with everything the Gates Foundation does, but I suspect that its money is put to better use than it would be if it were channeled into the Department of Education or Medicaid.

Here are the average effective tax rates by quintile:

Does that look like the rich are paying lower rates than the middle class? No, it doesn’t, and they’re paying those higher rates on much higher incomes, making their total tax burden very large.

Some people are scandalized, or pretend to be scandalized, by the fact that private equity investors, fund managers, and other financial types pay a tax rate of 15 percent — the capital-gains tax — instead of the much higher personal-income tax rate. But it is not as though billionaires get some special break on investment income: Everybody pays the same 15 percent rate on long-term capital gains: you, me, the teacher with a bunch of good stocks in her retirement account, everybody. If you want to argue that we should tax investment income at the same rate as salaries, fine, you can make that case. But you can’t make the case, in any honest way, that we ought to tax investment income one way for a politically favored class of people and another way for a politically disfavored class of people.

So what would happen if we taxed, say, carried-interest income at the personal-income rate? What you would very likely see is even higher salaries for finance professionals. Why? Because they can count money, and their after-tax income is more relevant to them than their pre-tax income.

Let’s say I’m Joe Wall Street, and I’m a man of simple tastes. I can get by on $850,000 a year. I get my income in the form of carried interest, so I pay the 15 percent capital-gains rate. That means I need $1 million a year to get my $850,000. What happens if you tax my income like it is a salary instead of a capital gain? If I work on Wall Street and live in New York City, then my take-home pay goes down to about $520,000, as Intuit figures it. But even though I am a man of simple tastes, I can’t live on $520,000. I’m not moving to Long Island and drinking wine out of a box. I want my $850,000 — and, since I have skills that are in high demand, I can command that price in the marketplace. If you’re taxing my income like it is salary, then Evil Fund X has to pay me about $1.7 million a year to produce that $850,000 in income. So my notional salary is up 70 percent to get me back where I was.

And you know what? If you’re going to treat that income like salary, I am probably going to want it paid to me as salary. Whereas before I had a personal stake in the performance of my company, now I’m just a paycheck-collector — fund’s up, fund’s down, I get my $1.7 million before taxes. All you have accomplished is to encourage me to demand a 70 percent raise, diminish my incentives, and transfer $700,000 from the private economy — where investments create profit, jobs, etc. — to the government, which will use it for whatever whimsical purposes it dreams up this year. You can get a lot of monkeys high on cocaine for that extra $700k: ten times the coked-up stimulus monkeys. Congratulations.

The middle class is not suffering because there are rich people working in finance. The middle class (and, lest we forget them, the poor) is suffering because there has been long-term stagnation in their real household incomes, in some cases a decline. Higher taxes on financiers will not bring higher salaries to Joe in accounts receivable or Bob in H.R. or Sam on unemployment. To maintain otherwise is flat-Earth thinking.  

 

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, published by Regnery. You can buy an autographed copy through National Review Online here.

Tags: Taxes

Obama Supports the Flat Tax! Well, Technically.



Text  



President Obama, yesterday:

Now, the Republicans, when I talked about this earlier in the week, they said, well, this is class warfare. You know what, if asking a billionaire to pay their fair share of taxes, to pay the same tax rate as a plumber or a teacher is class warfare, then you know what, I’m a warrior for the middle class. (Applause.) I’m happy to fight for the middle class.

“Pay the same rate” — so now Obama supports a flat tax?

Take a look at the tax brackets. Plumbers or teachers who make between $34,901 and $84,500 pay a top federal tax rate of $4,750 plus 25 percent of the amount over $34,500.

Billionaires pay a top income tax rate of $110,016.50 plus 35 percent on all income they make above $379,150.

[These numbers are for single filers; the numbers are slightly different but roughly proportional for married filing jointly.]

In the world view of Obama, Elizabeth Warren, and their ilk, the current top tax rate of 35 percent represents absolute unfairness and is the root of all of our debt and economic problems. But the Clinton-era tax rate of 39.6 percent represents absolute fairness.

Who knew the distance between today’s injustice and economic nirvana was 4.6 percent?

Tags: Barack Obama , Elizabeth Warren , Taxes

CNN: The Economy ‘Isn’t So Bad’, It’s Just ‘Stagnant.’



Text  



I’ll bet every president wished they received as much benefit of the doubt as you see in this CNN headline:

American Sauce: Maybe the economy’s not so bad?

Yes, unemployment is again on the rise and the June jobs report had all the strength of an ICU patient. Yes, economic stress is literally making people sick. But are things as grim as they feel?

Maybe not.

Among the criteria of good signs:

State and local taxes are going up, indicating income and spending are up. Overall, the Census Bureau says states and local government saw tax revenue jump 4.7 percent in the first three months of this year.

Even more of an exclamation point: Individual income tax revenue sprung up 11.9 percent over the year before.

And no, this is not attributed to states increasing tax rates. Texas and South Carolina, just to name two no-new-taxes states, saw tax revenue go up around 7 percent.

Of course tax revenues should be higher in many states and localities; in many places, taxes are higher. As I wrote earlier this year:

The first year of Obama’s presidency, 29 states enacted tax and fee increases worth roughly $24 billion, the largest single-year increase ever. Of course, these taxes went into effect as unemployment skyrocketed and incomes remained flat. Then, in 2010, as the economy continued to struggle, states enacted another $6.2 billion in tax increases and an additional $2.9 billion in separate “revenue measures”, according to the National Association of State Budget Officers. While it’s only a fraction of the 2009 hikes, it remains the fourth-largest in the past 19 years.

Nine states increased sales taxes; eight states increased income taxes, seven states increased corporate income taxes, seven states increased tobacco taxes, five states increased gas taxes, and ten states increased other taxes. It’s enough to drive you to drink; by some miracle, no state increased taxes on alcohol in 2010. (New York, North Carolina, Tennessee, and Vermont increased them in 2009.)

As for surprise that tax revenue is up in low-tax, low-regulation states like Texas, as Rich wrote last year:

More than half of the net new jobs in the U.S. during the past 12 months were created in the Lone Star State.

According to the Bureau of Labor Statistics, 214,000 net new jobs were created in the United States from August 2009 to August 2010. Texas created 119,000 jobs during the same period. If every state in the country had performed as well, we’d have created about 1.5 million jobs nationally during the past year, and maybe “stimulus” wouldn’t be such a dirty word.

Later in the CNN piece, we read: “Still, after GDP plunged at the end of 2008 and into the start of 2009, the economy seems to have stabilized and is not tanking. Unfortunately, it is stable and stagnant. See this as a question of perspective; the glass may now be at least a quarter full.”

It takes a unique perspective to characterize “stable and stagnant” as “not so bad.”

Tags: Barack Obama , CNN , Economy , Taxes

How Much Credibility Does the GOP Have on Taxes?



Text  



How you know the White House is not taking the bipartisan deficit-reduction talks seriously: Joe Biden is in charge. I’ve made that observation before, and people think it’s a quip, but I mean it. The vice president is a fundamentally unserious figure, especially on fiscal issues. Barack Obama is a lot of things, many of them regrettable, but he is not a buffoon. This is a crisis that requires direct presidential leadership and top-level congressional leadership. It requires Barack Obama, John Boehner, and Harry Reid locked in a room. A small, uncomfortable room would be best. No pizza.

The Biden effort is disintegrating. Eric Cantor walked on the talks today. He says he wants the president to step in and “resolve” the question of tax increases. There are two ways to read that word “resolve”: One is: Obama should step in and hand the Republicans a victory by taking tax increases off the table. The other is: Obama should step in and hand Democrats a defeat by volunteering to take all the flak from the tax increases that almost certainly are going to be part of any bipartisan deficit deal.

Here’s Cantor:

“Each each side came into these talks with certain orders, and as it stands the Democrats continue to insist that any deal must include tax increases,” Cantor said in a statement. “There is not support in the House for a tax increase, and I don’t believe now is the time to raise taxes in light of our current economic situation. Regardless of the progress that has been made, the tax issue must be resolved before discussions can continue.”

“Given this impasse, I will not be participating in today’s meeting, and I believe it is time for the president to speak clearly and resolve the tax issue. Once resolved, we have a blueprint to move forward to trillions of spending cuts and binding mechanisms to change the way things are done around here.”

And that is the heart of the thing: If Cantor & Co. can in fact achieve “trillions” in cuts — tens of trillions, really — then they have a credible case for taking tax increases off the table.

So, how’s that looking?

The most ambitious deficit-reduction plan so far has been the Ryan Roadmap, which the House passed and then sent to its death in the Senate. I like the Roadmap, and I would be surprised to see a significantly more aggressive plan gain any traction in Congress. But even under the Roadmap, spending as a share of GDP would continue to rise through 2037 and would stay above 19 percent of GDP until 2063. Publicly held debt would hit 100 percent of GDP in 2043, which could very well prove catastrophic. (Tables here.) But while spending continues to grow as a share of GDP under the Roadmap, tax revenue is projected never to exceed 19 percent of GDP. That is by design, as Mr. Ryan’s team has made clear:

Eventually, as economic activity picks up, revenues in the Roadmap plan rise back up above 18 percent of GDP, finally reaching the intended maximum amount of 19 percent of GDP in 2029.

Intended maximum. Which is to say, the most aggressive deficit-reduction plan yet produced by Republicans by design holds tax revenues below projected spending. For decades to come, the deficit-reduction plan is a plan for deficits. The turnaround year of 2037 is a long way’s away. That means that even if the Roadmap were enacted, further deficit-reduction measures would be needed, and needed sorely.

So, the question for Eric Cantor is: What evidence do you have that you can get something even more aggressive than the Roadmap through Congress and past Barack Obama? My guess is that his case sounds a lot like one hand clapping. And if my guess is correct, then the Republicans’ anti-tax stance is just that: a stance, another word for which is a posture.

So, fine, posture, do your political calculating, whatever. Meanwhile, children being born today will be cursing our names for the burdens we have left them.

Political posturing is a question for Eric Cantor and Barack Obama. The question for the rest of us is: Where lies the consensus? I don’t mean that in a touchy-feely sense. I mean: What balance of taxation and spending are we prepared to accept? (And “we” describes an electorate that elected Barack Obama after twice electing George W. Bush, that has made both Newt Gingrich and Nancy Pelosi speaker of the House. That “we.” That inexplicable, maddening “we.”)

Federal spending in 2012 is expected to hit 23.6 percent of GDP, but tax revenue is only going to hit 16.6 percent. That’s bad. (Real bad.) But these are poison years. Let’s revisit happier days: From 1980–2000, federal outlays averaged 21.3 percent of GDP, taxes averaged 18.5 percent, deficits 2.8 percent. So, if there’s a post-recession return to historical norms, one or both of those factors still has to move by total of 2.8 percent of GDP to balance the budget. That would mean cutting about $400 billion from the 2012 budget or adding $400 billion in taxes, or a bit of both. (Assuming we get back to historical norms is a big assumption.)

Is there a consensus for cutting spending to 18.5 percent, the level we might expect taxes to hit? That’s a big drop from the forecast level of 2012 spending, about a 22 percent cut. The last time federal spending was only 18.5 percent of GDP was . . . 1999, not exactly the Dark Ages or a time of notable national austerity. So, it’s not impossible to imagine a consensus for 18.5 percent spending. On the flipside: Is there a consensus for taxation at 21 percent? That’s pretty high — higher than it has ever been, in fact, even during World War II, when taxes topped out at 20.9 percent of GDP in 1944. The last time it’s been close — 20.6 percent — was in . . . 2000, not exactly the Dark Ages or a time of notable national austerity. Those variations show that, Democratic protestations aside, currently high spending is the larger abnormality, and so suggest that spending cuts should make up the bulk of the deficit-reduction plan.

But: How much?

I don’t want taxes or spending at 21.3 percent of GDP. I don’t want them at 18.5 percent, for that matter. I might go for spending at 14.2 percent and taxes at 16.1 percent as a good start, which would take us to the savage Darwinian conditions of . . . 1951, not exactly the Dark Ages or a time of notable national austerity. As I hear it, 1951 was a pretty good year. From 1950 to 1955, our average real GDP growth exceeded that magic 5 percent threshold that Tim Pawlenty and Larry Kudlow and the optimists are talking about, and that includes a little recession in 1954. (Granted, there are excellent reasons to believe that the postwar boom is not easily replicable. Here’s one. Here’s another. And one more. Not a unicorn in the bunch.)

But here’s the thing: If you want spend 21 percent, you really need to tax 21 percent. If you want to tax only 18.5 percent, you can only spend 18.5 percent. So far, Republicans have been pretty insistent about taxes, and not without reason (this probably is not the optimum moment to announce a large tax increase). But if you are not willing to move one variable, then you have to show yourself willing and able to move the other variable far enough to bring things into balance. The Republicans have been moving in the right direction, but they aren’t quite there. You want to take taxes off the table, then show me you can get the job done with cuts alone — not on paper, but in Congress.

Why haven’t I mentioned the Democrats? They control the Senate and the White House, holding a far stronger hand than do the Republicans. The reason is that the Democrats are a lost cause. Their commitment to maintaining the current path of entitlement spending and public-sector expansion will ensure national bankruptcy at virtually any level of taxation. (Don’t believe me? Have a gander at what a $30 trillion deficit looks like.) Removing Democrats from power probably is a precondition for averting a national fiscal meltdown. A necessary condition, but not a sufficient one.

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialismpublished by Regnery. You can buy an autographed copy through National Review Online here.

Tags: Debt , Deficits , Despair , Fiscal Armageddon , Taxes

A Credibility Deficit



Text  



Among sentences I do not like to write: Andrew Leonard is mostly right about this one. Tax cuts do not generally increase revenue, and Republicans should stop saying otherwise.

But he’s not quite right to treat all these statements as equivalent:

Here’s Rep. Joe Walsh, (R-Ill.) the self-styled “conservative Tea Party activist” who upset Democrat Melissa Bean in the 2010 midterms, on ABC’s “This Week.”

“In the ’80s, federal revenues went up,” said Walsh. “We didn’t cut spending. Revenues went up in the ’80s. Every time we’ve cut taxes, revenues have gone up. The economy has grown.”

Walsh may be a freshman in Congress, but he’s got the party line down pat. Here’s Senate Minority Leader Mitch McConnell saying in July that the Bush tax cuts “increased revenue, because of the vibrancy of these tax cuts in the economy.” Here’s Speaker of the House John Boehner saying last June that “over the last 30 years . . . lower marginal tax rates have led to a growing economy, more employment and more people paying taxes,” he said.

Walsh’s statement is false if you read it as having an implicit “because.” It is true that revenue went up in the 1980s, that we did not cut spending, and, as Mr. Leonard himself points out, that revenue has gone up following tax cuts, etc. One could make a useful (and true) argument that we can in many situations expect revenue to increase following tax cuts — but, in most cases, not by as much as it would have without the tax cuts. For instance, if the U.S. government were not laboring under a crippling deficit and debt (Imagine!), one might plausibly argue that we could both cut taxes in a given situation and maintain current levels of spending without increasing the deficit. (Might! Might! You’d obviously want some high-grade forecasting on that.) But our current straits suggest that the longstanding Washington compromise — Democratic rates of spending and Republican rates of taxation — produces very large deficits.

McConnell’s statement is false.

Boehner’s statement, like Walsh’s, depends on how much implicit causality you read into it. That is not a trivial distinction: Low tax rates really can and do contribute to a growing economy, which can and does contribute to growing tax revenue. What is not true is that income-tax rate cuts pay $1.30 on the dollar, and that revenue has risen mostly because of (rather than despite) tax cuts — and Republicans should stop claiming otherwise.

The scale of the growth effects of tax cuts is important inasmuch as the naïve supply-siders’ argument credits tax cuts with basically 100 percent of economic growth. But we probably were going to have some economic growth in the 1980s or 2000s without the tax cuts. We’ll probably have some growth from 2011–20 with or without tax cuts (or tax increases).

I am all for having the budget police take revenue effects into account when scoring tax policies, but those effects are not as dramatic as Republican rhetoric would have it. And we should also take into account the possibility that large and persistent deficits may diminish economic growth (this seems to have occurred to a few Republicans already) and consequently that tax cuts that contribute to such destructive deficits have doubly negative effects on revenue. (I do not know that to be the case; I believe that it is a possibility that should be kept in mind.)

There are no free lunches in taxation, or anywhere else.

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, just published by Regnery. You can buy an autographed copy through National Review Online here.

Tags: Debt , Deficits , Despair , Fiscal Armageddon , Taxes

Two Statistics That Help Explain Each Other



Text  



Gallup: “Half of Americans believe the amount they pay in federal income taxes is too high, while 43% consider it about right and 4% too low.”

Bloomberg news: “More than 45 percent of U.S. households won’t owe federal income taxes for 2010.”

In that Bloomberg article, it notes some Republicans are pushing for the strangely controversial notion that everyone should pay something: “As a matter of fairness, wouldn’t it make more sense if all citizens paid at least something in income taxes?” asked Orrin Hatch, the top Republican on the Senate Finance Committee, at a March 30 hearing. “I am convinced that it would help us in our fight against excessive federal spending. You get a lot of takers when you ask people if they want more of something and you tell them it’s free.”

Tags: Orrin Hatch , Taxes

Wrong about Taxes



Text  



A few people have sent me that “Nine Things the Rich Don’t Want You to Know about Taxes” article that’s making the rounds today. I have some criticisms here.

Tags: General Shenanigans , Taxes

As the Economy Wheezes, Taxes Go Up, Again and Again



Text  



As President Obama prepares to call for income tax increases tomorrow – roughly four months after he promised to not raise income taxes for the remainder of his term – and as Americans dread the coming tax day deadline, it’s worth recalling why so many taxpayers are furious with the governing class at all levels.

When it comes to taxation, every level of government thinks they’re only asking for a reasonable slice. And perhaps separately, each is; but the cumulative effect is much more punitive.

Obama and his allies probably wonder why the country is full of anti-tax rage when they have only raised a few taxes during his presidency – most notably the tobacco tax and the tanning bed tax, but the Obamacare legislation also includes six provisions that enact new taxes, eliminate or cap deductions, and eliminate the tax benefits of withdrawing from a Health Savings Account. But overall, the federal tax rates have remained the same. So why the public fury, often directed at the president?

Part of the answer is that in the first year of Obama’s presidency, 29 states enacted tax and fee increases worth roughly $24 billion, the largest single-year increase ever. Of course, these taxes went into effect as unemployment skyrocketed and incomes remained flat. Then, in 2010, as the economy continued to struggle, states enacted another $6.2 billion in tax increases and an additional $2.9 billion in separate “revenue measures”, according to the National Association of State Budget Officers. While it’s only a fraction of the 2009 hikes, it remains the fourth-largest in the past 19 years.

Nine states increased sales taxes; eight states increased income taxes, seven states increased corporate income taxes, seven states increased tobacco taxes, five states increased gas taxes, and ten states increased other taxes. It’s enough to drive you to drink; by some miracle, no state increased taxes on alcohol in 2010. (New York, North Carolina, Tennessee, and Vermont increased them in 2009.)

Then we have local taxes. Eleven cities in California just increased their local sales and use taxes on April 1; the April fool is the person who shops there. In White Plains, Westchester County, New York, where the average home is valued at over $728,000, local government craves more revenue from property taxes and is contemplating hiking rates another 18 percent.

It’s not just a blue state phenomenon; Phoenix imposed a new 2 percent sales tax on food.  Nebraska lawmakers are contemplating raising the ceiling for annual sales tax increases. Montgomery, Alabama is raising its sales tax.

Most localities have hiked property taxes, as local lawmakers noticed that revenue is down as homes lose value. Of course, the struggling homeowners may not have the money to pay. If you lose your job and have no income, your income tax burden shrinks. If you can’t buy as much, you pay less in sales taxes. But property taxes – they’re due, year in, year out, regardless of your own financial circumstances and actions.

Lawmakers in New Jersey tried to rein in local tax increases, imposing a 2 percent limit on annual property tax increases by local governments, with  exceptions for certain expenses, and a provision that allows voters to tax themselves more. (Unfortunately, in the year before the limit went into effect, local taxes jumped 7 percent.) New York state lawmakers are considering a similar move.

Once you add up all the levels of government and all of their various ways of demanding more from the citizens – income, gas, sales taxes, alcohol taxes, property taxes, automobile fees, it’s no wonder the average taxpayer feels abused and exploited. In most places in America, three separate levels of government demand enough to keep their operations going with minimal cuts to the pre-recession levels of spending. Few of them see the taxpayer as their employer; we are the credit card that enables the gratification of spending.

Tags: Barack Obama , Taxes

What 2 Percent in Cuts Looks Like



Text  



“An outrage!”

So says the guy who was once elected as a Republican about the very reasonable budget proposed by the Democrat. Strange times.

“Proportionally, the cuts that are inflicted on New York City are an outrage,” [NYC mayor Michael] Bloomberg said a day after Gov. Andrew Cuomo announced a tentative $132.5 billion state budget deal that is expected to restore more than $136 million of threatened education money to the metropolis.

Governor Cuomo has turned out to be a pleasant surprise so far. (Don’t worry — I’m sure he’ll get worse!) The budget is getting balanced with no new taxes or borrowing. Not too shabby, especially for New York. Other governors should be tipping their hats — he isn’t doing this in Montana.

Perhaps Cuomo has noticed that Texas is now home to more Fortune 500 headquarters than New York is, and has decided that it would be a lot easier to balance future budgets with a healthier tax base, one with higher levels of employment and better wages. Perhaps the mayor should take a subway ride up to the Bronx, where the nominal unemployment rate is 12.5 percent (and the real unemployment rate God alone knows how much higher) and ask himself if weighing the city and state down with more taxes and more debt is really the best way to turn things around.

Either way: Can we call this the official end of Bloomberg for President? The great manager is looking overwhelmed.

But three cheers for Andrew Cuomo. For now.

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, just published by Regnery. You can buy an autographed copy through National Review Online here.

Tags: Debt , Deficit , Despair , Fiscal Armageddon , Taxes

The Conservative Case for Raising Your Taxes (And I Mean: You)



Text  



Here is an exercise that requires some assumptions. Just thinking out loud, here.

First: Assume a simple universe, one in which public finances operate according to simple, Newtonian physics–type rules: Higher tax rates mean precisely proportional higher taxes, lower tax rates mean precisely proportional lower taxes, government spending comes in on budget, etc. (Yes, I know — imagine.)

Second: Assume a world in which public policies, to be enacted, must represent, at some level, a compromise between John Boehner, Harry Reid, and Barack Obama. (Assume a political world that is very much like the present political world.) Or between: Boehner, Reid, and a Generic Republican president;  or between Boehner, Mitch McConnel, and Obama.

Third: Assume we as a nation in fact want to balance the budget, and want that deeply enough to do uncomfortable and unpleasant things to make it happen. (That most implausible assumption of these, I reckon.)

Fourth: Assume that we can conduct policy without sending the economy back into recession. (Assume that the positive effects of our budget-balancing discipline equal or outweigh the negative effects of changes in taxing and spending levels.)

Some conditions: We have a very large deficit — 40 percent of federal spending, last time around. We have very large hidden liabilities — unfunded entitlement obligations that will prove massively expensive if we try to pay them and massively disruptive if we do not. There are limitations on our ability to act, and limitations on our ability to not act.

Our issues are taxing and spending. We have some choices, and they are, in the order I prefer them on this particular evening in January:

1.   Cut spending, raise taxes.

2.   Cut spending, maintain taxes.

3.   Cut spending, cut taxes.

4.   Maintain spending, raise taxes.

5.   Maintain spending, maintain taxes.

6.   Maintain spending, cut taxes.

7.   Raise spending, raise taxes.

8.   Raise spending, maintain taxes.

9.   Raise spending, cut taxes.

You may notice a readily identifiable pattern at work here. The Party of Option 1 in Washington in a very small one. Nobody will admit to being a member of the Party of Option 9, but I fear they are in control of the government. (Somebody wants a huge deficit. Is it you?)

The real-world reasons for not raising taxes are many. The ones I find most persuasive are these: 1. Tax hikes have unpredictable effects on taxpayers’ behavior, but one very likely consequence is higher levels of tax-avoidance strategies, resulting in economic inefficiencies; 2. If you succeed in raising revenue, you will simply encourage Congress to engage in higher levels of spending. Okay. I will grant the power of both of those arguments, but I am writing here about a simpler model, in a simpler exercise.

Under my assumptions, I would prefer to cut spending and raise taxes right now, to reduce the deficit as quickly as possible, to eliminate the deficit as quickly as possible, and to begin paying down the debt as quickly as possible. There are many prudential reasons for this, one of which is that I believe the risk of a major crisis in American public finances is very dangerous, more dangerous than is widely appreciated, and ameliorating that risk is worth the price of higher taxes. But I also have simpler reasons for this: We can cut the budget now, and we can raise taxes now. We can cut the NEA and we can cut the military and we can cut Medicare spending. But the debt is piling up, and debt service is, basically, non-negotiable.  As debt service takes up a bigger and bigger share of our budget, that is a bigger and bigger piece of the budget that we cannot cut in the future. The worst kind of fiscal crisis is the one that we can neither tax nor cut our way out of, and avoiding that — avoiding even an elevated risk of that eventuality — seems to me worth the price of firing with both barrels against the deficit now.

Here is the thing: All books must eventually balance. We are going to pay $1 in taxes for every $1 in spending, and for every $1 in borrowing we are going to pay $1 plus interest — very, very low interest, at the moment, but who knows if that will be the case in a year? In five years? If you think interest rates for U.S. sovereign debt will remain low — and I hear from those of you who believe so all the time — what are you willing to risk against the possibility that you are wrong? How did you do predicting the 2008 financial crisis, and do you believe government finance, in the United States, is less complicated than bank finance, or insurance-company finance? My view is that the price of being wrong about that risk is potentially very high.

What kind of tax hike would I endorse? I remain very much in favor of the Simpson-Bowles tax proposal. (And “Simpson-Bowles” already sounds like ancient history, doesn’t it? Like Smoot-Hawley? Like the Great Compromise?) Which is to say, I am sympathetic to a tax increase that reduces overall income-tax rates but eliminates most (I would prefer all) deductions, including the destructive mortgage-interest deduction. Many Americans would pay lower taxes under such a reform; many would pay higher taxes, but the net effect would be a tax increase, albeit a modest one. (My very strong preference is for a flat, no-deductions tax, one rate for all forms of income: personal income, dividends, capital gains, inheritances, whatever.) Simpson-Bowles contemplated a 3:1 ratio of spending cuts to tax hikes. Some conservatives I spoke with said they would prefer 5:1 or 10:1. I think I would prefer 5:1, too, but I would take 1:1.

I believe that restoring order to our public finances is not an issue but the issue, the thing that will be the source of endless contentious post-facto debate forever if we get it right — but will define our era if we get it wrong. (And not in a good way.) I believe our public finances are a more important issue than Islamic terrorism or Chinese mercantilism, and a more pressing threat to our national well-being. (I do not believe that those are unimportant; I believe they are less important.)

That being the case, I cannot agree with those who say, for instance, that military-spending cuts should be off the table, or those who say that tax increases, even modest ones performed in the course of simplifying and improving our tax code, are off the table. (Hello, Ryan.) And I will argue that this is a conservative position, conservatism being rooted in prudence and a certain amount of risk-aversion when it comes to political institutions and their grand plans, such as ending poverty or eradicating evil.

I also have in mind a kind of Pascal’s wager for the debt. If those of you who believe that the debt and deficit are basically manageable problems rather than a clear and present danger to the republic are wrong, finding out you are wrong is really, really going to hurt. If I am wrong — what? We shift taxes forward, paying them ourselves instead of foisting them onto our children and grandchildren. No doubt that will do some economic damage. But we also cut the size and scope of government, which will provide some economic benefits, and which is, separately, something that I regard as desirable regardless of how much government we can afford. (The cost is not my only reason for opposing an expansive state.)

Given that the real-world politics of getting this done are difficult and imperfect, and given that at the real policy level rates of change matter more than absolute levels, am I wrong in my fundamental argument that we should throw everything we can at the debt, as fast as we prudently can?

And if I am wrong, why?

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, which will be published on Tuesday. You can buy an autographed copy through National Review Online here.

Tags: Debt , Deficit , Despair , Desperate Measures , Fiscal Armageddon , Taxes

Palin on Ryan



Text  



Good piece from Sarah Palin in today’s WSJ. Interesting that she singles our Paul Ryan’s business-consumption tax, offered as a replacement to the corporate income tax, for praise.

The Roadmap would also replace our high and anticompetitive corporate income tax with a business consumption tax of just 8.5%. The overall tax burden would be limited to 19% of GDP (compared to 21% under the deficit commission’s proposals). Beyond that, Rep. Ryan proposes fundamental reform of Medicare for those under 55 by turning the current benefit into a voucher with which people can purchase their own care.

Palin is sounding the alarm bells on Fiscal Armageddon, but she’s fairly optimistic. (Maybe too optimistic.)

Our country is on the path toward bankruptcy. We must turn around before it’s too late, and the Roadmap offers a clear plan for doing so. But it does more than just fend off disaster. CBO calculations show that the Roadmap would also help create a “much more favorable macroeconomic outlook” for the next half-century. The CBO estimates that under the Roadmap, by 2058 per-person GDP would be around 70% higher than the current trend.

In any case, it is tremendously helpful and heartening to have Palin’s big megaphone operating in service to the Ryan Roadmap and fiscal sanity more generally.

– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, now available at Amazon.com. You can buy an autographed copy through National Review Online here.

Tags: Debt , Deficits , Despair , Sarah Palin , Taxes

DeMint To Oppose Tax Deal



Text  



Jim DeMint will work against the Obama-GOP tax deal, on excellent principled grounds: It contains unfunded spending and it increases uncertainty by leaving tax rates temporary. This is what serious fiscal leadership looks like: There is not much political juice for DeMint in opposing the tax plan — socialist Bernie  Sanders is threatening a filibuster, too — but he is serious about the deficit.

Tags: Debt , Deficits , Despair , Politics , Taxes

A Consumer-Driven Tax Deal



Text  



There is much that I do not like about the new bipartisan deal on tax rates. One of those things is the extension of unemployment-benefit spending without compensatory cuts elsewhere in the budget. I think unemployment insurance is one of the better social safety-net programs, but that $56 billion still has to come from somewhere. There’s a $161 million NEA budget, the $600 million a year that ethanol subsidies put in the pockets of BP alone, $16.5 billion in 2010 earmarks . . . that failed $50 billion foreclosure-prevention program would have just about covered it. It’s not like there are no cuts to be made.

What is worse is this: It is yet another product of consumer-driven economic policy, premised on the mistaken belief that robust consumer spending, which is alleged to (but does not) account for 70 percent of the nation’s economy, is the key to recovery. Buying stuff does not make you rich; making stuff makes you rich. Investing in the capacity to make stuff and provide needed services makes you rich. What does the tax deal do for people who want to save and invest their money in productive enterprises that create real wealth and real jobs? Not much.

The payroll-tax holiday will probably mean that the average American family goes out to dinner once a month more often: If a guy earning $50,000 gets a temporary income boost of $84 a month for two years, that is walking-around money. If you want to put some cash in Americans’ pockets, better to give them the whole $2,000 at once — they might use it for something more useful, like paying off a credit card (or catching up on a late mortgage payment or two). They might even pop it in an investment account, which would be an excellent use of the money. Dribbling it out means it will get dribbled away, which is counterproductive.

Nobody is launching a new business or hiring a full-time employee on a temporary 2-point payroll-tax cut. What about the people who are in a position to make large investments and create new enterprises? If anything, this deal makes their lives even more complicated: It uglies up the fiscal picture, further complicates the tax code, and necessitates another tax fight in 2012. Which is to say, it increases uncertainty. As Edmund Andrews and Jim Tankersley put it over at National Journal:

Those who place high importance on being able to plan ahead—corporations planning billion-dollar capital investments or individuals deciding how much of their income to save or spend—still don’t know what to expect two years down the road.

Precisely.

There is room in politics for these kinds of piecemeal, go-along-get-along deals — I advocate them on spending cuts, for example: A nearly perfect scenario would see Republicans trading $1 in cuts reducing spending on things that they like for $1 in cuts to spending Democrats favor — lather, rinse, repeat, 1.4 trillion times or so. But there is a deeper problem that is not getting addressed: All of this effort to pump up consumer spending is the crystal meth of economic policy, a collection of short-term feel-good measures that serve mostly to camouflage deeper problems in the economy. We are directing our efforts at spending — at the depletion of savings and capital — rather than measure to encourage the accumulation of savings and capital, which is to say, at investment. Real investment only comes from real savings — forgoing present consumption for future gains — but that takes a deeper policy game and a time horizon longer than two years.

Meaning, do not expect this to do a lot of good. I have my differences with the supply-siders on some specifics, but  they are correct on a crucial insight: You treat investment poorly and subsidize consumption, you get less investment, more consumption.

– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, to be published in January.

Tags: Debt , Deficits , Despair , General Shenanigans , Politics , Taxes

Ireland Going Down . . . Who’s Next?



Text  



I’ve been out for the last week helping National Review reduce its deficit (and adding marginally to my own). What have I missed?

Ireland is circling the drain.

Josh Barro is still a lot more persuasive than the guys at Americans for Tax Reform. ATR’s Ryan Ellis is still relying on a variant of the Appeal to Authority without being a very credible authority, basically saying: “If you disagree with me, you’re not really a conservative,” and pleading for National Review to stop publishing stuff that makes his poor head hurt.

The commodities markets are still going nuts trying to figure out which currency is crashing fastest and which economy is in the most trouble.

Sarah Palin is still more persuasive than some of the guys at The New Republic. Noam Scheiber writes: “Don’t get me wrong: I think criticizing the Fed is an entirely healthy thing,” but also calls Palin’s criticizing the fed “sinister.” Scheiber, falling into that weird Obama diction (Make no mistake, Let me be perfectly clear, etc.) writes:

Let’s be clear: Even with the help of what was presumably a pricey speechwriting team, Palin’s ignorance of monetary policy is difficult to repress. The recent path of food prices was hardly the only curious claim in her Phoenix speech. There was, for example, her discussion of quantitative easing as though it were sorcery. “And where, you may ask, are we getting the money to pay for all this? We’re printing it out of thin air,” she complained. True-ish. But, as Ben Bernanke explained shortly after the Fed announcement, that’s pretty much how all of monetary policy works.

Scheiber is kind of funny here: He treats Palin as though she’s a big doofus for arguing that food prices have risen, and he cites as evidence the fact that consumer prices for food haven’t risen all that much as of the last survey. But consumer prices are the end of the chain, and lots of farm commodities have been hitting record highs of late, or coming close to them. I’m no convicted insider-trading scofflaw George Soros, but I suspect that there is a directional connection between the price of food on the commodities markets and the price of food at the grocery store. Just a hunch.

And that last bit — “that’s pretty much how all of monetary policy works” — is not much of a defense; exnihilating money is the problem, particularly on a scale of nearly $1 trillion.

And, finally, the L.A. Times has a big scoop: “California public pensions underfunded.” Thanks for the Muppet News Flash, L.A. Times. I hear there’s pension trouble elsewhere, too.

Nihil novi sub sole, in other words.

Tags: Debt , Deficits , Fiscal Armageddon , General Shenanigans , Taxes

David Limbaugh, contra VAT



Text  



Over at Ricochet, David Limbaugh has a wise response to my post yesterday on Grover Norquist, VATs, Mitch Daniels, etc.

While I am a supply sider I agree that we should not allow our exuberance for pro-growth tax policies to intoxicate us into believing that spending doesn’t matter. While some starry-eyed supply-siders might have been irresponsibly negligent in their inattention to the spending side of the equation, it’s not fair or accurate to place all supply-siders in that quasi-utopian category. It’s a false choice. That is, there is nothing inconsistent between supply-side advocacy and relative spending austerity. That’s the best of both worlds. But an insidious VAT tax might be the worst of all worlds.

Praise to David Limbaugh for striking the right balance on the supply-side question: growth matters, spending matters. For the record, I do not think all supply-siders are crazy utopians: not Laffer, not Reagan, not Kemp. That is why I use the term “naïve supply siders” to distinguish those dealing in unreality.

I myself am more of a flat-income-tax guy than a VAT guy, though Andrew Stuttaford argues that we’d have to make the flat rate so high to make the numbers work out, even with some pretty ambitious spending cuts, that it would not fly. (He also thinks that consumption should carry some of the load.) I’m going to do the arithmetic on it here in a bit and see what it adds up to. I doubt very much that anything will cause me to conclude that the current system is defensible, wise, just, or the best way to fund the level of government spending that Americans seem (inexplicably!) to want.

Tags: Debt , Deficits , Despair , Fiscal Armageddon , General Shenanigans , Republicans , Taxes

Grover Norquist Is Living in Candyland



Text  



So it turns out that the cure for “epistemic closure” is great quantities of crystal meth. The things you learn from Grover Norquist.

In case you missed it, Norquist came down like a runaway gravel truck on Indiana governor Mitch Daniels, a favorite around these parts. Governor Daniels’s offense was declaring himself open to the possibility that a value-added tax might be an acceptable part of a wide-ranging reform of the federal tax system. Norquist replied, in a Politico interview:

“This is outside the bounds of acceptable modern Republican thought, and it is only the zone of extremely left-wing Democrats who publicly talk about those things because all Democrats pretending to be moderates wouldn’t touch it with a 10-foot poll. Absent some explanation, such as large quantities of crystal meth, this is disqualifying. This is beyond the pale.”

Here’s the problem: The deficit is, by my always-suspect English-major math, about 36.3 percent of federal spending ($1.29 trillion deficit out of $3.55 trillion spending). For comparison: Defense accounts for about 18 percent of federal spending. So you could cut out the entire national-security budget, and another Pentagon-sized chunk of non-military spending, and not quite close that deficit. You could cut the Pentagon to $0.00 and eliminate Social Security entirely and just barely get there.

Even great heaping quantities of crystal meth would not be enough to convince me that is going to happen.

Don’t get me wrong: In a perfect world, Exchequer would love to see the budget balanced and some tax cuts enabled through spending reductions alone. Exchequer would also like to be dating Marisa Miller, driving a Morgan Aero, and running a four-minute mile,  developments that are about as plausible as Congress’s cutting 36.3 percent of federal spending. Not going to happen.

So, our choices are this: 1. Hold out for the best-case scenario, in which a newly elected Speaker Boehner gives President Obama the complete works of Milton Friedman and everybody agrees to cutting federal spending by more than a third. 2. Keep running deficits and piling up debt. 3. Raise taxes. My preferences, in order, go: 1,  3, 2. And No. 2 is not really acceptable.

Like it or not, taxes are going up: If not today, then in the near future. Even once the deficit is under control, that debt is still going to have to be paid down, lest debt service alone overwhelm the federal budget, necessitating even more tax hikes. If Grover Norquist thinks there’s a tax-free way out of this mess that is both politically and economically realistic, he is living in a fantasy. There’s an old joke that goes: Neurotics build castles in the sky; psychotics live in them. And Grover Norquist seeks tax protection for them.

Norquist’s outfit, Americans for Tax Reform, does a lot of good things. (And so has Grover Norquist, over the years.) But here’s how it describes itself:

Americans for Tax Reform (ATR) opposes all tax increases as a matter of principle.

That’s not a campaign against Big Government — it’s a campaign against math. As ye spend, so shall ye tax. Denying that is not a principle — it’s a tantrum. ATR’s pledge reads:

“I _____ pledge to the taxpayers of the __________ district, of the state of __________, and to all the people of this state, that I will oppose and vote against any and all efforts to increase taxes.”

And here is how it should read:

“I _____ pledge to the taxpayers of the __________ district, of the state of __________, and to all the people of this state, that I will oppose and vote against any and all efforts to increase spending.”

Spending is the issue, not taxes. Spending is the virus, taxes are the symptom. Norquistism, by focusing on the taxing side of the ledger rather than on the spending side, has for decades enabled Republican spending shenanigans of the sort that helped put the party in the minority and ruined its reputation for fiscal sobriety; it is of a piece with naïve supply-siderism. The Bush-era deficits, and the subsequent discrediting of Republicans’ fiscal conservatism, are the product.

Give me the grown-up despair of Mitch Daniels any day over the happy-talk daydream that says we’re getting out of this mess without  paying for it.

Tags: Debt , Deficits , Despair , Fiscal Armageddon , Mitch Daniels , Republicans , Taxes

Obamaism Eats Itself



Text  



Rep. Gerry E. Connolly, a Northern Virginia Democrat facing a tough re-election challenge, has come out against letting the Bush tax cuts expire — even for the top brackets. This puts him right up in the teeth of the Obama administration and Nancy Pelosi. Why would a Democrat resist ORP’s (ORP = Obama-Reid-Pelosi) soak-the-rich agenda? Have a look at Connolly’s district: Fairfax County, part of the vast, soulless suburbs of Washington, D.C., is pretty high-income.

As our Battleground blogger Andrew Stiles reports today, the average household income in Connolly’s district is more than $100,000 a year. And there are a lot of families with incomes over $200,000 a year and over $250,000 a year. In Washington, it’s not that hard to end up with a family income over  $250,000 a year: Mr. $130,000 Bureaucrat  marries Miss  $130,000 Bureaucrat, and they join the ranks of “the rich.”

And under Obama, official Washington is getting a lot richer, with average federal compensation packages now worth about $120,000 a year — more than twice the going rate in the private sector. And it’s not just high salaries, pensions, and generous benefits: It’s private-sector-level bonuses, too:

Under the Obama administration, the government is doing such a good job that it’s decided to reward itself. Last year, Uncle Sam paid out $408 million in bonuses to 1.3 million federal workers, according to the Asbury Park Press, which obtained the information through a Freedom of Information Act request. That’s about $80 million more than the previous year. About one in four federal workers received a bonus, and awards ranged from $25 to, in the case of one lucky State Department worker, $94,500. . . .

Federal bonuses are being doled out liberally, even as federal salaries are exploding. From December 2007 through June 2009, the number of federal workers earning six figures increased from 14 to 19 percent. In 2008, average federal compensation, including pay and benefits, was $119,982 — considerably more than the $59,909 average in the private sector, according to the Commerce Department’s Bureau of Economic Analysis. In the midst of a brutal economic downturn that saw millions of jobs lost and unemployment soar above 10 percent, the Office of Personnel Management data shows the federal workforce actually added nearly 100,000 jobs from December 2008 to December 2009.

This is how Obamaism eats itself: Fattening the federal workers who are his natural constituency, Obama has helped to create a lobby for tax breaks for “the rich,” now defined as those who earn about the same income as a married couple consisting  of two federal middle managers. Federal workers already receive a big piece of their compensation tax free (through extraordinarily generous benefits that are not taxed as income) and they are not eager to pay the taxes that fund their own inflated salaries and those of their colleagues. Taxes are for you serfs in the private sector, and Rep. Connolly  is one Democrat who can be counted on to defend the tax preferences of the new ruling class in the Washington suburbs.

Tags: Debt , Deficits , Democrats , Despair , Fiscal Armageddon , General Shenanigans , Taxes

What Will the 2011 Tax Rates Be?



Text  



This interesting note from Grant’s Interest Rate Observer (subscription only) is the piece of news that should be disturbing your sleep tonight:

Taxes may be certain — not so, tax rates. The 2011 tax-rate schedules are yet unprinted because Congress hasn’t decided what they are going to say. “Unusually uncertain,” said Ben S. Bernanke, the phrase-making central banker, in characterizing this moment in business and finance during congressional testimony last month. He could say it again.

I think that many conservatives oversell the influence of “uncertainty” in businesses’ decision-making at this moment. That $1 trillion-plus mountain of cash American businesses are sitting on top of starting building up a long time ago, and, given the state of sales, it is more than plausible that very weak demand and a lack of attractive alternative investments are the reasons why cash is king. (You can concede the Keynesians’ case about weak demand, which seems to me pretty obvious, without conceding the policies they propose, i.e., another Iraq-and-Afghanistan-wars-combined-sized pile of stimulus spending.) But there is a lot of uncertainty out there, nonetheless. Uncertainty about future taxes, future employment, future returns to individual investments, and the future of entitlement benefits almost certainly is having an effect on Americans’ spending and saving decisions comparable to the effect of actual lost income. Americans are saving at a relatively high rate; presumably, it is the employed, not the unemployed, who are saving.

Demand is low, uncertainty is high. Is there a way to address those problems without resorting to Robert Reich’s proposal for supersized investments in floating unicorn ranches? There is not an easy or obvious one that comes to mind. But there are economic benefits to be realized from paying down the debt:

1. Less uncertainty: We are the largest national economy in the world, and we are a lot bigger than the No. 2 national economy — welcome to second place, China, tough luck, Japan — about three times bigger, in fact. The the world’s No. 1 and No. 2 national economies are joined at the hip, and the ramifications of that fact are not well understood. A fiscal crisis in China will be a crisis for the United States, and vice versa. Our government’s books are a wreck, and their banks are the stuff of nightmares. Nobody knows how high a debt-to-GDP ratio the United States can withstand before somebody starts calling in the chips — and China has all sorts of weird incentives when it comes to that issue. In short: The radical expansion of the U.S. national debt under the Obama administration is not just creating an enormous risk for the economy of the United States — it is creating enormous risks for the entire world, and those risks are not well understood, because there is little or no precedent for this situation. Weighed against those facts, the case for another $26 billion in political bribery for Democratic special-interest groups is pretty weak.

2. More capital available for productive investments: We spent stimulus money subsidizing beekeepers, turning b.s. into fuel to power magical corn-gas distilleries, and getting monkeys high on cocaine. As much as I would enjoy having a platoon of coke-tweaking baboons to dispatch around town to do my bidding and collect the honey from my organic apiary, these are not exactly pressing national priorities. But that money has to come from somewhere, and the banks, which are still being subsidized with free money from the Fed, are content to park their funds in T-bills and collect the spread — which is pretty attractive when the cost of money is zero and the risk is (allegedly!) negligible. Why take a risk on making a loan to a start-up when you can ride out the storm with free money and a passel of implicit and explicit federal subsidies? People who want to make stuff and provide services need capital to get going, but Uncle is sucking a whole lot of capital out of circulation.

3. Signaling seriousness: I have to imagine that our precarious government-finance situation is dissuading investment from both foreign and domestic sources. A little bit of discipline would go a long way toward re-establishing the United States as the world’s economic gold standard. Right now, if I were an investor with significant concern about political risk, I’d have to be thinking to myself that Canada and Europe are looking like relatively good investments, ceteris paribus (and, yeah, I know, ceteris is rarely paribus).

Those unpublished tax schedules are more symbolic than substantial — but, still, a little predictability would be a welcome thing right now, something that might help our economy feel more like a productive enterprise and less like a roulette wheel.

Tags: Debt , financial Armageddon , Recession , Taxes

Real Tax Cuts, Real Spending Cuts



Text  



Republicans have rotten luck when it comes to timing. Think about the miracle of the “Clinton economy” — Slick Willy took credit for a recovery that was under way well before he was elected and then evaded blame for a recession that began in the final months of his presidency, while two different Republicans, both named Bush, caught absolute hell.

In another case of bad timing, it’s a little bit unfortunate that when the Republicans finally summoned the testicular fortitude to start making a ruckus about spending, they ended up with an extension of unemployment benefits as the nearest issue at hand. For spending hawks, unemployment benefits probably aren’t the highest-value hill to die on. In fact, unemployment benefits are one of the better social safety-net programs we have in the United States. They’re not terribly expensive, in real terms; they reward work; and they have the happy effect of encouraging a dynamic labor market and supporting risk-takers who seek better lives in new jobs. Think about how much harder it would be for a scrappy, underfunded startup to attract good talent from well-established competitors if those workers didn’t know they had unemployment benefits as an emergency backup. Granted, our unemployment-benefit system is not especially well-run and could stand to be improved in a dozen ways — but, compared to Medicaid, student loans, farm subsidies, or a thousand other federal welfare programs, unemployment benefits are a pretty solid deal. (Though not as solid as they’d be if they were a privately run tax-free hybrid insurance/annuity that you begin paying into from your first job and can roll over into your retirement if you don’t tap into it before then. Feel free to pick that idea up and run with it, John Boehner. There’s more where that came from.)

Predictably, the Democrats are howling that the Republicans hate unemployed people and don’t really care about the deficit, that’s it’s all just a political charade. Of course it’s a political charade — but just a political charade? The Democrats’ go-to spokesman, Anonymous Aide, is challenging the GOP to show the same puritanical budgetary resolve when it comes to re-upping the Bush tax cuts, telling The Hill: “I will be curious to see if their newfound fiscal religion that everything must be paid for is something they stick to as long as debt and deficits are a problem. Or is [this] just an election-eve conversion [that] will be dropped as soon as convenient?” (Shame on The Hill, incidentally: Nothing in this cheap, substance-free quotation rises to the level of justifying anonymity. Seriously: Democratic aide talks smack about Republicans and he’s an anonymous source? Rent some self-respect.)

Embedded in Anonymous Aide’s line of attack is a familiar assumption, an article of faith, really, for Democrats: Tax Cuts = Spending. If what we really care about is the bottom line, the argument goes, then isn’t cutting revenue functionally the same thing as increasing spending? It is tempting to dismiss this as a high-school debaters’ trick, a flimsy and facile bit of see-through rhetoric. But never underestimate the Left’s ability to misunderstand (or simply ignore) conservative thinking. Of course conservatives care about something other than the bottom line: Conservatives want both fiscal responsibility and a state that is limited in size and scope, so as to preserve the private sphere of life and citizens’ individual liberties.

Liberals kinda-sorta want the same thing, but you’ll rarely get them to admit it. One of the head-clutchingest things ever written about American politics is this gem, from Jonathan Chait of The New Republic: “If you have no particular a priori preference about the size of government and care only about tangible outcomes, then liberalism’s aversion to dogma makes it superior as a practical governing philosophy.” Now, wipe that incredulous smirk off your face — liberalism’s aversion to dogma, indeed — and consider what it would mean to have “no a priori preference about the size of government.” Surely even the open-minded, dogma-shunning liberals over at The New Republic have an a priori preference that the size of government not equal 100 percent of GDP, or 500 percent of GDP. I’m pretty sure the non-ideologues in the sovereign-debt markets have a robust a priori preference that U.S. government spending not exceed GDP. Arguments over the size and reach of government are partly moral and ideological, but they are not exclusively moral and ideological. Reality intervenes. And reality is the friend of conservatism.

If congressional Republicans are going to argue for a balanced budget (or a less-unbalanced budget) and tax cuts, they are going to have to make — once again, whipping it up from scratch — the case for a limited central government. Americans are fairly receptive to that argument at the moment, but not as eager as some of my fellow conservatives would like to believe: Cut Social Security checks by 20 percent and that limited-government tea-party mob will be the one that comes around to tar and feather your sorry congressional hide. But the case can be made.

And while making the case, Republicans in Congress are going to have to make something else: a big list of things they are actually willing to cut. Otherwise, they will be refusing to recognize the reality in which they should be grounded, and they’ll be confirming Anonymous Aide’s cynical worldview. Instead, Republicans would do well to beat the Democrats at their own game: Offer Nancy Pelosi the extension of unemployment benefits — so long as she produces dollar-for-dollar cuts elsewhere in the budget. And then fight to extend the Bush tax cuts — with dollar-for-dollar spending cuts to match. Steny Hoyer’s out there saying that Democrats are going to be left with no choice but to raise taxes on the middle class, Obama’s campaign promise be damned. No choice? Republicans should give him some options.

– Kevin D. Williamson is deputy managing editor of National Review.

Tags: Balanced Budget , Taxes

Pages

Sign up for free NRO e-mails today:

Subscribe to National Review