The Corner

Look at Spending Cuts Before Talking about Tax Increases

There are two camps in Washington right now: those who want to raise taxes and those who don’t. Leading the “raise taxes already” campaign is New York Times columnist Paul Krugman:

We need to pinch pennies these days. Don’t you know we have a budget deficit? For months that has been the word from Republicans and conservative Democrats, who have rejected every suggestion that we do more to avoid deep cuts in public services and help the ailing economy.

That sentence — the whole article, for that matter — is very telling. The idea that taxes should go up as much as it takes to avoid any cuts in spending is basically the starting point for Krugman.

More interesting is his characterization of what would happen if the the tax cuts were extended:

But these same politicians are eager to cut checks averaging $3 million each to the richest 120,000 people in the country.

What — you haven’t heard about this proposal? Actually, you have: I’m talking about demands that we make all of the Bush tax cuts, not just those for the middle class, permanent.

This is nonsense. No one will be sending checks to rich people. There will be no transfer of cash from the federal government to wealthy Americans. The federal government isn’t the source of all wealth; only in Krugman’s mind does all income belong to Washington. It’s fascinating to me that anyone would think this way.

That being said, it is even more stunning to me that so many people on our side are eager to conclude that we will have no choice but to raise taxes. (Consider this article — even before starting to work on spending cuts, the commission’s chairmen were already talking about tax increases.) Yes, after we cut all the fat in the budget, tax increases would be appropriate. But with few exceptions, we don’t hear lawmakers in Washington talking about concrete ways to cut spending. Even the Republicans, as a party, haven’t come out with a list of things, a list of agencies or programs, to cut. We shouldn’t consider raising taxes until we have cut spending, which shouldn’t be that hard with a $3.8 trillion budget (roughly $1.8 trillion larger than in FY 2000). Are we claiming that this $1.8 trillion increase since 2000 all went to indispensable programs that should never be cut?

John Garen’s “Controlling Federal Spending” looks at different scenarios of what could be done to go back to FY 2000 spending levels, and it’s a very good starting point. It seems that no matter how you look at it, entitlements have to be reformed; there is simply no amount of tax increases that will allow Washington to postpone reforming this part of the budget. So they’d better get to work now.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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