Government Spending

'Economists' (at Least Three!) Agree It's Impossible to Cut the Deficit Without Tax Hikes

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The lead story in the national edition of today's New York Times warns that "Party Gridlock Feeds New Fear of a Debt Crisis." Reporter Jackie Calmes strongly suggests that the main cause of this gridlock is Republican resistance to tax increases:

Elected Republicans…are under intense pressure from their party's conservative base to oppose any tax increases—a line in the sand that dims any prospects for bipartisan cooperation. Yet economists, including veterans of past Republican administrations, are vocal in insisting that the debt problem is too great to be solved without increasing revenues somehow and perhaps moving to a new consumption tax system like Europe's.

The same economists also say a significant deficit-reduction plan is not possible unless Mr. Obama breaks his campaign promise not to raise taxes for households making less than $250,000. Last week, Mr. Obama said he would not impose that condition or any other on a fiscal commission.

Note how Calmes, by saying "economists" are demanding tax increases, implies a consensus, although strictly speaking she could be referring to three guys, two of them Republicans. She adds that "the same economists" who insist on "increasing revenues" also say the tax hikes cannot be limited, as Obama repeatedly promised during his campaign, to households earning more than $250,000 a year. Calmes fails to note that Obama has already broken this promise by signing a cigarette tax increase and proposing an excise tax on people who don't buy health insurance.

It clearly isn't true that Congress can't significantly reduce the deficit without tax hikes. The Cato Institute, for instance, has lots of suggestions. And if "the debt problem" is that the government is sucking up too many resources that would otherwise be used more productively, taking the money out of current taxes instead of future taxes does nothing to alleviate it. But that is not how Calmes and her unnamed economists view the debt problem. Calmes does mention that "the government will be competing with the private sector for credit, forcing interest rates higher and imperiling future prosperity." But judging from her article, the main problem with government debt is that it inhibits government spending:

As debt rises, so do interest costs; by 2014, at a projected $516 billion, they will exceed the budget for annual appropriations for domestic programs….

Foreign investors now own more than half of the publicly held debt, and officials for the largest creditor, China, have fretted publicly about the fiscal course of the United States. While few expect foreigners to dump their assets, since the resulting plunge in values would hurt them as well as everyone else, the fear is that investors will demand higher interest payments and reduce or stop future debt purchases, threatening the government's ability to finance its borrowing.

In short, the government must raise taxes now instead of cutting spending so that it can preserve its ability to spend more in the future. And if you don't agree with that assessment, you are a partisan obstructionist who is willing to sacrifice the nation's future for the sake of short-term political gain.

Last week Radley Balko noted that Obama is already signaling that voters were foolish to believe his tax promise.

NEXT: "I'm Not Trying to Stop Anybody from Doing Anything"

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  1. It clearly isn’t true that Congress can’t significantly reduce the deficit without tax hikes.

    Of course not. This year’s tax revenues would damn near fully fund the 2005 budget (in constant dollars).

    You can look it up!

    1. The American people speak with one voice when it comes to reducing the deficit: “1) Increase everyone’s taxes but mine; and 2) Cut all government benefits but mine.” I used to actually worry about this apparent conundrum until I realized that the burden the deficit puts on our economy essentially penalizes everyone without the necessity of trying to figure out what is a “fair” distribution of the burden. In fact, the way a slowing, hyper-inflationary economy distributes the burden is going to be a lot more fair than anything Congress can come up with, in my opinion. So, now I simply pray for partisan gridlock in Washington. My plan seems to be working pretty well, so far…

  2. The debt is only significant as it relates to our overall wealth, i.e. % of GDP. We are not necessarily headed for a “debt crisis”. We are if we keep increasing spending 50% a year. But, we don’t even have to cut spending in absolute terms to avoid a crisis. Just freeze spending at current levels. And then wait for the economy to grow and revenues will soon exceed spending. That is a slow way to do it, but it is possible.

    Or how about this idea, undo the stimulus, discontinue TARP and go back to the dark ages of the Bush “small government” (that is a joke folks), take some of the savings and use it to cut marginal tax rates, freeze spending, and watch the revenues rise and the deficit fall. You could even in a couple of year, (gasp) have a surplus and start paying off some of that debt. I mean, my God could we really make it with the government spending as much as it did in 2007? It would tough I know, but we could do it.

    The fact that our government is so large and out of control will actually make the spending cuts easier to make because there is so much fat to be trimmed. Of course no one in government wants you to know that. Better to sell the “debt crisis” as the end of the world leaving crushing taxes as the only alternative, which of course was the plan all along.

    1. My God Man – live at 2007 levels of gubermint spending?!!?! No Tarp! The next thing would be the Medicare prescription drug benefit, that although true we got by for 99% of our history without it, and few old people fell down dead in the street without it, you got to think of the POLITICIANS!!! What would they do without favors and breaks to bestow??? The poor men would only have to meet once or twice a year, and without presents to distribute, few would want to meet with them. They would be SOOOO lonely!!!!!
      PLEASE, Please show some compassion!
      They are all like Sally Field – they NEED to know you really, really like them!

      1. Actually the big problems in spending aren’t current, they are future. And it’s basically all related to entitlements. IE, Medicare/Medicaid and SS.

        Thus it will require entitelent reform.

        Also in reguards to the article, I think the main point is that to get a level of services that will be acceptable to the majority of Americans (not just libertarians) then some combination of tax increases and spending cuts (entilement reform) will be necessary.

        1. I think the “level of services acceptable to Americans” is a lot lower than you think. What is high is the level of services acceptable to our political and media classes.

          1. The level of services that are “acceptable” to most Americans is whatever level they think they can get that is being paid for by somebody else.

          2. I hope you are right, but think you are wrong.

            Note then outcry whenever people try and touch Medicare or SS. There’s a reason SS is normally considered the 3rd rail of politics.

            1. I have always thought the way to cut spending was to use people’s love of medicare and SS against spending. What a President needs to do is say “okay, we are going to solve the budget deficit, but I am not raising anyone’s taxes or cutting one dime from medicare or Social Security, until every dime that can be cut elsewhere can be cut.” Then take every program in the federal government and spin it as “we can fund this or we can cut social security, which is it?” Very few programs would survive that kind of comparison.

              1. Yes, but the other programs really don’t matter in the big scheme of things.

                For example, without Medicare reform, but 2040 or so, the entire budget will be taken up by two items Medicare/Medcaid, and interest on the debt.

                No SS, no military nothing else.

                While I certainly agree that there should be plenty of reform in the discrenary items, nothing else matters if the entitlements aren’t reformed.

                One good book I just read on the subject

                http://www.amazon.com/Comeback…..1400068606

                It’s from the former head of the GAO.

                I don’t agree with all his prescirptions, but his diagnois is right on.

              2. Jimmy Carter already tried that (or something close to it), John.

                Look where it got him.

                Actually, Jimmy’s done OK in the long run, reputation wise. But none of it’s because he said “no new spending programs until we’ve got the one’s we already have paid for.” Fact is, no one even remembers that.

              3. There’s room to cut everything, the big stuff and the little stuff. Social security, medicare, and medicaid can be ditched completely for all I care. The corporate welfare (Jerbs!) parts of defense spending, too. Then there’s the little stuff- DOE’s, ATF, DEA, PBS, NPR, NSF, NEA, HUD, etc., etc. Fuck it all.

        2. Actually the big problems in spending aren’t current, they are future. And it’s basically all related to entitlements. IE, Medicare/Medicaid and SS.

          And interest on the debt, which can go up pretty darn fast when you have deficits of a trillion a year or more. Especially when you consider that it’s almost impossible that these current low rates can last too much longer.

          I think “the future” is coming a lot faster than almost everyone suspects.

          1. yes the interest is a big part and getting bigger.

            Just think if we didn’t have to spend hundreds of billions on interest, we could give everyone a big tax break (or more likely pay for that health reform the liberals want)

          2. Yes, the interest on the debt is one of the major reasons that the National Debt doubled in the Reagan years.

  3. thread jack:

    http://www.cnn.com/2010/TRAVEL…..tml?hpt=T1

    TSA to swab airline passengers’ hands in search for explosives

    One more fucking reason not to fly.

  4. I keep seeing this argument repeated:

    “I would like to cut spending, but the voters don’t like cutting spending. Therefore, we must raise taxes.”

    The silly part of that is that voters don’t like raising taxes, either. Yet somehow “not cutting spending” gets transformed into a unchangeable part of the environment, whereas “not raising taxes” is something that much be given up.

    1. That is a good point.

      1. You’re both right!

  5. Nothing the government does is “nonessential”!!!!! In fact, people are dying like flies every single day due to the criminal lack of government assistance.

    Jeeezis, how many times do you people have to be told this?

  6. the school superintendent in Rhode Island who fired the entire union membership has demonstrated another way to do it. she didn’t demand paycuts for the teachers making 350% of the average salary in the town, she just asked for a little more work and the union balked. I say pay cuts or termination. something like a 25% cut for those above $150k, 15% for those above $100k, and 10% for those above $80k. let’s share the recession a little bit for the equality. go ahead SEIU, make our day.

    1. The valiant union members standing up to the tyrannical boss who attempted to turn the school into a Chinese gulag . . .

  7. More settled science. Is there anything left to discover?

  8. What makes me laugh is that if the Repubs do manage to block tax increases, Obama will take credit for it: “…see, I kept my promise not to raise taxes on the middle class!”

  9. I would love to see spending cuts. I wish it would happen.

    But running a deficit is merely taxing the next generation instead of the current one.

    1. And raising taxes to confiscatory levels is merely destroying the economy that the next generation will inherit.

      Whereas reducing the footprint of government on our lives is the greatest legacy we can leave to them.

  10. “I will gladly pay you Tuesday, for a hamburger bridge to nowhere, today.”

  11. IMO, most likely it will be a combitation of both, higher taxes and lower spending. Things that will almost certainly have to be in the solution.

    1. Higher retirment age, probably 70 plus indexed for life expectancy.
    2. Stop heroic end of life care.
    3. Tie health insurance premiums into lifestyle. IE, if you want to be fat smoker fine, but you should expect to pay more. And anyone on government assistance better be fit as hell. No twinkies or Big Macs.
    4. Compartive effectivness research for medical that is provided by the government.
    5. Mal practice reform
    6. Standardized billing and electronic medical records

    And of course some type of tax reform. Making taxes simpler and broader. More people will have to pay their fair share (I’m looking at you 40% who pay no income taxes).

    1. “More people will have to pay their fair share (I’m looking at you 40% who pay no income taxes)”

      It will never, ever happen. People do not vote themselves a tax increase, which is why the tax base has steadily been shrinking (I have the fortune/misfortune of being in the top 10% paying 60%).

    2. 3. Tie health insurance premiums into lifestyle. IE, if you want to be fat smoker fine, but you should expect to pay more. And anyone on government assistance better be fit as hell. No twinkies or Big Macs.

      Tobacco and other vices have always been a a favorite target of revenue-raisers due to the inelastic demand for it. But one of the original justifications for raising tobacco taxes in the sixties and seventies was the cost of treating diseases resulting from smoking; the implication being that the revenue from these taxes would be used for that purpose. As we have seen all that additional revenue was swallowed up by the general budget and pols then took the step of suing big tobacco for damages in spite of the fact that revenue from tobacco taxes more than covered the costs of treating all respiratory ailments in the country whether caused by tobacco or not.

  12. Sometimes you just have to sell the helicopters and turn out the friggin lights.

  13. In short, the government must raise taxes now instead of cutting spending so that it can preserve its ability to spend more in the future. And if you don’t agree with that assessment, you are a partisan obstructionist who is willing to sacrifice the nation’s future for the sake of short-term political gain.

    Beautiful summary. Jacob, you’re on a roll.

  14. 1. Higher retirment age, probably 70 plus indexed for life expectancy.
    – I am going to assume you mean people getting SS benefits. Otherwise, if someone makes a big enough pile of money to retire at 21, that’s their business. (Even though I’d be envious as hell.)
    2. Stop heroic end of life care.
    – Again, I am assuming you are referring to those on government medicare programs. [Now accepting applications for Death Quality of Life Panels.]
    – If grandpa’s got his own bucks, it’s his own business.
    3. Tie health insurance premiums into lifestyle. IE, if you want to be fat smoker fine, but you should expect to pay more. And anyone on government assistance better be fit as hell. No twinkies or Big Macs.
    – Private insurers try to do just that, except when regulatory agencies forbid it.
    4. Compartive effectivness research for medical that is provided by the government.
    See # 2.
    5. Mal practice reform
    Can agree on that, so long as we also reform the medical associations.
    6. Standardized billing and electronic medical records
    – The first part, once established, will mean an end to any form of improvement in billing practice. The second part better have some pretty good privacy controls.

    And of course some type of tax reform. Making taxes simpler and broader. More people will have to pay their fair share (I’m looking at you 40% who pay no income taxes)*.

    *Citation needed.

      1. I call shenanigans!
        FICA is a tax on income from the first dollar earned.
        I’ve never let liberals get awy with the “social security is not a tax” tommyrot, I won’t let libertarians either.

        1. The only tax in question was income taxes.

          FICA is it’s own travesty.

          Besides, I wonder what the break point is for the EITC to return more money than the FICA represents?

          1. When the EITC is grater than the FICA tax on income* of ~15%. My sphincter provided guesstimate of around 20K annual income.

            * FICA is a tax. It is a tax on income. A turd by any other name still stinks to high heaven.

            1. Don’t get your man-thong in a wad. ;-P

              1. Sorry. I have this obsession with reality based terminology. I like to call listening in on citizens phone calls spying rather than “anti-terror security data mining” as well.

                I’m funny that way.

            2. FICA is a tax. It is a tax on income.

              Yep, and on the greece thread I included FICA in my total marginal income tax.

      2. I see where this comes from, now.

        On the whole, I would say that the majority of those “who pay no taxes” are likely in the bottom half of the income range, so even if you eliminated their tax breaks, you would not add a lot to the revenue stream.

        TBS, I have a rather visceral reaction to the “40% pay no tax” meme, because it is used by scoundrels liberal politicians as an excuse for “soak the rich” tax schemes, as if every person who pays no tax were Leona Helmsley.

    1. Yes, in all instances I was reffering to government programs. If you want to retire at any age, or spend every last one of your dimes on heroic end of life care (or anything else) that’s your business.

      As for improvements in billing, I’m not sure what could be a bigger improvement that standarized forms. Cutting down on office overhead seems like a easy way to save money on healthcare without actually reducing care.

      1. Thanks for clarifying, I jumped on that a bit hard.

        As for the Standardized Billing, it would, as you say, make things simpler.

        But there are always ways to improve something and the general circumstances themselves may change, or the new “Procedure X” may not fit into the old categories*, so the form doesn’t work. But you can’t change the form because it is THE FORM and 400,000 private and public bureaucrats have to give their approval before it can change (and then you have to wait years for the new form to be printed and distributed.)

        *Imagine that a “standard form” had been developed in 1894: Where would you put an X-ray? A penicillin shot? An MRI scan?

        1. Good points for sure. Couldn’t you have a misc column or something though?

          Surely there’s a way to standardize it, but still have room for a new procedures.

          I will profess to not being an expert on the billing side. But most of the medical people I’ve talked to (I use to work for a hospital) have definitely complained about the complexity, and the need for added overhead due to that complexity.

          I know it’s an especially big problem for small providers.

  15. If you look at the historical budgets from the White House website, lack of taxes ain’t the problem, spending is.

    1. Or you could look at the link in the very first comment to this post.

  16. If a proposed budget has anything in it for the Department of Education other than shutdown costs, the author is not serious about cutting the deficit.

  17. Note how Calmes, by saying “economists” are demanding tax increases, implies a consensus,

    As long as at least one person agrees with her own view, then one has a consensus.

    Yet economists, including veterans of past Republican administrations, are vocal in insisting that the debt problem is too great to be solved without increasing revenues somehow and perhaps moving to a new consumption tax system like Europe’s.

    Yes . . . somehow.

    And Europe is doing so splendidly these days, it makes it advisable to follow their lead and tax people for daring to be alive!

  18. All the talk of cutting “Entitlement” programs like SS and Medicare.Don’t forget there’s a reason these people are Entitled. They have been paying for their Entitlements for 45 Years.Try to take it away,and you’ll have a fight on your hands. and I think grandpa would have a few kids and grandkids on his side.

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