Tax Cut, Sequester Hypocrisy Means Never Having to Say You're Sorry Full of Shit.
Writing at Bloomberg View, Caroline Baum tosses out three recent examples of tax-cut hypocrisy:
—For over a decade, Democrats have disparaged the reduction in marginal and capital gains tax rates enacted under President George W. Bush as "tax cuts for the rich"—at least until they were about to expire. Then President Barack Obama discovered that, lo and behold, the middle class had gotten tax cuts, too.
– Republicans want to reduce the deficit by cutting spending. They disavow the Keynesian notion that cuts in government spending have a contractionary effect on the labor market—except when it's defense industries that are facing cuts. Libertarians call them "Military Keynesians," to highlight the inconsistency in their positions.
– The payroll tax cut in 2011 and 2012 posed a problem for both parties. Republicans oppose temporary tax cuts because empirical evidence suggests that they don't have the desired effect. That's because individuals make spending decisions based on theirexpectations of income over a lifetime. On the other hand, the GOP doesn't like to stand in the way of any tax cut. Democrats supported the reduction in the payroll tax, which is regressive, on the grounds that it would help the ailing economy. That put them in a bind when they had to explain why tax cuts for everyone wasn't a good idea for the same reason.
Baum also has a column up about why she knows the sequester is going through. Read that here.
Here's what President Obama is promising will happen if the sequester goes through as he wrote it (yes, it was his idea, as a way of forcing a compromise):
"If Congress allows this meat-cleaver approach to take place, it will jeopardize our military readiness. It will eviscerate job-creating investments in education and energy and medical research," Obama warned in a speech at the White House, flanked by emergency workers. "It won't consider whether we're cutting some bloated program that has outlived its usefulness or a vital service that Americans depend on every single day."
By Friday, expect him to be invoking plagues of frogs and flaming hail. As I noted earlier this week, the $85 billion figure that gets invoked is wrong; cuts in fiscal year 2013 will amount to $44 billion or about 1.2 percent of all federal spending. We've been hearing for a long time that sequestration alone would kill about 700,000 jobs.
That's a claim taken as gospel that is based on what can be called "ugly modeling" at best. Because virtually all government spending is counted by definition as adding to GDP, any cut thus means reductions in activity and jobs. Add to that the idea that projectionists routinely assign a multiplier of more than 1.00 to government spending, so that each dollar the feds spend magically creates more than $1 in economic activity.
The country's experience with recent stimulus spending should give pause to all of us (if it doesn't, watch this). When the stimulus manifestly failed to reduce unemployment by its own predictions, its architects and defenders in the press nonetheless pronounced it a success and claimed that it saved us from an ever bigger problem. The real problem, you see, was that the stimulus wasn't big enough. All it takes is a government failure for stimulatarians to channel their inner Andrea True.
Yet there's every reason to believe that stimulus spending has a multiplier that is well below 1.0, meaning that every dollar that's spent generated less than a dollar of activity, resulting in a net drain on economic activity. Think about it in a different context: Virtually everybody understands that when local governments shell out massive tax money on sports stadiums, the local economy doesn't see any net benefits. If you're lucky, existing entertainment dollars may be spread toward sports facilities, but nobody seriously believes any more that such spending grows the overall economic pie or stimulates anything other than owners' and players' bank accounts (in fact, simply having a major professional team in your metro area shaves about $40 per person per year). If building white elephant stadiums and museums with public dollars worked, Cleveland would be the hottest town in the country.
The recognition that stimulus spending doesn't work as advertised may not salve the hurt of the currently unemployed but it has the benefit of being more credible than the alternative. And in the context of sequestration, it suggests that if and when the $44 billion of cuts for 2013 happen, they won't crater a $16 trillion economy. Indeed, they might even help the economy by showing that the government, despite its Herculean effort to never, ever rein itself in, can be halted.
Which, of course, brings us back to Caroline Baum's insights on economic hypocrisy from Dems and Reps alike. All I can say is that it will be a great day when the Air Force has to hold a bake sale to bomb all the Solyndra factories.
