Thursday 31 March 2011 — This is more than 12 years old. Be careful.
The current Federal budget negotiations make me sick. The new Congress started out by talking about the corrosive nature of the deficit, and the need to cut spending as a way to combat it. But now they seem focused purely on cutting for the sake of cutting.
In the early days of this Congress, jobs seemed to be a big concern. In fact, they were the main reason claimed for the attempt to repeal the health care bill, they were even mentioned in the title of the legislation. But now that the Republicans have turned their attention to “big government”, they tell us that 700,000 jobs lost is a small price to pay.
Republicans’ real priorities were made clear in their early rule change that said laws have to state their effect on the deficit, unless the law is a tax cut. There’s no better demonstration of the choice they would make: between reducing the deficit and cutting taxes, they’ll cut taxes. That isn’t fiscal responsibility, it’s shameless pandering, and it’s part of the reason we have the deficit we do.
So now Washington is negotiating budget cuts, and it’s disgraceful the things being considered, like funding for homeless veterans. Social programs will be prime targets, not because they contribute significantly to the deficit, but because Republicans don’t like them in the first place. Again, the deficit is not the top-of-mind issue here.
Republicans, and especially the Tea Partiers who are now holding them hostage, like to decry spending. But spending in and of itself is not a bad thing. Over-spending is a bad thing, because it leads to deficits and out-of-control debt. But there are two ways to control the deficit and Congress is artificially tying one hand behind their back as they battle the deficit monster.
Reducing the deficit will be really hard, and any solution will involve new real pain. When I look at the budget cuts being proposed, it’s clear that all the proposed new pain will be felt by the lessers in society. The Republicans will cut social programs, or they’ll try to dent Social Security. Some teachers will lose their jobs, unions will be hobbled, and so on.
Here’s my question: what new pain will the well-to-do feel to reduce the deficit? How will those among us with the most make a new contribution to solve this serious problem? I suspect the Republicans won’t come up with a way. That’s just wrong: if you have resources, you should help. That’s part of what it means to be a community of citizens: when your country has a problem, you help how you can.
Of course there’s an obvious answer: the well-to-do can contribute revenue. If Congress can consider cutting services that go to those with the least, they can certainly consider increasing taxes on those with the most. Politicians that claim they can’t are nothing but dishonest cowards, and they should be ashamed of themselves.
The first thought I have is that I don't think the "well-to-do" argument is really a very good one. Right now, the top 1% make 20% of the income in the nation and pay 40% of the tax revenue. So, the tax code is already pretty progressive. But, my issue is that incentives matter: I assert that raising the tax rate will lower revenue. The reason I believe this to be a sound assertion is because lowering the tax rate in 2003 raised revenue (substantially); tax receipts from the wealthy went up in both percentage of taxes paid and absolute numbers -- in fact, they went up enough to pay for the tax cuts on the middle class.
So, my real issue with dinging the wealthy in order to close the budget hole is that I don't think it will actually work, and history seems to play that out. If we raise tax rates on top earners and revenue falls, then everybody loses -- the wealthy lose, the government loses, the economy loses (because of all the activity that the tax dissuades), and ultimately, the "lessers" in society lose the most.
I am not a politician (I am a Python programmer like you are), but I believe that some of the arguments being made by fiscal conservatives are in better faith than you believe. Some Republicans and some Democrats are being dishonest, I'm sure. Some are being honest and have diverging views. For instance, I don't think raising taxes on those with the most is a good idea, not for reasons of fairness (although I take exception there too), but because I simply don't think it will get the result that you are expecting. A higher tax rate doesn't translate into more revenue if the base of activities being taxed falls by more than the rate hike, which is what I believe will occur based on what has happened before. Revenue has held tight at 19% of GDP regardless of the top tax rate (which has varied widely from 35% to 91%) since before World War II. Therefore, if you want more revenue, the more probable way to get it is to grow GDP. Raising top tax rates tends to cause GDP growth to stall, which stalls revenue as well.
From where I sit, I think most Democrats as well as most Republicans are being honest, and simply think differently. Democrats believe that we fundamentally have a revenue problem, and Republicans believe that we fundamentally have a spending problem. That's why both make the arguments they make.
I also don't believe we need to raise the tax rates, but we definitely need to close the tax loopholes. We need to end corporate welfare and that means we need to get rid of the lobbyists. The whole system is corrupt.
First, Luke: you say that "lowering the tax rate in 2003 raised revenue" but that looks like post hoc ergo propter hoc to me. I could match every one of the talking points you reiterate with empirical proof of the exact opposite, but it's just not worth it when you're not even *trying* to address all the confounding factors standing in the way of the causal relationship you claim.
Jeff: we don't spend a lot on defense. We spend plenty on the military, little of whose activity serves any defensive purpose.
I think anyone that thinks there is any way we can keep our modern nation along with 14 Trillion Dollars in public debt that does not understand that taxes are going to increase is a little out of their mind. Two good links recently are look at the effects of just cutting a tiny bit of the NOAA budget  and then an overall economic view of the current times by David Warsh .
I think a 6-10 year plan to tax the wealthy >10MM $, a VAT across the board and a strong carbon tax would benefit the environment, spread the challenge across the nation and focus some on the people who have the most and can help the most.
What kind of external shock does our nation and system need to support something like this?
Let's do some math:
Let's say my company makes $1 million a year. Let's call my taxes 40% overall. That's $400k for the government.
Now, if we cut taxes by 5%, the government is getting $350k when I make $1 million. Now, if those tax cuts spur growth, I would have to make $1.142 million to give the government the same $400k. So, somehow I'm turning that $50k I don't have to pay in taxes into $142k worth of revenue? In one year. Screw the stock market, I'm just going to lend money to these brilliant businessmen that can triple their money in one year.
How is anyone supposed to believe that's possible? And not just in one business, but across all businesses in the entire US?
Meanwhile in the UK, the Labour government didn't cut taxes in that decade; they increased public spending instead, again nullifying any gain in fiscal revenue but resulting in higher standards of living for most of the population.
Just before leaving power, they raised basic taxation to 50% on incomes above £100.000 ($150.000, more or less) and tried to freeze expenses; the struggling economy reacted well enough. In came the current Tory-led government, started slashing spending wherever they could, and the economy immediately contracted.
All too often, I think the Republicans favor the most simplistic and brutal cuts in the most necessary and useful areas precisely because those cuts will be noticed the most and generate the most protest. If nobody's screaming then you're not cutting enough, goes the theory, so other people's screams really do become music to teahadists' ears. I'm sorry if that offends you, but that really seems to be the political equation among the folks who only recently discovered the concept of deficits.
As for "cuts in the most necessary and useful areas" - take the position the state governments are in now, having to choose between paying the pensions of their retired workers and paying for current government services, like roads, schools and police. Someone following the rule of utility would abandon the pensions, not the operating budget. Federal entitlements are like pensions; they aren't paid for because they're useful. They are defended, if at all, as primary moral obligations, part of government's basic purpose. That is, if Social Security is not sacred, it's indefensible.
Granted, not all businesses will be able to do that and I don't claim to know the averages of what can and what can't. My point is simply that its very possible.
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