StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between



The Republican Anti-Tax Position Is Rapidly Crumbling Under the Weight of Deficits

15 May 2011
Posted by Bruce Bartlett
An earler version of this appeared in The Fiscal Times.
 
Republicans have a problem. The American people are concerned about the budget deficit and know enough basic arithmetic to understand that it can result from higher spending or lower revenues. Republicans, however, insist that taxes must not be increased by a single penny; indeed, they argue that the government doesn’t even have a deficit problem, just a spending problem. Therefore, the only deficit reduction measures they will consider in the Republican-controlled House of Representatives are spending cuts. So certain are Republicans that tax cuts have no impact on the deficit that they included another $3 trillion worth in the budget they passed on April 15.
 
Democrats all know that the Republican position is ridiculous, that the Bush tax cuts have added some $2 trillion to the national debt and constitute the largest component of projected deficits going forward. These facts are documented in recent reports from the Congressional Budget Office, Pew Charitable Trusts, and the Center on Budget and Policy Priorities. They show that simply allowing all the Bush tax cuts to expire on schedule next year would be sufficient, by itself, to stabilize the debt-to-GDP ratio.
 
Unfortunately, Democrats have been oddly reluctant to explain the truth about the deficit. They seem paralyzed by fear that they will be attacked by Republicans for being tax increasers. Consequently, the Republican mantra that spending must be slashed, even if it means effectively abolishing Medicare, and any tax increase, no matter how small, will destroy the economy is just about the only budget option voters ever hear.
 
Democrats shouldn’t be so timid. There is a lot of poll data showing that the American people are less enamored with the Bush tax cuts than Republicans are, and willing to support higher taxes as part of a deficit solution.
 
A May 11 Pew report reminds us that the original Bush tax cuts in 2001 were supported only because the budget surpluses of the Clinton administration were expected to continue for some time. Nor were tax cuts peoples’ preferred option for dealing with the surpluses: 37 percent favored increased spending for Social Security and Medicare, 23 percent wanted other domestic spending raised, and only 19 percent favored a tax cut. But a tax cut was the only option Republicans permitted.
 
Furthermore, people accepted from the beginning that if budget surpluses failed to materialize then the tax cuts would need to be curtailed; 73 percent of people said that the Bush tax cuts should automatically be scaled-back if surpluses turned out to be smaller than expected. Of course, the surpluses were much smaller; in fact, they evaporated within a year. Rather than admit their error, however, Republicans rammed ahead with more tax cuts.
 
Although Republicans insist that the Obama administration’s policies are largely, if not exclusively, responsible for the deficit, the American people know better. According to an April New York Times/CBS News poll, 41 percent of people primarily blame the Bush administration for today’s deficit; only 14 percent blame Obama. That same poll found that an overwhelming 72 percent of people support raising taxes on those making more than $250,000 in order to reduce the deficit. The House Republican budget plan would slash taxes for the rich by reducing the top income tax rate from 35 percent to 25 percent, thus requiring larger budget cuts to achieve budget balance.
 
This is not the only recent poll in which Americans have said that they support higher taxes as part of a deficit reduction program. They consistently show that only a small minority of Americans believe that the budget can be balanced with spending cuts alone.
 
 
- A May 13 Bloomberg poll found that only one third of people believe it is possible to substantially reduce the budget deficit without higher taxes; two thirds do not.
 
- A May 11 Ipsos/Reuters poll found that three-fifths of people favor raising taxes to reduce the deficit.
 
- A May 4 Quinnipiac University poll found that 69 percent of people, including 49 percent of Republicans, support raising taxes on those making more than $250,000.
 
- An April 29 Gallup poll found that only 20 percent of people favor the Republican position that the deficit must be reduced only with spending cuts; 76 percent say that taxes should play a role.
 
- An April 20 Washington Post/ABC News poll found that by a 2-to-1 margin people favor a combination of higher taxes and spending cuts over spending cuts alone to reduce the deficit. It also found that 72 percent of people favor raising taxes on the rich to reduce the deficit and this is far and away the most popular deficit reduction measure.
 
- An April 18 McClatchy/Marist poll found that voters support higher taxes on the rich to reduce the deficit by a 2-to-1 margin, including 45 percent of self-identified Tea Party members.
 
Republicans are working hard to enforce their no-tax-increase-ever orthodoxy, but there are signs that the dam is beginning to break. On April 7, former Reagan budget director Dave Stockman said, “It is simply unrealistic to say that raising revenue isn’t part of the solution. It’s a measure of how far off the deep end Republicans have gone with this religious catechism about taxes.”
 
On April 17, former Federal Reserve Board chairman Alan Greenspan, who has been the Republican Party’s leading economist since the 1960s, said that raising revenues to deal with the debt is imperative and recommended letting all the Bush tax cuts expire. As he put it on Meet the Press, “I think this crisis is so imminent and so difficult that we have to allow the so-called Bush tax cuts all to expire [and] put the rates back to where they were in the Clinton administration.”
 
Even those representing the GOP’s conservative wing are starting to question the party’s anti-tax obsession. On April 19, former Arkansas governor Mike Huckabee told his radio audience, “I never understood when it became a mark of conservatism to run up debt on your children’s credit card instead of biting the bullet and paying your own bills.” He further noted, correctly, that Ronald Reagan supported many tax increases in the 1980s.
 
There is some evidence that House Republicans are starting to get the message that their tax position is crumbling. On May 11, a senior Republican staffer told Atlantic reporter Derek Thompson that his party’s position on taxes is intellectually dishonest. “There are two worlds,” the aide said. “One world is political and the sole objective is to maintain party message. The other world is real and in the real world fixing the deficit is a matter of national survival. When you get down to the real world decisions, it’s not about whether to raise taxes; it’s about the ratio of spending to revenue increases.”
 
Press reports say that Senate Budget Committee Chairman Kent Conrad is preparing a budget resolution that will propose a 50-50 split of higher taxes, including a surtax on millionaires, and spending cuts to reduce the deficit. With the Republican zero tax increase option rapidly falling apart, a workable deal might be put together in which there are $2 of spending cuts for every $1 of tax increase.
 

Republicans have been very

Republicans have been very effective at convincing the people who end up receiving more direct economic benefit from taxes than they cost that taxes are "stealing their money", and thereby garner support for policies that reduce taxes for the wealthy people who receive less direct economic benefit from the taxes than they cost. The dirty word that no one wants to talk about is redistribution.


Redistribute!

Redistribute! Redistribute! Redistribute! Our elites have been pursuing redistributionist policies for 30 years, redistributing income up and into their own pockets. And then they shrug and say it's not their fault. Nonsense. They run things. They are in control.

But now that they've captured the government things will probably get worse for the rest of us, even though strangling the goose that lays their golden eggs is bad for them as well.


Is it "timidity" on the part

Is it "timidity" on the part of Democrats? Or would Democratic elites be quite happy to keep the Bush tax levels (which, being generally wealthy, they themselves benefit from) while reigning in social safety net spending?

Me thinks Democrat elites are timid like a fox.


Spending is a Problem

Obama's cuts in DoD are meaningless, zip.

Obama's $400B in "savings" over 12 years is a reduction of a spending stream that will grow in real terms but slower than the GDP and accumulate more than $8,000B in outlays.

Most of the cuts are smoke and mirrors, no change to "readiness or presence" or the "health" of profitable arms factories.

The US spends 49% of world's war funds for weapons, continuous mobilization and perpetual war. That is a spending problem, a huge unwarranted burden.

In 2010 the DoD: the wars and mobilization for the most "unlikely contingencies represented 20% of US government outlays, close to SS for the largest outlay.

By 2023 the US will be spending in real dollars about 5% less than during Vietnam, when there were enemies with armies and navies.


Suggestions for Spending Cuts?

Bruce,

I recommend that you read Keith Hennesey's article on spending being the long-run problem:

http://keithhennessey.com/2009/04/16/americas-long-run-fiscal-problem-is...

Of course, taxes must increase. But the Democrat welfare state is predicated upon a pyramid shaped population cohorts with a large base of young workers supporting a small pinnacle of old retirees. However, the pyramid has become taller and thinner, hence fiscally unsustainable. Even if we went back to Clinton era tax rates, we'd still be kicking the can down the road. That is the fact that you and the Democrats fail to grapple with.

And Obama is opposed to returning to Clinton-era rates for those making less than $250,000/yr. That makes him only moderately less irresponsible than the Republicans.


Can't we just import young

Can't we just import young people?


cohorts

The problem with the GOP utopian vision is that it is dependent on a pear-shaped cohort of angry, reality-disconnected 45-70 year-old white folks...


Thanks for some good news

You have to appreciate it when someone who wanted catsup to be considered a vegetable, then comments on how far off the deepend oter Republicans have gone... although it's true. It's also impressive to hear Mike Huckabee say something highly sensible for a change. Truly 10% of Medicare spending could be cut and outcomes would probably improve. It is good to hear some movement re the Bush tax cuts expiring because they didn't benefit most people that much, we're still paying for Iraq and Afghanistan, and with wonded vets and PTSD we'll be paying for that a long time to come, as we should for our vets. Also, aside from the high level of unemployment, with the higher costs of many things, notably gas and healthcare, the value of a dollar and people's wages have taken a hit in the last few years. Americans have paid down some of their debt, and recognize we're in a serious situation; I think people want their government to do the same thing too.


Vet health system is socialized medicine

The VA medical system is socialized medicine (government ownership of the means of production) and that needs to be clearly explained to America. Lets talk about giving Vets health care premium vouchers and sending them out into the private market.

Then lets kill that private health insurance system and get everybody into a government plan: the VA or Medicare-For-All.


Mark Zandi - Americans getting their house in order

FYI, at the NEC lunch last week, Mark Zandi said that household liabilities have fall by more than a trillion since peaking 2 1/2 years ago, deliquency rates on household loans are at a lower level now since before 2006 - he said "every liability, delinquency down, very low as low as 1997" - "house in order" - Shouldn't we expect our government to do the same? And it's definitely good to hear about something closer to what Pete Davis noted as general policy 1/2 from highr taxes, 1/2 from spending cuts, which we particularly need in the face of PPACA, and to soften the blow of interest rate increases


is it possible that people

is it possible that people sincerely answer that they support tax increases when asked, and then go and vote Republican on the basis that Dems are tax-and-spenders? people don't make sense


The PR campaigns in favor of

The PR campaigns in favor of slashing SS and Medicare are unrelenting. Who is funding this madness? I can't see who benefits from such an attitude.
Do they really want more elderly maids this badly?


"I can't see who benefits ..."

Do they really want more elderly maids this badly?

Maybe they just don't want today's middle-aged maids paying so much for Warren Buffett's Medicare and Social Security beneifts, while also subsidizing millions of well-off retiring boomers sailing off on their yachts.


Democrats in denial

{Democrats have been oddly reluctant to explain the truth about the deficit. They seem paralyzed by fear that they will be attacked by Republicans for being tax increasers.}

This presumes that the American people are too stupid to understand that by raising taxes, they could even, balance a budget and reduce it? Why do Democrats deny themselves the opportunity to explain why the deficit is so bad?

Yes, the deficit depends upon both the level of taxation and spending. So, let's have a look at what has happened historically to Tax Revenues, that is, the Tax Rates. Ever since Reagan invested the Oval Office in 1980 he set about reducing Marginal and Capital-Gains taxes. (After all, he had to pay back his cronies who financed his election.)

Marginal Income tax rates were at 90% in the 1950s/1960s? Did America stop making millionaires? No. When Reagan took office they are around 70% - they had already come down 20%. By the time he left office they were down to 30%, a drop of 40%. Today, after deductions, their effect rate is around 23/24%.

And we ask ourselves "What ever happened to the deficit?" Why did it go to hell in a hand-basket? Ask the Republicans who went on a DOD Spending Spree over in the Middle-east and you'll get the right answer.

The Republicans are responsible for the Deficit Debacle and they know it. Now they want to be sure that the burden remains on the Middle-class whilst their Upper-class cronies keep the lion's share of the wealth this country generates.

Don't believe this that the Rich own America? Then have a look here: http://sociology.ucsc.edu/whorulesamerica/power/wealth.html . The results demonstrate clearly why America has the worst Income Unfairness of any developed nation on earth.


The American people are very

The American people are very supportive of spending on themselves, and of taxes on other people. That's all you're ever going to find out from polling.


Be the first to answer big important question.

Here's the big question, and your chance to be the first one anywhere to answer it:

What does happen, and who decides, when the money runs out and there's no authority to borrow? I've been looking for an hour, and I haven't found much. If we only have 60% of what we need to pay for our already authorized spending (a CNN figure), who decides how that 60% is distributed, who gets paid and who doesn't?

Who decides??

A bill is passed? What if Republicans block any bill, none passes, then how's that 60% distributed? Who doesn't get paid? Debt holders? Seniors don't get their Social Security checks, who? Who decides? The courts? The Treasury Department?

Economist blogger Barkely Rosser of Econospeak just left this reply to me at Mark Thomas blog:

Another reason the thing should be abolished. This has never been determined, although presumably the US Treasury can choose to pay some bills and not others. But there is no law about this at all.

at: http://economistsview.typepad.com/economistsview/2011/05/the-outcome-of-...

If you don't know the answer, Stan Collander may be one of the few people in the country who does.


Plutocratic Oligarchy?

It may not be that Democrats are timid of the GOP accusing them being tax-raisers. That is nothing new. What is more likely is that the Democrats are afraid of being cut off by corporations and the wealthy if they raise taxes on them, and the Democrats know that it is virtually impossible to win on the national scale in a era of billion dollar campaigns without corporate banking and large contributions from the wealthy. The US is now a plutocratic oligarchy, since wealth controls both parties.


Debt Ceiling

To counter Speaker Boehner's ridiculous position that everything is on on the table (re Debt Ceiling) except tax increases, the Democrats should state that everything is on the table except spending cuts.

If one looks at the past 50 years of economic policy and observes the general trend (excluding the noise of the business cycles) then the following facts are clear:

1. We cut the federal income tax rate several times.

2. We cut tariffs.

3. The national debt has exploded.

4. A larger proportion of American adults are not working.

We should all be saying "Duh!". If we raised taxes and tariffs, there would be more Americans working (and, at higher wages) and the huge budget deficits would shrink and then become budget surpluses.


non-linear

As any student of Econ 101 can tell you, money has a multiplier effect. As taught in that first course of the dreary science, it applies to expenditures on the plus side. Red Alert: it also applies on the down side. Let me illustrate. If you believe we can/should balance the federal budget by reducing spending with no increase in taxes/revenues. We currently have a gap between outgo and income of about 8% of GDP (in VERY round numbers, about $1 Trillion). If we got extremely serious and decided to balance the budget by reducing spending by $1 Trillion. The nasty little truth is that a reduction of $1 Trillion in government spending will result in about $1.6 or $1.7 Trillion reduction in economic activity, and that will translate into a reduction in government revenues. Assumptions that a reduction in spending will not result in a reduction in revenues, the so-called linear arithmetic model, are naive and unreal. The appropriate model is a differential equation (OOOH, math, ewe!) which takes the multiplier effect into consideration. Be careful what you ask for; you might get it.




Recent comments


Advertising


Order from Amazon


Copyright

Creative Commons LicenseThe content of CapitalGainsandGames.com is licensed under a Creative Commons Attribution-Noncommercial-Share Alike 3.0 United States License. Need permissions beyond the scope of this license? Please submit a request here.