conservatives and taxes?

Great Debates
21

To be fair I first heard that thought articulated in the 1980s during the Reagan administration.

Run up the debt until the interest charges force you to cut back on all spending.

It’s diabolical (IMHO) but it would be effective (forcing either a tax increase (political suicide) or spending cuts were it not for a third option:

Devalue the American dollar. Make each one worth less and pay down the debt in suddenly cheaper dollars.

My guess is that the current crop of politicians won’t ever have the balls to either make cuts or raise taxes. They’ll let the market eventually slide the dollar down to a point where paying down the debt isn’t difficult.

It would suck, true. But I think it’s the most like road out of debt.

22

"What kind of plan is that? Run up all sorts of debt so that we can screw poor people more?.."

How exactly does that screw the “poor” people more?

"I don’t see why we couldn’t just keep a surplus and not increase government spending. It seems everytime a conservitive gets into office they run the debt up, and now you’re telling me they do it on purpose?"

Because once there is a surplus, it should be given back to the people who crerated it in the first place… the taxpayers. Why continue to pay taxes if the money isn’t needed? I’m not saying that increased spending is the way to go mind you, but both conservatives and liberals are guilty of spending more than the govt. is taking in.

23

Well, I’d be happier if the surplus (and tax levels) were higher until the debt had been reduced sufficiently. That would later allow lower taxes to go along with decent services.

24

Compare the amount of ‘waste’ involved with, (at least), the collecting, accounting, and distribution of tax monies, with the amount of monies that are used up in similar processes by an individual. Clearly, less money goes to overhead when an individual is spending his own money than when two or more government agencies are involved.

25

I would be libertarian, but they tend to favor unfettered gun- and drug-running in my neighborhood, ignoring the tragic consequences.

26

Huh?

27

Actually, economist/commentator Paul Krugman wrote a long article in the NY Times Magazine called “The Tax-Cut Con”. Here is the abstract but unfortunately you now have to pay to read the whole article. His basic thesis is similar to yours about there being two conservative camps:

(1) The supply-side camp who believe you can cut taxes and it grows the economy so that you don’t have your revenues cut. [Big proponents of this view are the WSJ editorial page, for example.]

(2) The camp that wants to cut taxes in order to force spending to be cut and government to be shrunk to the size where it can be drowned in the bathtub, to paraphrase Grover Norquist.

What Krugman argues is that

(a) In contrast to your implication that (1) has strong support, he says that it really never has had significant support from the academic economic community. Rather, it was essentially pushed from the politcal side by conservative think-tanks and the like. [Mind you, this isn’t to say that most academic economists don’t believe taxes affect growth at all but rather that the effect is large enough to offset or significantly offset the revenue losses due to the lower tax rate, at least at our current taxation rates.]

(b) There is essentially no evidence to support this supply side hypothesis in the real world over the last 20-odd years. If you look at economic growth vs. tax cut and tax increase policies, there simply is not the sort of evidence of any strong correlation of the sort that supply-siders claim there should be.

© The people who subscribe to (2) are essentially using the people and ideas of the supply-siders [those who subscribe to (1)] to sell their tax cut in a more palatable way. I.e., they don’t have to come out and say they want to destroy government and many of the New Deal programs. They can just push the tax cut policies that will force a fiscal train wreck while claiming that these policies will not do this.

28

Well, the question is why you would want government to become an ever more miniscule percentage of the GDP. In fact, U.S. government spending as a fraction of GDP has gone up and down a bit over the years but the trend in the last 30 years or so hasn’t been for it to increase. In fact, at the end of Clinton’s term, the spending as a fraction of GDP was at quite low levels…I believe you had to go back to the 60s or maybe a couple of years in the early 70s to find comparably low levels.

29

Well, it does so in a variety of ways. First, Bush is concentrating on reducing or eliminating the most progressive taxes…i.e., eliminating the estate tax and reducing the federal income tax. In doing so, he is giving most of the breaks to the richest folks. And, to the extent that other taxes get raised at the federal or state level to make up for the lost revenues, these will almost inevitably fall more harshly on poor and middle income people. (State and local taxes are regressive in all but a few of the states, for example, because they tend to rely on things like sales taxes that take a larger percentage of lower incomes than higher incomes.)

Second, the sort of services and benefits that will be cut will most likely be those that go to poorer folks. I don’t see anyone proposing cutting back on the sort of benefits that government provides to rich people to help them grow and preserve their wealth. What conservatives want to change are not the economic policies that lead to vast inequalities in the first place but rather they want to change any government policies that then try to address these inequalities.

Well, but just because you have a surplus now doesn’t mean you don’t have debt to pay off. If you run up a big credit card bill and then your salary increases enough that you actually are getting paid more than you are spending, don’t you think you should pay down the credit card bill?

Of course, the other funny thing about your argument is it illustrates the shifting justifications for Bush’s tax cuts. Remember when he was running for President and the justification was in fact that we should give the surplus monies back to the people. Then when the economy tanked and the surplusses started to disappear, the argument was that we needed the tax cuts for economic stimulus. And, finally, as the projections of future deficits grew (partly as a result of the first round of tax cuts), one started to hear more of the supply side voodoo that we needed tax cuts to give us long term growth that would prevent grow the economy and prevent deficits. Basically, the tax cuts are a solution in search of a problem…I.e., whatever problem exists at the moment is what is used to justify what Bush and Co. really wanted to do anyway. (Of course, we have seen this same approach to foreign policy.)

30

I should have also noted that with the federal income tax, his latest round of tax cuts reduced it in a particularly regressive way by cutting taxes specifically on dividend and capital gains income.

31

Jshore:

First of all, I no longer trust Krugman as a source on anything. The man’s hatred of Bush is causing him to become unhinged. I saw him interviewed on the Charlie Rose show the other night, and he sounded like a raving lunatic. The Republicans are destroying the world sort of stuff. Bush plans to end democracy as we know it. If we don’t fight back now, there may never be another election. The Bush administration aims for global hegemony. Civil rights are being destroyed, and America will soon be a police state. Etc. etc. Real extreme stuff.

This personal wackiness has spilled over into his economics. He is flat out contradicting himself these days. If he said something was good ten years ago, and the Bush administration agrees, he now says it’s bad. He’s only inches from being a crackpot. And his writing has become so inaccurate that web sites are springing up just to document his numerous mistakes.

That said…

There are degrees to this. Very few ‘supply siders’ I know would claim that tax cuts will instantly be offset by supply side gain. They would argue that *some of the tax cuts will be, but then, no one argues that. The question is a matter of degree.

Supply-side thinking has evolved into a longer-term vision. People like Bush don’t expect tax cuts to balance next year’s budget. What they DO believe (and I agree) that a low-tax, low regulation environment will create conditions for growth which will compound over the years and leave society much better off than if it remains choked by higher taxes and regulation. If the economy grows at an average of 3.5% per year, then 10 years from now the economy will be about 14.1 trillion dollars. If you can set up an environment were growth is 4%, the economy will be producing 700 billion more dollars in goods and services per year at the end of ten years. If the government takes 20% of that in taxes, then the low tax/low regulation environment would, at the end of ten years, bring in an additional 140 billion dollars per year in tax revenue. WITHOUT increasing the percentage of GDP the government takes in.

This is the sort of extreme characterization that Krugman is engaging in these days. Even the most extreme conservatives are talking about cutting the GROWTH in government spending by a percentage or two, and Krugman is talking about the total destruction of society as we know it. This is just nuts. Society isn’t going to collapse if the NEA doesn’t get funded and the Department of Education doesn’t get to have that fancy new nationwide program for whatever the educational fad of the week is. Nor will society collapse if (gasp!) people actually get to invest some small part of their retirement money the way they see fit.

And I think the Republic will stand if rich elderly people don’t get their drugs for free.

We’re talking about nibbling the margins here, not tearing down the Great Society. That’s never going to happen. So let’s not point to monsters in the closet.

Because the government is a lousy substitute for the market. Because government is intrusive, restricts freedom, stunts growth, distorts the economy, and is a general pain in the ass.

Government is necessary. But it’s a necessary evil. It should be a tool of last resort, not the center of our lives. Government should exist on the periphery, keeping things running smoothy, keeping the currency stable, keeping the thugs within society and the tyrants without at bay, and otherwise leaving us alone to live our lives as free people.

I want government to provide me with a police force and an army. I want it to set up courts, and maybe build interstate highways and space telescopes. I want it to protect people who really need protecting.

What I DON’T want is a government that tells me what car I should drive, what foods I should eat, what schools my kids should go to, what labels have to be on my snack food, what drugs I can take, how much I have to spend for milk, how much or little I can hire someone for, what language my signs must be in, which doctor I can visit, how much I can pay him, and what ailments I can seek treatment for.

I don’t want a government penalizing me for buying milk from Joe, nor rewarding me for buying bread from Dave, because Joe and Dave managed to talk the government into massaging their respective industries. I don’t want a government slapping tariffs on things I import or export, or ‘developing’ businesses with grants and subsidies taken as taxes from other businesses the government deems less worthy.

The government I want would work just fine at about 1/2 the size it is now. Granted, the entitlement paymnents make up greater than 1/2 of the budget, but I’m not just talking about budgets. I’m also talking about regulation and bureaucracy.

But that’s me, and I’m not a conservative. The conservatives are perfectly happy with most of these things, and they’re even pushing for free drugs for the old people. They’ve selectively targeted a few areas for very modest reform, and people like Krugman think the sky is falling.

32

Well, probably one reason why it has evolved to this longer term vision is probably because it has a better hope of surviving as an economic theory if it is essentially unfalsifiable since it didn’t do very well when it made predictions that were easier to test. As Krugman pointed out, some folks are creditting the growth in the late 90s to the Reagan tax cuts in the early 80s. As Krugman pointed out, that sort of logic means that the economic growth in the 80’s (which wasn’t that great anyway) that the supply-siders originally took credit for ought to be creditted back to policies of Lyndon Johnson.

Are you denying that Grover Norquist ever said “I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub”? It could be a misattribution but I haven’t seen any denials of it.

33

A) Grover Norquist is not an elected official.

B) It doesn’t matter what he personally wants. For all I know, he also wants to flatten the Rocky Mountains so that Colorado can get an extra half hour of daylight. What matters is that there are no Republicans elected to major office who are willing to do anything but nibble at the grossest excesses of government. The last politician who tried to really shake up the establishment was Newt Gingrich, and he got run out of town on a rail.

In any event, Bush is clearly not a small government conservative, seeing as how it was his pet project to give the Department of Education its biggest funding boost in years. He did the same for NASA and a whole raft of other agencies. Even discounting spending on homeland security and the war, this administration is full of big spenders.

34

Yes, that is all very well & good- but the GOP stopped being the party of "cut taxes and spending " around the time Reagan got in. Face it, the new GOP is is “cut taxes for the very wealthy, but keep spending like a madman” while the Dems- who admittedly used to be the “tax & spend” party- are now the party of fiscal responsibility.:eek: After all, Clinton did actually have a balanced budget and paid down the National Debt. :eek:

I think that the real idea behind “cut taxes and increase spending” is so that the GOP has the best of both worlds. Everyone likes a tax cut- but if you cut spending, dudes scream. Thus, they cut taxes but INCREASE spending. Of course, sometime the vultures have to come home to roost, but the GOP figures that’ll be a Dem administration that will have to cut taxes and decrease spending- thus being “the bad guys”. However, another 4 years of this, and the USA may well be on the verge of economic collapse.

35

Sounds like California, except you have the political parties wrong.

Regards,
Shodan

36

Sam: Well, okay, I see your point. I agree that the Republicans aren’t likely to make those sort of huge spending cuts. But, the fact is that they still seem willing to go along with setting us up for a fiscal train wreck even if the scenario whereby we avoid it comes out to be something more like DrDeth talks about than actually having truly draconian spending cuts.

Shodan, are you saying that the Dems cut taxes and increased spending in California? Your conservative breathren at the WSJ editorial page would disagree with you on the first part of this statement. Maybe you and them can get together and decide on a consistent story before you bother us with it?

[Admittedly part of the confusion here is that I assume DrDeth meant to say that the Dems would have to “increase taxes” not “cut taxes”.]

37

By the way, while Grover Norquist is not an elected official, some people have characterized him as having about the most influence of any unelected person in Washington.

38

Points well taken. As someone who does not buy the supply side line, I was attempting to answer the OP as a GQ, I attempted to err on the side of legitimizing the idea that tax cuts can result in revenue increases.

I’ll just respond the way Condi Rice might: The points I made are technically accurate, but do not rise to the level that I’d actually make them and believe them.

39

I’m not sure the Democrats deserve this label of fiscally responsible stewards. From what I can tell, their big claim to fame was that, A) Clinton balanced the budget for a couple of years, and B) They like tax increases.

The fact of the matter is, spending is the problem, and Democrats are big spenders. So are Republicans. Clinton got lucky - he happened to be president when a massive tech boom came along and swelled the government’s coffers. He also had Republican majorities in the house to keep his big spending in check (something they seem unwilling to do when the President is a fellow Republican - to their discredit).

Had Al Gore been elected, he’d also have massive deficits. That’s what happens when your government spending is baselined and you hit a recession. So far, the deficit doesn’t really reflect much of the Bush administration’s tax cuts, since they were mostly back-loaded to his out-years. Assuming Gore would have spent an equivalent amount on homeland security (and many Democrats say that Bush hasn’t spent enough), and increased military spending by a similar amount (say, other than the cost of the war), then Gore would be sitting on a 400 billion dollar deficit anyway.

But it’s hard to say what Democrats would do in the White House, because there has been so few of them. There have only been two Democrats in the White House since 1968, and one of those ran up deficits big enough for Reagan to run as a deficit hawk (and yes, he promptly ran the deficit up even more, but that’s another issue).

The real bottom line here is that spending is the problem, and since spending has been fixed and automatic increases are now part of the structure of government, whether there is a deficit or not has a lot more to do with the business cycle than with who is in power. Reagan’s deficits ballooned during the recession of the early 80’s, and started dropping drastically when the economy recovered. Bush I’s deficits skyrocketed with the recession of the early 90’s, and then they dropped drastically under Clinton when the economy boomed. Now it hit a long recession again, and voila, big deficits.

Unless government can learn to actually cut spending during recessions as businesses do, this cycle will continue forever. And tax increases aren’t going to help one bit, because all they do is cause the size of government to balloon once the economy begins to move. Then the next downturn finds the government spending all that revenue, and it’s in a position where it’s broke again and another round of tax increases must start. Look at California - The government gained 25 billion a year in revenue when the tech bubble came along, and Davis promptly increased spending by 38 billion a year. Then the bubble burst, and left the state worse off than if it had never happened at all.

If you want to see a good example of fiscal stewardship, I suggest you look at the Conservative government here in Alberta. When times got tough, we cut government. Big time. People howled and screamed, but our Premier stuck to his guns, and we balanced our budget. Then when oil revenues skyrocketed, rather than bump up spending again he said, “This is temporary, so we’re not putting permanent spending increases in place”. So he took the extra money and A) cut taxes, B) paid down our debt, and C) put the rest in a ‘sustainability fund’ that we can draw from when oil revenues drop below historical averages. Klein cut our debt from 27 billion to about 9 billion. As a result, we have a AAA credit rating, the lowest debt in Canada, a balanced budget, and as a result of our low interest payments on the debt, we can spend more on social services and infrastructure.

And because of our low tax and regulation environment, Alberta now has by far the healthiest economy in Canada. In fact, if Alberta were a country, it would have one of the best economies in the world. We’re doing so well that our province of less than 3 million people contributes 9 billion dollars a year to other provinces in ‘equalization payments’, and we STILL have low taxes and good services.

40

Two points here, Sam:

(1) Apparently even Bush admitted that his tax cuts account for ~1/4 of the current deficit. Other estimates are higher, more like half the deficit.

(2) Your point about the tax cuts being back-loaded is precisely correct but you haven’t worked through the implications. Sure, running deficits during a recession is par for the course but the Bush tax cuts are ensuring we remain in deficit almost as far as the eye can see, even with fairly optimistic growth projections and unrealistic projections about allowing the tax cuts to sunset and not doing anything about the alternative minimum tax. Under more realistic projections, we apparently remain firmly in the red.