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February 03, 2005

Bush hasn't cut taxes

Anderson on Taxes, Elizabeth Anderson: February 3, 2005

This is a plea for terminological honesty, as a prerequisite for fiscal sanity.  President Bush boasts, as one of his major policy achievements, that he has "cut" taxes.  Virtually all media outlets and partisan sources, including Bush's critics, follow Bush in calling his tax policies tax "cuts."  But Bush has not cut taxes.  He has merely postponed them.

Suppose you buy a $200,000 house by putting $100,000 down and taking out a loan for the remaining $100,000, to be paid off at 5.5% compound interest over the next 30 years.  Would it be accurate to say that you had to pay only $100,00 for the house?  Of course not.  You've simply postponed payment of the $100,000 balance.  According to this handy mortgage calculator, the cost of doing so--your total interest payment--will be $104,403, for a total 30 year housing cost of $304,403.

Ok, then.  Suppose, in 2004, you bought $2,292.2 billion of government outlays by putting $1,880.1 billion in tax revenues down, selling $412.1 billion in IOU's to the general public, and $151.1 billion in IOU's to the Social Security trust fund (in return for spending an equivalent amount of Social Security tax revenues on non-social security projects, included in the $1,880 billion figure above).  Would it be accurate to say that you had to pay only $1,880.1 billion for government?  (Data from the Congressional Budget Office.) Of course not.  You will have to pay, on top of that, $563.2 billion ($412 billion borrowed from the general public + $151 billion borrowed from Social Security), plus interest (which, according to the Bureau of Public Debt, was running on average at 4.5% at the end of 2004) in future years to pay for government spending in 2004.

Let's face the facts.  The nominal "price" of government (not the same as its total cost) is equal to the amount of government spending, not the amount of tax revenues.  If the spending isn't paid for today, it will have to be paid for tomorrow, with interest.  Bush has been steadily increasing government spending, as you can see here.  Falling tax revenues today mean rising tax bills tomorrow.  To be honest, we should call Bush's tax policies, given the absence of commensurate spending cuts, tax postponements.  They are not tax "cuts."

Against this, supply-siders have, since Reagan, promised that cuts in current tax rates will increase future tax revenues enough to close the deficit, by stimulating economic growth.  But that didn't happen in the Reagan years, and it didn't happen with Bush's tax policies, either, as the data show.

Of course, the government could avoid raising taxes by defaulting on its debt.  But doing so would be far more costly than raising the taxes needed to pay it off.  We'd face a run on the dollar, soaring interest rates and inflation, and likely economic collapse.  Indeed, at current rates of borrowing, we are likely to face these consequences long before default is imminent.

It could also be argued that it's ok to call Bush's policies tax "cuts" if they will be paid for in the future with spending cuts, rather than future tax increases.  But Bush's own spending policies, notably including the new Medicare drug benefit, are plainly inconsistent with the kinds of spending cuts that would be needed to prevent future tax increases.  In fact, according to the Government Accounting Office's latest report, "today’s fiscal policy Is unsustainable" (p. 5).  Among the nuggets reported there:

  • "In fiscal year 2004 the federal government added $13 trillion in new liabilities, unfunded commitments, and other obligations, principally due to the new Medicare prescription drug program" (p. 7).
  • "The federal government’s net liabilities, unfunded commitments, and other obligations now amount to more than $43 trillion, or about $350,000 for every full-time worker, and these unfunded commitments are growing larger every day" (p. 7).
  • If Bush carries out his promise to make his tax "cuts" "permanent," and discretionary spending [only 1/3 of total federal spending] grows at the same rate as the GDP, "by 2040 the government would have only enough money to pay interest on the federal debt" (p. 8).
  • "Social Security is a relatively small part of the long-term fiscal challenge when compared to spending on health care. . . . [T]he estimated Social Security shortfall is about one-third the estimated cost of recent tax cuts if made permanent" (p. 12).

Bush's fiscal policies are leading us to disaster.  It's time to call Bush out on his fraudulent bid to make his tax "cuts" "permanent."  A good start would be to stop calling them "cuts" and start calling them tax postponements.  That would make the fraud transparent.  You can't postpone bills forever.

I'm not claiming that tax increases can solve this mess by themselves.  Clearly, strong steps will be needed to rein in spending increases on health care entitlements as well, since they are a chief cause of the problem.  (For the reasons stated here, Social Security presents no more than a minor problem, and Bush's plan would make it worse.  Why are we wasting time on a hangnail, when heart failure looms?)  But please, let's stop pretending that Bush has "cut" taxes.  And let's stop taking seriously his talk of making tax "cuts" "permanent." 


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» TIME to get real. There was no Bush tax cut. There was from PRESTOPUNDIT
a Bush tax shift. Tyler Cowen: Commentators frequently refer to the Bush “tax cuts,” but this is a misnomer. Government spending has risen sharply, so our taxes are going... [Read More]

Tracked on Feb 3, 2005 4:28:19 PM

» Lying with Numbers from Pseudo-Polymath
How about a trade. We'll stop saying tax cut when you stop saying increasing taxes won't kill the growing economy. Can we all just concentrate on cutting spending? [Read More]

Tracked on Feb 4, 2005 3:19:37 PM

» To Spend or not to spend? from Moonage Political Webdream
When I was seeing all these headlines over the last year or so: U.S. Government Spending Under Bush Is Highest Since World War II the request continues the fiscally irresponsible pattern set by the Bush White House: Requesting spending increases, [Read More]

Tracked on Feb 4, 2005 7:43:45 PM

» Erph? from Letters of Marque
So I generally like reading the comments on Left2Right, mainly because some people do actually try and talk to, rather than past, each other. But, of course, as you might expect, sometimes you get comments like this one:Martin James writes... [Read More]

Tracked on Feb 4, 2005 9:27:37 PM

» Bush hasn't cut taxes. from Really Not Worth Archiving.
This is an interesting way to reframe Bush's claim that he's cut taxes. Bush hasn't really cut taxes because the budget still has to be paid for; Bush has merely shifted the tax burden lower and later. Bush can't claim to have cut taxes until he cuts... [Read More]

Tracked on Feb 5, 2005 9:56:17 AM


Posted by: mikec

Your analysis assumes that everyone behaves the same way regardless of the tax rate. But this is clearly not a reasonable assumption. For example, congress doesn't act the same way. Without a tax cut, the projected deficit would be lower and they almost certainly would have spent more money. If that is true, and it is if history is any indication, then by your definition it was a tax cut, because spending is lower than it would otherwise have been. Second, and more importantly, the people being taxed don't act the same way. More studies than I can count have shown that a lower marginal tax rate leads to an increase in the labor supply. This in turn leads to greater overall wealth and very often leads to higher total tax receipts. The Reagan tax cuts and the Clinton capital-gains tax cut are good examples of this. (It's true that Reagan's tax cuts didn't balance the budget, but that's because Congress spent even more than the increase in revenue.)

Posted by: mikec | Feb 3, 2005 3:40:29 AM

Posted by: Perseus

Prof. Anderson is basically correct about her main economic point, namely, the "price" of government is equal to the Real Present Value of government expenditures (though some of her economic analysis is faulty--e.g. defaulting on the public debt would have no effect on inflation since inflation is always and everywhere a monetary phenomenon; monetizing the debt would cause inflation). Assuming that government has not gone beyond the point of maximum tax revenue on the Laffer curve, any cut in taxes today will have to be matched by higher taxes in the future (based on a neoclassical macroeconomic model--see Robert J. Barro's textbook, Macroeconomics, 5th ed., Chap. 14--the positive supply-side effects of lower taxes today are offset by equal negative supply-side effects in the future when taxes are increased). However, as MikeC points out, deficits and tax revenues have an effect on government spending (deficits tend to reduce spending while higher tax revenue tends to increase it). Thus I agree with Milton Friedman that we should cut taxes as much as possible to starve the beast and thereby prod politicians to reduce long-term government spending.

Posted by: Perseus | Feb 3, 2005 6:12:43 AM

Posted by: No Labels Please

Ms Anderson is right.

However, there are sometimes valid reasons for running deficits that shift tax burdens forward in time:

1. The expenditures are being used for investments that have rates of return that exceed the cost of borrowing the money. For example, if the government spent $500 bn developing economic alternatives to fossil fuel energy, and suceeded over 10 yrs, that would have a return far in excess of 4.5%, and provide benefits for future tapayers that are arguably a good deal for them.

2. Temporary economic stimulus. Enough has been said about this.

3. Complete necessity - disasters, defensive wars, etc.

The current deficit situation is partially justified [maybe half of it] by some combination of the above, with the "war on terror" viewed as a combination of investment and necessity. However, the economy has recovered sufficiently that the remainder of the deficit, say $300 bn, should be corrected with reduced spending or higher taxes.

My favorite idea - a $1/gallon equivalent tax on gasoline and other petroleum products [raises about $250 bn/ yr], coupled with about $100 bn of spending cuts.

Posted by: No Labels Please | Feb 3, 2005 6:55:39 AM

Posted by: David Velleman

To Liz's plea for terminological honesty about tax postponements, I will add a corollary plea for a moritorium on the ridiculous slogan "starve the beast". Here are two reasons why the slogan is ridiculous. (1) The slogan "starve the beast" suggests that, once properly starved, "the beast" will die and we will live happily ever after: "Ding dong, the beast is dead." But people who believe this are really living in Oz. For as Liz argues, death by starvation for this "beast" would consist, in reality, of massive government default on its obligations, which would be a disaster for all of us. If this beast dies, so do we. (2) You might think that the prospect conjured up by "starve the beast" is, not that it will die of starvation, but that it will learn to live on a leaner diet. Yet as Liz has shown, the Bush administration, while depriving "the beast" of tax revenues, is also increasing its appetite. So Bush is preventing the only constructive outcome -- indeed, the only non-catastrophic outcome -- that might be expected from "starving the beast".

Let's have no more fairy tales about starving beasts. Tell us in plain language how you plan to prevent economic disaster.

Posted by: David Velleman | Feb 3, 2005 6:56:28 AM

Posted by: Wild Pegasus

The starve-the-beast idea rests on the notion that massive government debt will reflect badly on individual politicians, who will in turn lower government spending. However, individual politicians take little flak for government spending (it's "Washington"), and they're either dead or drooling by the time the bills come due. Case in point, those "small government" Republicans control the House, Senate, Presidency, and, to some extent, the Supreme Court. Marginal rates were cut. Where's the reduction in spending?

If you want to lower government spending, you have to build political momentum to abolish or reduce the scope of government programmes. Currently, there are only two parties who are interested in doing this, and they got about 500k votes last election combined.

- Josh

Posted by: Wild Pegasus | Feb 3, 2005 7:14:05 AM

Posted by: noah

You advocate clarity and transparency but are silent when your allies lie about SS and just about everything else?

Posted by: noah | Feb 3, 2005 7:42:25 AM

Posted by: Paul Deignan

Suppose you're a married graduate student with 3 kids. I paid 2k less net then under Clinton. Thanks W! I needed it. Now if we could only do something about SS. And don’t worry; I am already putting the money to very good use.

Yes, the government does waste money and resources. It made a great impression on me to see first hand the gross incompetence of vast numbers of bureaucrats who were paid extremely well in DC. And yes, many of them need to be fired as their "work" was entirely counterproductive. So my suggestion would be to reform government work rules. A person will not appreciate the value of money when it is handed out for nothing. An environment where that is common increases the tendency for creating "work" rather than results.

We need government "lay offs" to go along with budget priorities. There should also be incentive programs for measurable competitive group and individual performance. Of course, to obtain reform, the system must be constrained from compensating for internal inefficiencies through more taxation. There must be external pressure to reform and to continue to run efficiently thereafter.

Tenured LA university professors are probably the last ones we should be seeking advice from in regards to this problem. (No offense, but the tenure paradigm is not what we need to reference implicitly or otherwise for governmental reform). Frankly, we need to reform that system as well.

Posted by: Paul Deignan | Feb 3, 2005 8:23:26 AM

Posted by: D.A. Ridgely

So liberals have just been lying about those “massive” tax cuts, too? Fair enough.

Of course, government financing isn’t nearly as troubling an issue as government spending, and especially what that spending is for. Insofar as financing is a problem, the issue isn’t debt financing so much as the fact that we are relying too heavily on foreign debt financing. Yes, telling the American public that any act of Congress is permanent is lying. That’s what politicians do. Ms Anderson will find she is preaching to the choir as far as the libertarians here are concerned and to a large number of social conservatives as well.

But when it comes to mendacity, what was the liberal Democratic response to Bush’s Medicare expansion? What is the inevitable liberal Democratic response to cutting or eliminating even the most egregiously wasteful and unnecessary programs? And which party or ideology has the longer record of indifference or even enthusiastic support of deficit spending?

“Starve the beast” is a silly metaphor, but it’s only a catch phrase, and politicians being largely dull-witted need their catch phrases. How many times do I have to repeat it: they’re all weasels. The only solution is less government, period.

As for Social Security, notwithstanding the public rhetoric, the point of privitization is to wean Americans from the belief that the government is the necessary and proper mechanism for the vast panoply of social “insurance” (read “welfare”) type programs that Ms Anderson supports. Perhaps when people discover they do not need to depend on Uncle Sam for their retirement income, they’ll begin to realize they can keep even more of their own money in their pockets by eliminating the NEA, NEH, HUD, DoED, etc. Then we really could put the beast on a sustainable diet.

Posted by: D.A. Ridgely | Feb 3, 2005 8:27:28 AM

Posted by: Paul Deignan

BTW, there is a constraint in governmental spending on the borrowing side. There is also a constraint to government spending against simply printing more money. These constraints are actually on the economy as a whole with the government as the regulating/compensating entity.

What we are talking about here is imposing a constraint so that the regulator cannot borrow from the plant in order to increase its control authority over the entire system. The plant (productive sector of the domestic economy) is that which actually produces the wealth of the entire system. The job of the regulator (government) is to guide that growth efficiently and to a useful purpose in relation to external (foreign) economies.

Posted by: Paul Deignan | Feb 3, 2005 8:41:40 AM

Posted by: mw

Semantic sleights-of-hand a la Lakoff are just not a good strategy. For liberals to insist that tax cuts are really 'tax postponements' is simply to fall into a semantic trap of their own making. What that says about people making that claim is that THEY personally cannot envision making up for a tax cut in the future in any other way than a later tax increase.

And it is simply NOT true that deficits are only closed by tax increases. The budget didn't go into surplus during the Clinton administration because taxes were increased, but becuase revenues unexpectedly jumped while spending was held down by a divided government.

Liberals will do far better complaining about the deficits in the conventional way rather than trying to redefine tax cuts as 'postponments'.

Posted by: mw | Feb 3, 2005 8:51:20 AM

Posted by: Terrier

So let me get this straight - the Radical Republics are pursuing policies that will lead to financial ruin for all of us (because the secret of the beast is that we ride it and it rides us) but despite controlling all the branches of the government this irresponsibility must be the fault of Liberals for not casting their insufficient votes against these policies. Was Harry Truman the last responsible human in America? Instead of lecturing me on Hayek or some other dead and buried Thales why don't some of these Libertarians that actually voted for this mess prove they have hind legs and rear up and try and get some of the Radicals to listen? Is it because they know that they only sit at the children's table? Clinton reduced the size of the government! And balanced the budget! Were all these guys loyal Clinton supporters or did they gush over his anatomical features and sharpen their knives for Gore? They all sound like a bunch of damn politicians to me.

Posted by: Terrier | Feb 3, 2005 9:04:36 AM

Posted by: David Velleman

D.A Ridgely writes:

Perhaps when people discover they do not need to depend on Uncle Sam for their retirement income they’ll begin to realize they can keep even more of their own money in their pockets by eliminating the NEA, NEH, HUD, DoED, etc. Then we really could put the beast on a sustainable diet.
People don't "depend on Uncle Sam" for their retirement income. "Uncle Sam" is as much of a myth as "the beast". What people do is to pool their risk, by creating a scheme of social insurance in which each generation, as a whole, pays for the retirement income of the last generation, as a whole, so that no one is impoverished by bad luck in their own retirement savings and investments. And people are justified in making this social-insurance scheme mandatory because anyone who suffers bad luck in retirement investments will become the public's responsibility anyway, given that society rightly chooses not to let the elderly starve.

What's strange about saying that people "depend on Uncle Same for their retirement income" is that it misdescribes not only the reality but also the perception. One of the reasons for Social Security's success is that people largely understand that it's a social insurance scheme, not a government handout. They may be a bit confused about the economics of the scheme (thinking that each generation pays for itself). But they realize that Social Security is something that we jointly do for our own collective benefit.

If you want to abolish the NEA, NEH, HUD, DoED, borrowing money on your grandchildren's tab is a strange way to go about it. As far as I'm concerned, you can have the NEA and NEH: abolish them tomorrow. But stop running up bills that our children and grandchildren will have to pay.

The rest of Mr. Ridgely's post is what's called whataboutery. When you can't defend the incompetence of the Republicans, ask "what about" mistakes of the Democrats.

Posted by: David Velleman | Feb 3, 2005 9:11:07 AM

Posted by: /Will

"(For the reasons stated here, Social Security presents no more than a minor problem, and Bush's plan would make it worse. Why are we wasting time on a hangnail, when heart failure looms?)"

I sincerely hope Ms Anderson doesn't really believe this. SS is a huge part of our current national debt problem and (by ALL accounts) will continue to be a MAJOR financial challenge. Fixing it can only improve our nation's finances.

She correctly notes that the real problem is government spending -- but shich party should I elect to curb spending? (Maybe its just me, but I haven't seen many small-government democrats run in my state.) Also, wasn't it Kerry who wanted to create a whole new chunk of Government obligations in his socialized Health Care plan? Wake up and smell the napalm, the Democrats aren't interested in substantially cutting Government spending!

Posted by: /Will | Feb 3, 2005 9:19:43 AM

Posted by: David Velleman

/Will says:

SS is a huge part of our current national debt problem
The only sense in which this is even remotely true is that the government borrowed money from the Social Security trust fund and therefore owes that money to the fund. But blaming Social Security for the government's debt to the trust fund is like blaming the bank for letting you take out a mortgage. Social Security is responsible for our national debt problem in exactly the same sense as the bank is responsible for your personal debt problem. If the government hadn't borrowed the money from the Social Security trust fund, it would have needed to borrow it elsewhere. Bush would like you to think that the repayment of this debt will be a government "bailout" of a failing system. But repaying the government's debt to the trust fund won't constitute a government bailout of Social Security, any more than repaying your mortgage constitutes your bailing out the bank. Our government debt problem is due to the unfunded spending for which the government had to borrow from Social Security, in the first place.

Posted by: David Velleman | Feb 3, 2005 9:34:56 AM

Posted by: Terrier

Wake up and smell the napalm, the Republicans aren't interested in substantially cutting Government spending!

Posted by: Terrier | Feb 3, 2005 10:21:35 AM

Posted by: No Labels Please

A few points:

1. All G7 countries are facing the same demographic shift problem that will lead to unsustainable levels of retiree benefits in the medium term - 25-30 years out say. This is just not deniable. Projections are that somewhere between 20%-30% of GDP will be required to pay for current levels of benefits given demographic shifts with unfunded pay as you go schemes like social security and medicare in various countries. In the US reasonable projections are total SS and Medicare costs going from 10% of GDP to 20%. This would mean something like a 50% increase in the overall federal budget as a share of GDP. This would also lead inevitably to much slower economic growth. By the way, the problems in Europe are much worse due to negative population growth.

2. An alternative to pay-as-you-go [ie taxes-in/benefits-out] schemes is to try to raise the savings rate dramatically and make most people at least partially responsible for their own retirement and medical costs. This has the advantage of being insensitive to relative inter-generational demographics. It also makes a huge pool of capital available for productive enterprise. This is the direction the current administration is trying to push things. It is certainly not a crazy idea, and for example is how many Asian countries operate with savings rates of 20%-30%. CF US savings rate of zero.

3. It's true that SS is not as big a problem as health care, but it is emphatically a problem. More than that it is essentially the same category of unfunded benefit problem as health care. Hence, increased savings strategies that tend to ameliorate the SS problem can be used to help Medicare as well.

4. None of this means that floors on benefits for people who have not managed to save can't be placed in the system. But operating a society with huge demographic shifts on a zero savings rate system [pay-as-you-go] is really irresponsible.

Posted by: No Labels Please | Feb 3, 2005 10:26:46 AM

Posted by: rtr

A "tax postponement"?

What can be done to start is to dig up the graves of Presidents Franklin Roosevelt and Lyndon Johnson and tar and feather them as lying, thieving, criminals. Topple all statues of them like they were statues of Saddam Hussein. Since we've suddenly decided to be terminologically honest, we will never hear another leftist call Roosevelt or Johnson "great" presidents.

Terrier outright lies with the statement "Clinton reduced the size of the government! And balanced the budget!"

Let's see the number of dollars collected or redistriubted by the government at the start of his term and the number of dollars collected or redistributed by the government at the end of his term. Care to revise your statement?

The fact is labeling a tax cut, which is precisely defined as less money stolen by the government from individuals, as a "tax postponement" is a weak (as laughably weak as the Democratic Party official post State of the Union speech yesterday) attempt to make spending permanent.

No houses are bought by government. Promising your neighbor's house to another is not "buying a house".

Saying “Bush hasn’t cut taxes” is a non-starter lie that does nothing to help the credibility of the left. If the left thinks Kerry could have been elected by claiming he would have “cut taxes by raising taxes” the loony bin awaits.

Let’s try starting from the beginning:

A.) When the government forcibly takes “X” amount that is called tax receipts.

B.) When the government “spends” X’ > X that is called a deficit.

C.) When the government “spends” X’ < X that is called a surplus.

D.) When the government taxes X’ < X that is a tax cut.

E.) When the government taxes X’ > X that is a tax increase.

F.) When the government forcibly takes a percentage of an individual’s income at “Y” rate that is called the marginal tax rate.

G.) When the government taxes an individual at Y’ > Y that is a tax rate increase.

H.) When the government taxes an individual at Y’ < Y that is a tax rate decrease.

Notice it is necessary to type A.) – H.) to even leftist “professors” because they are intellectually *corrupted* by ideology, and hence *liars*. Thus, the ridiculous claim that Bush hasn’t cut taxes, he’s merely postponed them is as ridiculous as the claim as Kerry didn’t increase spending, he’s merely postponed it.

Posted by: rtr | Feb 3, 2005 10:29:13 AM

Posted by: john t

David V Could you live with "put the beast on a diet". In 1991 we had a tax increase,for the children". In 1993,as you may surmise two years later,another tax increase,again for the children. My,we were doing a lot for the chidren weren't we. And in each case it was stated that the rich should pay their fair share. And in each case fed spending increased. AH but it gets better. The cannibals in the white house,not being content with two tax increases in three years,then started mucking around withe the idea of a value added tax, a form of national sales tax. How do I know that,by reading the front pages of the NY Times. And this only three months after the income tax hike. No doubt academics were gleeful,after all gov't never has enough money. The reason the idea died[ stay calm David,not the gov't,only the idea] is that the admin. virtually collapsed after the health care fiasco. This is the reality of the liberal approach to fiscal policy,and I thought I'd interject it to the lofty talk about children,the future and so on. By the way if you can use a neologism like "whataboutism' can we still use Uncle Sam? A lot more to come on this.

Posted by: john t | Feb 3, 2005 10:31:16 AM

Posted by: David Velleman

johnt: You're changing the subject. We'll have other conversations about cutting government spending, but the topic here is cutting taxes.

Spending and taxes are of course related, but they're related like this: cutting spending is an alternative to raising taxes. Both spending cuts and tax increases have the effect of bringing the budget into balance. No doubt, you think that when taxes were raised in 1991 and 1993, spending should have been cut instead. That's a perfectly reasonable view. But that's not the view under dispute in this post. What's under dispute here is the nonsensical view that the way to correct the error of having raised taxes instead of cutting spending is ... to cut taxes and raise spending.

Posted by: David Velleman | Feb 3, 2005 10:43:30 AM

Posted by: Dallas

President Bush boasts, as one of his major policy achievements, that he has "cut" taxes. Virtually all media outlets and partisan sources, including Bush's critics, follow Bush in calling his tax policies tax "cuts." But Bush has not cut taxes. He has merely postponed them.

Bush boasts of his achievements, and Anderson accepts this characterization, criticizing his tax policies. The policies of our government are regularly foisted on the public in this fashion as if the president were an elected monarch, ruling our lives and determining our fate by personal edict, and we, the public, take the bait. On foreign policy and defense issues, this has some basis, as the president has considerable discretion, but when we are concerned with taxation, borrowing, and expenditures, this is nonsense.

The Constitution vests Congress with the power to impose and collect taxes and the power to "borrow money on the credit of the United States." The discretion of the president in this arena is severely circumscribed. He can't run around, hully gully, levying taxes, borrowing money, and writing checks as he sees fit. Even the role of the Senate is curtailed, as as all bills for raising revenue must originate in the House of Representatives.

Why do we do deem our economic fate to be in the hands of a regal president? I'm not entirely sure, but I suspect it arises from political expediency on the part of legislators. Dems would rather blame the president than their colleagues, while Repubs would rather have a lightning rod than take the hits themselves. Dems project, while Repubs deflect (or vice versa, if the Dems hold the presidency). Meanwhile, the legislative process, where policy is actually formed, bogs down in partisan bickering, with one party marching to the tune of the pied piper and the other unifying to thwart him.

Even though I respect, admire, and support Bush, I’m fed up with treating the presidency as if it were the office of a potentate. We need a dose of constitutional realism. Those holding power should be held accountable for the exercise of it.

Posted by: Dallas | Feb 3, 2005 11:06:21 AM

Posted by: Steve Burton

Nobody who's anybody (politically speaking) is going to switch from the phrase "tax cuts" to the phrase "tax postponements." Arguing about it is a total waste of time and pixels.

So the Republicans want to finance current levels of federal spending with less tax revenues and more borrowing, the Democrats want to do it with more tax revenues and less borrowing.

Wow. What a profound ideological divide. What's worse for the country in the long run: another dollar added to the tax burden or another dollar added to the debt? An issue that only a policy wonk could love.

About half way through her piece, I thought Ms. Anderson was trying to make the important, if rather obvious, point that what really matters is the level of spending, not the method of financing it.

But no. She just wanted to bash Bush for wanting to extend his tax cuts. Sorry, "postponements." Whatever.


The only potentially constructive suggestion in all this is the point near the end that "strong steps will be needed to rein in spending increases on health care entitlements."

OK, Ms. Anderson: I'm alert again. Tell me more. What "strong steps?"

Posted by: Steve Burton | Feb 3, 2005 11:27:25 AM

Posted by: Paul Deignan

When thinking about this issue, beware of making the mistake of traslating the analysis of internal dynamics in time outside the level of the national economy. For example, SS is supposed to be a savings program. That does not mean that other economies are directly funding this domestic savings program. Also, there are no stored reserves of wine, whiskey, and cheese (well, maybe the cheese) that are "saved". We are off the gold standard.

This is essentially a current time internal blance of debt/credit within the US between workers and retirees. Any exterior borrowing/lending gets lumped into the trade deficit and should be thought of as such -- in other words, don't assume that France will bale out SS in 2042 because they care about the promises FDR made to US citizens back in the 30's.

All monetary issues can be distilled into an exchange of either services or products. It is easy to get lost in the details of macro and micro economics. Don't lose sight of the forest for the trees.

Posted by: Paul Deignan | Feb 3, 2005 11:35:00 AM

Posted by: No Labels Please

Taxes and debt are only similar to the extent that the debt is retired in the short/medium term [5-10 yrs say] and not "rolled over" in perpetuity to become a burden for future generations. Hence the argument that debt is only acceptable for long term investments that may benefit future generations, or short term budgetary or stimulus purposes. It should not be thought of as an alternative method of funding ongoing budgetary expenditures.

Posted by: No Labels Please | Feb 3, 2005 11:40:25 AM

Posted by: john t

David V Apoint not usually seen about deficits;If spending contributes to deficits,and it does,then Bush should be give some credit for attempting to reduce it,which attempts have alrady commenced. I do wish he had started a little earlier but that's another story. However we are asked to be terrified at the prospects of such cuts and the spectre of deficits is pushed backstage The chidren are again put up as as a notice of our lack of compassion. But if deficits are bad and reduced gov't expenditures are bad what are we,as agents whose morality is measured by what the gov't spends left with. Why of course,tax increases. A few short comments on your excited[not exciting]posts. Contrary to what your palpitating heart tell you it is not foreordained that ther will be a"massive default on it's obligations". A decrease on the issue of new debt is not beyond the scope of human action. This is dependent on a expanding economy accompanied by increase in tax revenue,which usually happens,not to much to ask for there. And the admittedly,slow retirement of outstanding debt. Long term to be sure. Interesting 9:34 post David . So a person interacting with his bank is the same as gov't fiscal policy and debt. First,when a bank makes a loan of any type an amortization schedule is established. Where's the govt's amortitization schedule? Second Bush isn't planning on bailing out SS because of SS loans to the general fund,future liabilites are the main reason. And the only response from the left has been,reduce benefits and raise taxes,[NT Times]. You should consider that a "maasive default". Which so called answer is all the more reason to start private,and voluntary,privatization. By the way a bank considers a loan a asset,how would you consider gov't debt?

Posted by: john t | Feb 3, 2005 11:47:34 AM

Posted by: Paul Deignan

Taxes are compelled from the citizenry as directed by government.

Debt is funded voluntarily by whomever thinks it a wise investment at the promised rate of return.

Monetary policy effects the risk associated with the outstanding debt as well as the ability to finance new debt. Printing money dilutes the value of the outstanding debt at a greater cost to the financing of new debt. Since debt is continually being refinanced, this is a net zero except for secondary effects in regulating the economy towards optimization (you cannot print your way out of debt).

The government seeks to adjust the internals in order to maximize its playing position with other economies. This is independent of the internal dynamics of taxation except to the degree that the overall US ecomomy may be penalized by the misoptimization of wealth production.

In other words, the debt=tax argument is bogus.

Posted by: Paul Deignan | Feb 3, 2005 12:00:40 PM

Posted by: Craig Duncan

Steve Burton: 'Nobody who's anybody (politically speaking) is going to switch from the phrase "tax cuts" to the phrase "tax postponements." Arguing about it is a total waste of time and pixels.'

Maybe I'm dreaming, but did I hear Harry Reid, in last night's Democratic reply to the State of the Union speech, utter the phrase "birth taxes"? Kind of the same idea as "tax postponements," no?

One point I hear in the comments above is that it is misleading to call Bush's tax cuts "tax postponements" (or "birth taxes"--whatever). It is misleading, the argument runs, because in the future there *could* be cuts in government spending instead of tax hikes. Put aside the fact that all the current evidence suggests future spending hikes are more likely than cuts. I take it the idea behind this argument is: well, there could be future cuts in government spending, and *this will be a good thing*. So no harm done to future generations.

But even in its own terms this is flawed. Tax-haters like spending cuts because it leaves more money in tax-payer's pockets. (This isn't true in all cases, but I'll let that pass here.) But the money saved by the spending cuts envisioned in the future will not be returned to future people's pockets. Instead it will be used to pay off the debt we've run up in recent years. So as a result of Bush's fiscal recklessness, our children are looking at either (a) a tax hike with no corresponding increase in government benefits for them; or (b) a cut in government benefits with no more money in their pocket. How could this possibly be moral? Am I missing something here?

Yes, yes, you might try to argue that the tax cuts + spending hikes of today will on balance benefit future generations more than they cost them. You might argue that (a) tax cuts spur economic growth, and/or (b) today's spending hikes have been invested in programs that will yield future returns ample enough to offset the future bill.

But (a) requires supply-side economic thinking, and can we please put this in its grave? Reagan cut taxes and lo, the deficit rose. Clinton raised taxes, but the economy grew phenomenally. Not exactly what supply-siders were predicting. (Granted there are causation/correlation issues here; my point is that supply-siders have a huge burden of proof to discharge. Good luck.)

Argument (b) is more serious. But have any commentors above been making this? I have missed it. Can we really say all today's spending fits this mold? How does prescription medicine for today's seniors help mid-21st century folks, in a way that would justify sticking them with the bill?

Posted by: Craig Duncan | Feb 3, 2005 12:05:48 PM

Posted by: noahpraetorius@hotmail.com

There is an interesting article in Policy Review about the demographic future that we and our children are headed for. For example it is forcast that in 2050 just paying for SS, Medicare, and Medicaid will consume 47 per cent of GDP! (Begging the question as to who exactly it is that will be providing the care for all the elderly at whatever price.)

And sorry guys, the academy is in for a tough stretch...not enough kids to educate.

Now that is an interesting topic for navel gazing...the destruction of the world as we know it with nary a shot being necessarily fired.

Posted by: noahpraetorius@hotmail.com | Feb 3, 2005 12:27:11 PM

Posted by: Martin James

EA said "Bush's fiscal policies are leading us to disaster."

Isn't this an exaggeration?

What does it say that we live in the wealthiest civilization in the history of the world and we whine about whether our kids and grandkids are going to be only 1% richer per year rather than 3% richer per year which seems to be the approximate long run difference we are seeing about anywhere in the world.

How many video games and Ipods and cell phones and laptops and HDTV's are the kiddies going to need in the future anyway? We spend much more per student in real terms per student on education and what do we get? For the most part, about the same type of people we had before.

I tend to side with the spending = cost of government side except for the fact that this is a GROSS cost not a Net cost. The net cost of government would subtract the value of the services provided by the government. There is government waste, but I don't think its 100% of expenditures.

The fact that I have yet to hear a good explanation of is why real interest rates are lower than before all the government deficits took off. There appears to be more supply of savings in the world than demand for investment.

Why if disaster is nigh at hand are interest rates on government securities so tame?

One area of special interest regarding postponed taxes are amount in 401(k)'s and other tax defered accounts. There is a substantial tax bill that will come due when the baby boom retires and begins to draw down these accounts. The cites of the government liabilities rarely offset these amounts by the present value of future taxes.

Democrat or Republican, why aren't we getting fat and happy instead of just fat?

Posted by: Martin James | Feb 3, 2005 12:28:44 PM

Posted by: CDC

"But (a) requires supply-side economic thinking, and can we please put this in its grave?"

Absolutely not.

"Reagan cut taxes and lo, the deficit rose."

If my memory serves, tax collections DOUBLED. They went from about $506 bil to $1.12 tril. The deficit was due to increases in spending. There was a deal to increase taxes in, I think, '95 or '96. The deal was, for every dollar in tax increases, there would be a corresponding cut in expenditures of one dollar. Of course the Democrats pulled the old "cut a deal then screw 'em" trick. For every dollar of tax increases they INCREASED spending a dollar sixty-five. Do you remember the "continuing resolutions" pioneered by Thomas P. (Tip) O'Neil whereby, if Reagan vetoed a spending measure, he had to veto the entire budget? Do you remember the Conservative Republicans' push for the line item veto? That was why. All of this was before the MSM became the absolute laughing stock it is today. The Dems had the power to SKIN Reagan. Congressional Democrats ran up the deficit and used the MSM to hang it around Reagan's neck.

Posted by: CDC | Feb 3, 2005 12:38:02 PM

Posted by: john t

Craig Duncan, You appear to take it as given that gov't spending must/should increase. If this is true I may say that this somewhat prevelant postition contribute to the conumdrum we face. As to spending increases it is automatically assumed they are beneficial,less military spending naturally. But just what do the children gain by today entitlement/transfer programs? They do constitute a huge part of fed expenses and help exacerbate the debt issue. In mentioning Reagan you cite deficits,conviently leaving out the economic growth that occured. In mentioning Clinton you point out the growth that followed. You wisely leave yourself wiggle room with the causation/correlation clause. Perhaps you will expand on that. Perhaps also I may do so. In either case,Reagan or Clinton it pays to remind ourselves that congress ,all 535 of them,were not hiding in a cave in Guam while all this was going on,nor were the American people. You may recall the budget battles that went on between Clinton and the new republican congress,the ones where,mysteriously,the congress grasped the power to close the executive branch,and with equal mystery,the chief executive stood helplessy by. As to supply side economics,tax cuts spur growth. This happens because,despite the puzzlement of liberals,the people,in their various role's and as individuals,are the economy. Yes and I know we would all be as lost as the three blind mice were it not for gov't laying asphalt out there somewhere. Your last para. suggests that perhaps the chidren might be getting the short end of the stick in the future. To put it bluntly the children are getting f----d. By the same people who use the higher tax+increased spending case. If you get a chance could you give us a % estimate of the people who don't get more money from tax cuts? Is it 5%,10%,20%?

Posted by: john t | Feb 3, 2005 1:11:36 PM

Posted by: Craig Duncan

On supply side economics: Tax revenues will increase with economic growth; the question for supply siders is whether the trend in increasing revenues accelerates or not. One also must make comparisons in real rather than nominal terms.

Commenting on the supply-side experiment of the 80s, here is what Paul Samuelson and William Nordhaus have to say in their 1998 Macroeconomics text. (These two guys are not slouchs. Note too that Nordhaus has ruffled feathers by arguing that the economic benefits of global warming nearly outweigh the costs. So he can't be dismissed as one who always tows a liberal party line.)

"While numerous questions remain, economists generally have found that many of the supply-side propositions were not supported by the economic evidence in the 1980s." (p. 332)

Among these findings:

"The supply siders predicted that the major cuts in tax rates would stimulat economic activity and that incomes would rise so much that tax revenues wouls hardly fall and might even rise. In fact, tax revenues fell sharply relative to trend after the tax cuts, leading to an increase in the federal budget deficit that has persisted into the 1990s." (p. 332)

They go on to consider supply-siders' predictions regarding national savings rates, labor supply, and economic growth, which didn't pan out.

John T: Where do I take it as a given that gov't funding must increase? I have said we should not increase funding and stick future generations with the bill, unless (at a minimum) we can plausibly argue that future generations benefit from the current spending increases. (Sometimes this argument can plausibly be made, but I haven't seen it made here.) Surely regardless of whether a person thinks government spending should increase, decrease, or stay the same in the future, all people ought to be able to agree on this. So how can you infer from my saying this that I want government spending to increase? You can't.

On the question of who gets more money in their pockets from tax cuts on balance and who doesn't: This is complicated and a flat percent won't do. Clearly those at the low-end of the income spectrum could end up with less cash in their pockets, from having to pay out-of-pocker for private services that were formerly public (school tuition for their kids, entrance fees to parks that were formerly public parks, transportation fees to replace bus service, etc.) But it is not just a lower-class v. upper-class phenomenon. We *could* cut taxes 100%, fold up the government, have anarchy, watch the economy get swallowed up by the chaos. Then how much money would any of us have in our pockets? We don't even have to go all the way to 100%. Would a 50% across-the-board tax cut leave enough money to fund the legal infrastructure (courts, police, prisons) + armed forces that preserve our prosperity? I doubt it.

Obviously, these are big issues. But that is my point. John T's asking for a simple percentage of 5%, 10%, etc., to indicate who doesn't get more money from tax cuts, reveals a too simple picture of government and taxes.

Posted by: Craig Duncan | Feb 3, 2005 2:14:29 PM

Posted by: Achillea

Let me see if I've got this straight ...

EA: Tax cuts aren't really tax cuts because the government will have to spend tax money later to pay its bills. Oh, and it's all President Bush's fault.

DV: The tax cuts will incur disaster because President Bush is running up the government's spending even higher. And any attempt to point out the Democrats' role in increasing that spending is to be spurned as 'whataboutery.'

Various individuals: Government spending (of tax dollars) is too high because of wasteful programs which are A) the fault of both Democrats and Republicans (Wild Pegasus), B) all the Republicans' fault (Terrier), or C) mostly the Democrats' fault (DA Ridgely).

DV: We're talking about taxes here, not government spending.

Sorry, Prof. Velleman. I normally agree with you, but that's just way off base (even leaving aside your seeming contention that SS spending is unrelated to government spending). Stripping out all the finger-pointing and other j'accuse, this discussion is about government income (taxes), government spending (including SS), and how to develop a ratio between the two to stave off the looming economic catastrophe of an unsustainable deficit.

DV: Tell us in plain language how you plan to prevent economic disaster.

NLP: a $1/gallon equivalent tax on gasoline and other petroleum products [raises about $250 bn/ yr], coupled with about $100 bn of spending cuts. (I would add a codicil to this exempting public transportation) and try to raise the savings rate dramatically and make most people at least partially responsible for their own retirement and medical costs.

WP: build political momentum to abolish or reduce the scope of government programmes.

PD: government "lay offs" to go along with budget priorities. There should also be incentive programs for measurable competitive group and individual performance. Of course, to obtain reform, the system must be constrained from compensating for internal inefficiencies through more taxation. There must be external pressure to reform and to continue to run efficiently thereafter.

DAR: eliminating the NEA, NEH, HUD, DoED, etc.

Will: SS is a huge part of our current national debt problem and (by ALL accounts) will continue to be a MAJOR financial challenge. Fixing it can only improve our nation's finances.

I'll add to that getting more bang for our tax bucks out of educational programs, especially things like Middle East Studies. If they're not producing what they're being funded for, shut 'em down. And reform welfare into workfare and put a real time limit on it.

I'm a libertarian. I want both taxes and government spending reduced, period. While the Democrats are far more inclined to overspending, neither are the Republicans innocent. A pox on both houses. Let's quit digging up past Presidents, living or dead, to hang in metaphorical effigy, and start eliminating the deficit and balancing the damn budget.

Posted by: Achillea | Feb 3, 2005 2:31:25 PM

Posted by: rtr

Martin James writes "There is government waste, but I don't think its 100% of expenditures."

It is more than 100%, exponentially larger than the number of zeros I feel like typing. If you disagree please define "waste" while simultaneously incorporating the concept that if you are mugged of $100 how you were going to spend that $100 is not after the mugging "waste"? Just as the left is now at the first grade reading comprehension level when it comes to Hayek's points about efficient information flow, perhaps they can bump themselves up a notch by taking into account the number of decisions every second that have been denied by government conscription of private income. To my mind, such things as medical care are decades if not centuries behind than they otherwise would be in the absence of the programs initiated by President's F.D. Roosevelt and L. Johnson. All the kids dying of cancer today you can lay squarely at the feet of the political left. That Christopher Reeve was unable to walk again the left should again congratulate themselves.

Posted by: rtr | Feb 3, 2005 2:52:11 PM

Posted by: oliver

Professor A's point is very sensible and apt. Thank you.

Posted by: oliver | Feb 3, 2005 2:57:41 PM

Posted by: noah

In light of the article mentioned above I am beginning to see Bush's plan unfolding:

1) Fix SS.

2) Don't worry too much about health care...the demographics are compelling evidence that the problem is not solvable under current understanding of what constitutes a just society...that particular aspect of our destiny will just have to play itself out.

3) Fix the tax code to improve efficiency so that the day of reckoning alluded to in 2) can be delayed as long as possible.

4) Beady eyed realism indicates we should borrow as much as we can while interest rates are low...because in 20 years time young people will be in such short supply nobody will go to war over anything...the compound shrinking of world population will be obvious to everybody.

5) There is an outside possibility that a conservative cultural revolution will occur and thereby the worst outcomes predicted by the ticking demographic bomb will be ameliorated (its much too late to avoid them entirely).

Posted by: noah | Feb 3, 2005 3:01:34 PM

Posted by: Dallas

DV says:

What people do is to pool their risk, by creating a scheme of social insurance in which each generation, as a whole, pays for the retirement income of the last generation, as a whole, so that no one is impoverished by bad luck in their own retirement savings and investments.

Every form of refuge has its price, and sometime the price isn't readily apparent at the outset. In the case of SS, the price of taking refuge in a collective sharing of the risk might have been the creation of a risk that previously did not exist. We may have increased the risk of shifting the age distribution of the population and thereby rendered SS unsustainable.

The birth rate for the US in 1935, in the midst of the Depression, was 18.7 (per 1000 in population), the lowest annual rate since 1910, when it was 30.1. The rate rose back into the 20's in 1945 and peaked in 1957 at 25.3. Since then, it has declined. For every year since 1965, the rate has been lower than it was in 1935.


Prior to SS, older people, unable to work, had three sources of support: their own savings, their community, and their own children. Could it be that the enactment of SS altered behavior in ways beyond our ability to measure? Specifically, did it contribute to the decline in the birth rate? Intuitively, I suspect that it did. If one no longer needs to depend upon one's children as a source of support in retirement, one of the incentives for having children has been eliminated.

Posted by: Dallas | Feb 3, 2005 3:06:42 PM

Posted by: Perseus

I will stop using "ridiculous" political slogans such as "starve the beast" when professors of philosophy stop offering us even more ridiculous economic predictions about economic "disaster" and "catastrophe." As I said, deficits TEND to reduce long-term government spending notwithstanding the spending spree by the current Congress and Administration (which will indeed constrain the ability of future ones to go on similar spending sprees). More importantly, how will raising taxes serve to REDUCE long-term government spending? It won't. On the contrary, it will only whet the appetite for further spending as evidenced by the recent behavior of the federal government (the projected surpluses were a major stimulus to the recent spending spree).

As for my solution, I would put all "entitlement" programs (talk about ridiculous--as if anyone is "entitled" to bread and circuses), which are the real source of the federal government's fiscal problem, on a strict diet such as Newt Gingrich proposed to do with Medicare when he was Speaker (liberal Democrats, of course, shot down that idea with their demagogic Medi-Scare tactics).

Posted by: Perseus | Feb 3, 2005 3:28:16 PM

Posted by: Martin James


If you are mugged of $100 but receive $50 in return haven't you only been mugged of $50 and not $100?

I was just pointing out that some government spending ( for example, social security payments) is redistributed back to the same people who pay the taxes.

Which does bring up an interesting question for the taxes are theft crowd. Would a moral person that believes taxes are theft accept a social security payment that is paid for with "stolen" money?

Posted by: Martin James | Feb 3, 2005 3:52:28 PM

Posted by: No Labels Please

The point Dalls makes about large unfunded pension benefits is supported by empirical facts of extremely low birth rates in Europe and Canada [9-12 per 1000, versus 14 in US], and negative population growth.

It's a free rider problem - I'll let your kids pay for my retirement - no need to have my own.

It also clearly impacts savings as I have mentioned above.

Posted by: No Labels Please | Feb 3, 2005 4:07:46 PM

Posted by: David Andersen

"If you are mugged of $100 but receive $50 in return haven't you only been mugged of $50 and not $100?"

Absurdity of the situation aside, $50 in what form and in what timeframe? If the mugger gives you back $50 of something you don't want 6 months later, that's not really a favorable outcome is it?

"Would a moral person that believes taxes are theft accept a social security payment that is paid for with "stolen" money?"

Certainly, to the extent that it's recouping a portion of what has been already stolen.

Posted by: David Andersen | Feb 3, 2005 4:15:51 PM

Posted by: rtr

That depends upon the subjective valuation of the actors. True, a very small percentage might receive $50 of subjective valuation back. But what if your $50 pays for one Pentagon screw? Who says what's received is valued more or equal to what would have been chosen otherwise? MIT economists perhaps, but nobody the least bit enlightened.

A moral person that believes taxes are theft would not accept a social security payment that is paid for with "stolen" money, unless however a state of warfare exists whereby people are stealing as much as they can from each other (this is obviously the present case). Many may be owed more than the nominal amounts which were stolen from them. It's certainly complicated how the current generation of grannies and gramps have been turned into thieves on the production on the younger generation after having been the victims themselves of now dead generations.

It's no coincedence that "cheating" is epidemic in all levels of the educational institution. It might even be surprising that it is as "low" as it is. The history of violence, abuse, and waste by governments since the implementation of the income tax is sickening.

Nobody should ever remain so naive to think that taxes are collected any other way than by the threat of or use of violence. It wouldn't surprise me if in 30-40 years an elderly majority finds themselves told to go to hell by a younger minority. You really think they're going to allow 40-50% of their paychecks to be taken away to fund the retirement and medical needs of a dying generation? Violence begets violence.

Posted by: rtr | Feb 3, 2005 4:20:12 PM

Posted by: CDCCDC

"The supply siders predicted that the major cuts in tax rates would stimulat economic activity and that incomes would rise so much that tax revenues wouls hardly fall and might even rise. In fact, tax revenues fell sharply relative to trend after the tax cuts, leading to an increase in the federal budget deficit that has persisted into the 1990s." (p. 332)

So doubling in eight years is falling sharply relative to trend? Whoah, that's a Hell of a trend! Especially when it must have began in the Golden Age of Jimmy Carter.

Which "How to Lie with Statistics" trick do you suppose they used? My first choice would be to take a month you like then project it into the indefinite future.

"There's something satisfying about science..."

You can get away with anything in an Intro to Macro textbook. Somewhere in a box in my garage is one that presents a model that predicts maximum productivity with a 100% tax rate.

Ceribus paribum. Yeah, and cock-a-doodle-do.

Posted by: CDCCDC | Feb 3, 2005 4:21:14 PM

Posted by: rtr

"The supply siders predicted that the major cuts in tax rates would stimulat economic activity and that incomes would rise so much that tax revenues wouls hardly fall and might even rise. In fact, tax revenues fell sharply relative to trend after the tax cuts, leading to an increase in the federal budget deficit that has persisted into the 1990s." (p. 332)

Yup, I totally agree CDCCDC. It's things exactly like above which have caused just a *massive* loss of credibility to the Democratic Party and the general left.

Posted by: rtr | Feb 3, 2005 4:34:21 PM

Posted by: Boiler80

Where to start? I don't necessarily disagree that today's tax 'cuts' may have to be paid for by future tax rate increases. That will be a function of economic growth rates - and so far our government has shown a propensity to far outspend any increase in tax receipts.

One issue I have with making such a big deal out of Bush calling them tax 'cuts' is that he is at least more accurate than his opponents. These opponents, mostly Democrats and some big government conservatives, have gotten into the habit of calling proposed increases in spending that are smaller than the baseline budget growth, spending 'cuts'. In actuality, they are reductions in the amount of projected spending, not 'cuts' in absolute spending from previous years. If you have been promised a 5% increase in 2006 wages from a Union contract, but the actual increase ends up being 3% because US Air is trying to avoid going belly up, that isn't a cut in 2006 wages - but a cut in expected wages. Seems to me that the rhetoric is significantly more disturbing when it comes to spending. Doing away with this baseline budgeting might help to restrain the growth of spending that is the overriding contributor to the amount of borrowing that the government must engage in.

If you're going to be critical of Bush for calling them tax 'cuts', then you also have to give him credit for trying to do something about Social Security. In essence, if his plan is implemented, at least some amount of Social Security's future outlays will be paid for in the present. In essence, he's offering a plan which will reduce my generation's claim on future generations income, by shifting at least some of that burden into the present. Over time, assuming a growing economy, the Social Security burden can eventually be shifted from a defined benefit plan to a defined contribution plan. That sounds like a 'cut' in taxes for future generations if you ask me.

Posted by: Boiler80 | Feb 3, 2005 4:34:41 PM

Posted by: noahpraetorius@hotmail.com

EA had an extremely minor point which in the course of this thread has exposed just how tenuous the left's position actually is.

Posted by: noahpraetorius@hotmail.com | Feb 3, 2005 4:43:58 PM

Posted by: rtr

Is there a social worker in the house who can help us break the cycle of violence? A non-government tax supported social worker?

Posted by: rtr | Feb 3, 2005 5:10:58 PM

Posted by: john t

Craig Duncan, There's atime to be proud and a time to be corrected and I stand corrected on your position concerning tax cuts,possible future tax increases and gov't spending Idid in my own defense hint at ambigiguity but let it pass. Some of the rest of the exchange I'm less sure about,that is both my initial response and your second post. That there was economic growth with prior tax cuts is indisputable[Kennedy,Reagan,to some extent Bush}why else have them? As to Samuelson's use of particular indicators that only argues to the point of the free flow of funds,savings may be down,but consumption,consumer confidence,and home ownership increase. A tax cut doesn't direct funds,it allows monies to be directed by people other than politicians and economists. Any tax cut and it's proponents can't take credit for this or that.The tax cut allows people other than politicians and economists to mmake decisions,as such the decrease in unemployment over the past two years is helped by tax relief but not totally caused by it. Samuelson and friend state that tax revenues fell relative to trend[not fell but relative to] leading to an increase in the deficit etc. Pardon me I'f I'm a little suspicious but this is a world renowned economist saying that spending had nothing to do with it,apart from whatever trend he may be referring to and apart from everything that other people state about revenue increase. To your last point about % of people not benefting from tax cuts. I raised the point because I thought it was unanwerable. I was right. Living in a world of statistics and studies anything is possible. But that is minor. First,the only thing the fed gov't can do is cut taxes,what happens after with other actors or agencies is out of their control. To say the tax cut doesn't put additional money in their pockets is a contradiction in terms,to fault what happens afterwards is to illogically connect the two. Did Bush know that Spunksville was going to charge entry to it's parks,and even if he did what could he do about it? Your examples on the low end of the income spectrum are of this order,in spite of the fact that state and local gov't services are expanding. Your illustration of how the higher end,or all of us,might be effected,anarchy,implied riots in the streets and so on I ,in my simplicity won't touch.

Posted by: john t | Feb 3, 2005 5:20:23 PM

Posted by: Paul Deignan

SS has been called an "intergenerational transfer". Actually, it is more accurate to call it a worker insurance program. It simply transfers money from present worker to ex-worker (and dependents).

Besides for putting a constraint on government control of the economy, one other nice thing about the proposed plan is that it will give us a more efficient distribution of labor over time since the retirement decision will be more closely coupled to the market. We should also see a transfer of control from privately owned to publicly owned corporations (i.e. from service to manufacturing). Also, in the short term, those invested in the market will gain at the expense of those not yet invested.

Posted by: Paul Deignan | Feb 3, 2005 5:22:52 PM

Posted by: Paul Deignan

Finally, I'd like to reintroduce my personal favorite solution to the SS problem:

Increase the age of enlistment to 21, drop the maximum age and physical requirements and reinstitute the draft for those receiving SS who have not yet served.

This plan has the benefit of insuring that our senior citizens become seasoned citizens with all the medical, dental, pay, and yes, burial benefits that our finest citizens now enjoy. Welcome to the new Army -- time for a little shock and "Ahhhhhh, ...... were did I leave my dentures?"

SS would be regulated not nationally by taxation, but internationally -- finally their would be real burden sharing for defense. "Hey Frenchie, are you done with that Bordeaux, Burgandy, ...., Paris?"

Over there, over there .....

Posted by: Paul Deignan | Feb 3, 2005 5:37:41 PM

Posted by: LPFabulous

I'm joining this one a little late, but I feel obligated to point out how absurd Prof. Anderson's suggestion is. Tax rates were cut now, but we'll have to make them up later (maybe), so let's call them tax postponements instead of tax cuts.... okay, here's a suggestion in the same spirit:

You're on a diet and it's working. You're tempted to tell your friends you're losing weight. But, of course, that's not accurate. Physics says mass and energy are conserved, so what you're really doing is altering the mass-energy makeup of the universe. No one can "lose" weight, they just shift it around.

That sounds ridiculous right? Not to be daunted, though, the next time President Bush says he's lost some weight, I fully expect the people who own and operate this blog to say that Bush is being "terminologically dishonest". Because if Bush does it, it must be evil.

And, just because I think this post was a complete waste of time and energy, let's take a look at this: "Bush's fiscal policies are leading us to disaster."

The self-styled Chicken Littles of the Left are starving from lack of credibility as it is, and this is the line they choose to take? If you guys are interested in "getting through to the right" or whatever it is you propose here, you'll be better off learning to frame the debate on their terms. They don't have to come crawling to you because they're doing quite fine on their own.

Posted by: LPFabulous | Feb 3, 2005 6:14:33 PM

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