Tax and Spend Impasse
Reading a rather cursory opinion piece this morning (calling for federal spending to be decreased) it occurred to me that there’s an interesting symmetry to what the more aggressive advocates of tax increases and spending cuts suggest:
The most passionate tax increase advocates frame their calls for tax increases in terms of some prior level of taxation: “We should roll back all the Bush tax cuts and return to the tax rates people payed under Clinton. We all remember the ’90′s; the world didn’t end when the top marginal tax rate was 39.6%” or “By golly, we should go back to the tax tables that were in force under that ‘socialist’ Eisenhower. 91% top marginal rate. That’ll teach those corporate fat cats to vote themselves bonuses.”
Similarly, when passionate spending cutters explain their plans, they tend to phrase it in terms of rolling back to a previous level of spending: “These ‘draconian’ cuts in fact only represent a return to 2006 spending levels. Did we starve in the streets then? Did the world end?”
Of course, those on the “tax” side do in fact tend to claim that the world would virtually end if government spending were reduced to 2006 levels. And those on the “cuts” side argue that jacking tax rates up to some level which people successfully survived in the past would present a sudden and un-needed shock to the recovering economy, and also encourage the government to put off it’s massive spending problems to some other not-so-distant day.
In point of fact, I’m not sure that “we survived this in the past” is a very good argument for some particular level of spending cut or tax increase. It’s certainly true that in 1996, people were used to 1996 tax rates, but that’s in part because they’d got to those tax rates gradually from where they’d been before. If we completely re-instituted the 1996 tax table, it would actually be the middle class that would be hit hardest — though to be fair advocates of “rolling back” the tax code typically only advocate raising the rates on “the rich” which is loosely defined as “people who make more than me”, not raising the bottom rate from 10% back to 15%, and the second and third brackets from 15% and 25% back to up to 28%.
Similarly, 2006 levels of spending felt comfortable to everyone at the time because they were higher than 2005 levels of spending. Going back to the 2006 level would be a nasty initial shock for some of those with federal jobs or being served by federal programs.
In reality, either cutting spending substantially or increasing taxes substantially would be a painful for a lot of people. The argument that a certain set of tax rates or level of federal spending existed in the past doesn’t really address this reality at all. it’s a bad argument. And given the complete train-wreck which is our country’s budget, we are going to have to brace ourselves and experience some pain regardless. (My personal preference runs primarily to spending cuts, though some tax changes or increases may be needed as well.)