Federal Budget

A Republican Defeat?

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From a conservative Republican perspective there seems to be little good from the outcome of the shutdown fight.  ObamaCare remains funded, and that was the chief goal that concerned most conservative Republicans.  However, sometimes it is a good idea to take a look at an event from the eyes of an adversary.  Here is what things look like to liberal Peter Beinart at The Daily Beast:

 

 

 

 

 

Most of the press is missing this because most of the press is covering the current standoff more as politics than policy. If your basic question is “which party is winning?” then it’s easy to see the Republicans as losing, since they’re the ones suffering in the polls. But the partisan balance of power and the ideological balance of power are two completely different things. The Nixon years were terrible for the Democratic Party but quite good for progressive domestic policy. The Clinton years were, in important ways, the reverse. The promise of the Obama presidency was not merely that he’d bring Democrats back to power. It was that he’d usher in the first era of truly progressive public policy in decades. But the survival of Obamacare notwithstanding, Obama’s impending “victory” in the current standoff moves us further away from, not closer to, that goal.

 

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?” →']);" class="more-link">Continue reading

Value Added Tax Will Not Solve Budgetary Woes

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There has been a fair amount of useless discussion among pundits and Obama administration officials about a Value Added Tax, a National Sales Tax, the mainstay of the crumbling welfare states in Europe.  I say this discussion is useless, because Congress would never pass it, as the 85-13 vote in the Senate on an anti-Value Added Tax non-binding resolution indicates.

Today in the Washington Post Robert Samuelson explains why a VAT wouldn’t solve our budgetary woes:

The basic budget problem is simple. For decades, the expansion of Social Security, Medicare and Medicaid — programs mostly for the elderly — was financed mainly by shrinking defense spending. In 1970, defense accounted for 42 percent of the federal budget; Social Security, Medicare and Medicaid were 20 percent. By 2008, the shares were reversed: defense, 21 percent; the big retirement programs, 43 percent. But defense stopped falling after Sept. 11, 2001, while aging baby boomers and uncontrolled health costs keep retirement spending rising.

Left alone, government would grow larger. From 1970 to 2009, federal spending averaged 20.7 percent of the economy (gross domestic product). By 2020, it could reach 25.2 percent of GDP and would still be expanding, reckons the Congressional Budget Office’s estimate of President Obama’s budgets. In 2020, the deficit (assuming a healthy economy with 5 percent unemployment) would be 5.6 percent of GDP. To cover that, taxes would have to rise almost 30 percent.

A VAT could not painlessly fill this void. Applied to all consumption spending — about 70 percent of GDP — the required VAT rate would equal about 8 percent. But the actual increase might be closer to 16 percent because there would be huge pressures to exempt groceries, rent and housing, health care, education and charitable groups. Together, they account for nearly half of $10 trillion of consumer spending. There would also be other upward (and more technical) pressures on the VAT rate.

Does anyone believe that Americans wouldn’t notice 16 percent price increases for cars, televisions, airfares, gasoline — and much more — even if phased in? As for a VAT’s claimed benefits (simplicity, promotion of investment), these depend mainly on a VAT replacing the present complex income tax that discriminates against investment. That’s unlikely because it would require implausibly steep VAT rates. Chances are we’d pay both the income tax and the VAT, making the overall tax system more complicated.

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Obama Finds His 9/11

Critics of the Bush Administration often complained (especially during his first term) that Bush used 9/11 as a justification for nearly everything he did. Given that the country was widely supportive of the administration in the years right after the attack, this was (the complaint went) a way for Bush to do things he’d wanted to do anyway under the guise of responding to an emergency. While I think this complaint was overstated, there is an element of truth to it. For instance, I don’t think there’s a whole lot of question that many within the administration (rightly or wrongly) wanted to get rid of the Baathist regime in Iraq even prior to taking office.

In this respect, Obama seems to have found his 9/11, his excuse for doing all the things he and his party want to do while assuring everyone it would be a Very Bad Idea it not Downright Unpatriotic for them to disagree. Obama’s 9/11 is the recession, or as the media seems to have named it “The Worst Economic Downturn Since the Great Depression”. (This is, to my mind, a rather unwieldy name. Perhaps we could just call it the “Big Recession” or the “Little Depression”?)

Thus, in his presentation of a new budget which is heavy on partisan measures (big tax increases on “the rich” and preparation for major changes in social service structure and spending) and racks up the largest deficit (as percentage of GDP) since 1942, Obama assured people that this was necessary in order to restore the economy:

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