Thanks for all your emails on tax cuts and deficits. To make myself clearer: I’m all in favor of tax cuts. I think Americans are over-taxed; I believe that individuals can make far smarter decisions about where the country’s wealth should be spent than government usually does; I’m particularly persuaded that tax rates in particular should encourage work not redistribution. Where I differ from others is in their belief that deficits don’t matter; that government debt is no problem; and that drastically increasing that debt just before the entitlement crunch hits is good politics or economics. I think we need to decrease spending while we decrease taxes. At the very least, I think we should hold a line on spending while we decrease taxes. What I cannot support is vastly increasing spending while you cut taxes. Call me crazy, but I regard this as a question of responsibility. We have a responsibility not to leave the next generation in a huge hole of our making. At this point, it’s clear that the Republican party, at all levels, is simply fiscally irresponsible. This is true at the federal level, where Republicans have out-spent Democrats; and at a state level, as this USA Today synopsis spells out:
State legislatures controlled by Republicans increased spending an average of 6.54% per year from 1997 to 2002, compared with 6.17% for legislatures run by Democrats… Republicans cut taxes an average of 1.08% annually from 1997 to 2002 when they controlled both the legislature and governor’s office. Democrats cut taxes 0.59% annually when they were in charge of state government.
(My thanks to Hoosier Review.) So I was wrong yesterday. The Democrats aren’t worse. They’re actually better at controlling spending than today’s Republicans. True fiscal conservatives might want to rethink their long-standing preference for Republicans.
CUT SPENDING FIRST: The arguments against this are as follows. The only way to control spending is to cut taxes first, by starving the government of resources. One email spelled it out pretty clearly:
I’ve said this to you on more than one occasion – there is a singularly good reason for MASSIVE deficits… GW’s real job, like Reagan before him, is to ensure that all the money is spent, that when a Dem takes office, 33 percent or more is paying off debt.-This is called preemptive handcuffs. It isn’t my idea. It is David Stockman’s.-No money to spend when Dems are in office. You are being childish. The only rationale for fiscal responsibility NOW is if you want there to be $ for Dems to spend later. Stop being NAxcfVE. No one admits this – like many things I’ve been a party to – it isn’t a philosophy it is a strategy. Going deeper: The international markets understand this. “Oh, a deficit? That means nothing because they are spending the next Dem’s $.” This is really an analysis of why lib policy is doomed to failure. It can’t work, because it is soooooooooooo easy for Reps to undermine. That’s the real Keynes. Think!
Give the guy points for candor. But the result of this repetitive, partisan strategy is surely an increasing level of government debt, which doesn’t only restrict future spending, but restricts future tax cuts. I hate to bring up the national interest here, as opposed to cheap partisan advantage. The other point, of course, is that it isn’t the Democrats’ future spedning we have to worry about. It’s the Republicans’!
THE DEFLATION THREAT: One other reason for blowing a hole in the budget might be deflation. If that really is a threat, then maybe soaring spending and tax cuts are a useful temporary measure. If the GOP made this Keynesian argument, they’d be a little more convincing. But if that is indeed the idea, why not pursue Warren Buffett’s idea of a holiday in the payroll tax? Yes, this would only intensify social security’s future problems, but according to today’s Republicans, there’s nothing to worry about on that score anyway. Another answer might be the war on terror. Maybe we do need to go into deeper debt to forestall a future attack that could indeed cripple the economy. Again, I’d be open to persuasion on that as well. But we don’t even hear that. We simply hear the old argument that reducing taxes increases government revenue more than the tax-cuts themselves cost. Sorry. I’m not buying it. Look, I hope I’m wrong. I hope that the cheaper dollar, tax cuts and low interest rates will lead to a recovery that will bring revenues flooding into the Treasury. But count me as an Eisenhower Republican skeptic. And until the GOP actually proves it has the ability to restrain spending, I certainly don’t begrudge anyone for voting Democratic in order to keep the government within its limits.
ON THE BRIGHT SIDE: Anatole Kaletsky sees recovery ahead, and views our current malaise as a repeat of 1991- 1992:
It is widely believed, for example, that there is something unusual – even unprecedented – about the American economy’s slowness to respond to low interest rates in the present cycle. This is simply false. In the three years from 1990 to 1992, the Fed cut interest rates by 6.75 percentage points and the economy grew by a total of 5.2 per cent. In the three years from 2001 to 2003, growth will total 5.3 per cent, according to the latest OECD forecast, even though interest rates gave been cut by only 5.25 percentage points.
Put that down to productivity gains, I guess.
The Dish 