Cato Unbound: What Tax Increases Would They Suggest?
Via Mark Thoma comes a debate between David Frum and Bruce Bartlett as to the prospects of achieving fiscal responsibility through cuts in government spending. The short answer is that we cannot. Let’s have Mr. Frum up first:
In the 1990s, the newly elected Republican congressional majority enjoyed what we can now see was the fairest opportunity in half a century to reduce the size and cost of the federal government:
* They had won a stunning and unexpected mid-term victory against a stunned and demoralized Democratic administration elected two years before by only 42% of the vote.
* They were backed by a bipartisan consensus that the huge deficits of the early 1990s had to be brought under control – without any further repeat of the tax increases of 1991 and 1993.
* The Cold War had ended, making possible substantial reductions in defense spending.
Let’s stop right there as they were only two significant reasons why we reduced the deficit – the tax increases that the Republican Party opposed and those reductions in defense spending that have been at least partially reversed. Mr. Frum pats Newt on the back for things like his freedom to farm fraud and talks about a booming economy that the free-lunch supply-side crowd claimed would never happen if we passed Clinton’s 1993 tax increase. Frum continues:
the congressional Republicans shifted course after 1998. Medicare reform was abandoned; spending accelerated. And this change of course was ratified by the whole party in the nomination contest of 1999-2000, when George W. Bush swept to a crushing triumph by campaigning as a “compassionate conservative” opposed to budget-cutting and committed to maintaining Medicare and Medicaid in more or less their existing form. In September 1999, he condemned congressional Republican attempts to curb the Earned Income Tax Credit as “balancing their budget on the backs of the poor.” In the following general election, Bush committed himself to adding a prescription drug benefit to Medicare … The fairest chance to achieve the limited-government agenda passed with only very limited conservative success. The state is growing again—and it is preprogrammed to carry on growing. Health spending will rise, pension spending will rise, and taxes will rise.
No argument here, so let’s turn the microphone over to Bruce Bartlett:
Like David, I am very pessimistic about the prospects for conservative/libertarian reform. He is exactly right that demographically-driven federal spending is rising rapidly as the baby boom generation nears retirement, and the best political opportunity for restructuring Social Security and Medicare has passed. As the percentage of voters benefiting from these programs in their current form rises, it is unrealistic to think that spending for them can be reduced except marginally. David is also right that the Republican Party has become deeply corrupt and appears to lack any leaders with the potential for pushing it back in a more conservative direction. It is going to have to suffer a defeat of Nixonian proportions in order to cleanse the party and create opportunities for new leaders to emerge that may be able to right its course … In many ways, this is my perspective as well. Because of it, I concluded that conservatives and libertarians need to think seriously about how best to finance the government spending that is in the pipeline. Given the magnitude of that spending growth—on the order of 10 percent of the gross domestic product over the next generation even if no new government programs are enacted or current ones expanded—I have suggested that it is time to think about a value-added tax for the U.S.
While I’d be less inclined to rely on the VAT than Bruce is, I have to admire the fact that he does not duck the question as to where he would raise taxes. Now if we could get this kind of honesty from our elected officials.
Update: AP reports on the continuing political pandering from George W. Bush:
WASHINGTON – Striving for a badly needed congressional score, President Bush urged Congress Wednesday to pass a multibillion-dollar bill extending tax cuts for businesses and families, especially at a time of soaring gas prices. “A tax increase would be disastrous for business, disastrous for families and disastrous for this economy,” Bush said. Republicans on Capitol Hill already had reached agreement in principle on a $70 billion tax relief package that would extend tax cuts on dividends and capital gains and keep 15 million middle income taxpayers from getting hit with a tax designed for the wealthy, GOP aides said. Bush, who has made tax cuts his signature domestic issue, said extending the tax cuts would provide certainty in the tax code and foster business investment. “If the people have their way who want this tax relief to expire, the American people will be hit with $2.4 trillion in higher taxes over the next decade,” he said. “It would be handed over to government — that’s where the money would go. It would be taken out of the economy and given to people here in Washington, D.C., to spend.” Bush said tax relief is responsible for a strong U.S. economy. For the first quarter, the economy grew at a 4.8 percent pace, the fastest in 2 1/2 years. A big pickup in consumer spending figured prominently in the strong showing, which surpassed the 3.5 percent growth rate for 2005. “Our economy’s growth in 2005 was faster than Japan, more than twice as fast as France and more than three times as fast as Germany,” he said. “The American economy is the fastest growing of any major industrialized nation in the world.” Recent growth, however, hasn’t helped Bush’s standing with the public. He is shouldering his lowest-ever job approval rating, at 36 percent, according to a recent Associated Press-Ipsos poll.
You know – one can summarize the GOP approach to elections thusly: “vote for us as we will lie to you”. It seems such dishonesty only works for a few years.
Update II: Stephen Slivinski blames the Bush deficits on an explosion in spending:
President Bush has presided over the largest overall increase in inflation-adjusted federal spending since Lyndon B. Johnson. Even after excluding spending on defense and homeland security, Bush is still the biggest-spending president in 30 years. His 2006 budget doesn’t cut enough spending to change his place in history, either. Total government spending grew by 33 percent during Bush’s first term. The federal budget as a share of the economy grew from 18.5 percent of GDP on Clinton’s last day in office to 20.3 percent by the end of Bush’s first term.
He jumps from an unspecified percentage increase in real spending to an increase in nominal spending – hoping we will not notice. Table 1.1.6 from the BEA allows us to compare real government purchases across time. It did not break real government purchases between Federal versus state back in the 1960’s but we can see that real total government purchases were about 27% higher in 1968 than in 1963. Real purchases in 2005 were only 15% higher in 2005 than they were in 2000. Maybe conservatives can complain that Bush increased spending relative to GDP rather than cutting spending relative to GDP – but the main reason for the explosion in the Federal deficit was the Bush tax cuts (or should I say tax SHIFTS).