Autor: Bruce Bartlett

b. doradca ds. ekonomicznych prezydenta USA

Obama on budget: You can’t have your cake and eat it too

On April 13, President Obama attempted to change the budget debate in Washington, which has been conducted entirely on Republican terms for the last two years. In particular, he is trying to put taxes back on the table as part of the solution to the nation’s debt and deficit problem.

Unfortunately, debate on policy issues these days is less about finding common ground and making deals than about framing them into all-or-nothing propositions. Those on each side have become more and more like lawyers in a courtroom, saying pretty much whatever they can get away with to advocate their position, whether as prosecutors or defense attorneys, with the idea that the truth will come out in the process.

Of course, one problem with this adversarial system when it comes to public policy is that there is no judge to enforce order and maintain honesty; nor is there an impartial group of citizens willing to take the time and effort to study the evidence, carefully listen to the arguments, and render a fair judgment. The closest we come in the policy arena is a media that fact checks and evaluates political statements and policies in somewhat the way a judge does, with voters voting for guilt or innocence on Election Day.

Since voters have many other things on their minds and often get their news from partisan sources today, the only way to get their attention and possibly change their minds is to ratchet up the rhetoric and take a position just as extreme as one’s adversary. Trying to be reasonable and appeal to the center doesn’t work any more. It just makes you look weak and forces you to fight policy battles on the other side’s turf.

Republicans clearly understand these rules better than Democrats, Obama especially. On the tax issue, the Republican message is simple, clear, unambiguous, and wrong. But it is repeated so relentlessly and aggressively that its logical and factual weaknesses get lost in the discussion. Rather than counter the Republican position with reason and evidence, Democrats mostly say nothing, perhaps hoping that the media will do the dirty work for them.

At its core, the Republican position is based on several falsehoods. First is that the budget deficit is 100 percent a spending problem that has nothing to do with revenues. Second is that the American people are grossly overtaxed and taxes must never be raised at any time for any reason. Third is that tax cuts have magical properties; they starve the beast and hold down spending, while at the same time so massively stimulating growth that revenues will actually rise based on phony-baloney numbers from the right-wing Heritage Foundation (see here and here.)

Unfortunately, Democrats and the media have really made no effort to refute these lies. Indeed, they appear incapable of even making the simple logical point that the deficit is the difference between outlays and revenues; therefore, tax cuts will necessarily increase the deficit. The Bush tax cuts, to which Republicans are obsessively devoted, reduced federal revenues by about 2 percent of the gross domestic product annually. This can be seen from the fact that revenues were 20.6 percent of GDP in 2000 and 18.5 percent of GDP in 2007 at the peak of the business cycle before the recession reduced them to 14.9 percent of GDP, where they have been for the last two years. (The postwar average is about 18.5 percent of GDP.) Without the Bush tax cuts – and those added by Obama – revenues would likely be more like 17.5 percent of GDP, which is where they were at the trough of the last three recessions.

If revenues had been 2 percent of GDP higher over the last 10 years, the federal debt would be about $2.5 trillion smaller. Instead of having a debt of about 60 percent of GDP last year, it would have been about 44 percent. And that doesn’t take into account of all the interest that would have been saved that now adds about $60 billion to the deficit annually. Together, higher revenues and lower interest spending would have reduced last year’s deficit by one-third.

Of course, Republicans claim that the Bush tax cuts stimulated growth in the last decade. But real GDP growth was much higher in the 1990s, unemployment was much lower, and we had budget surpluses instead of deficits. Arguably, these benefits flowed in large part because of the tax increases in 1990 and 1993, not to mention those enacted by Ronald Reagan in the 1980s. Yet it is Republican dogma that tax increases never reduce the deficit despite the obvious evidence to the contrary.

Of course, no one likes paying taxes and it’s not unreasonable for people to oppose any increase. But right now, Republicans are essentially promising them pie-in-the-sky, while Democrats have done little to inject realism into the budgetary debate. So it’s no surprise that people overwhelmingly believe they can have their cake and eat it too. Polls consistently show that people believe that the budget can be balanced with spending cuts alone and that none of those spending cuts will affect them personally. (See below.)

Until people are forced to confront reality, Republicans will continue to hold the strong hand. President Obama is the only Democrat in a position to talk directly to the American people and explain to them that there are trade-offs, that tax cuts have added substantially to our fiscal problems, and that the budget isn’t going to be balanced by cutting foreign aid and waste. Once people are really threatened by virtual abolition of programs like Medicare and Medicaid, as Republican propose, the option of paying taxes no higher than they paid in the 1990s will look a lot better to them.

In his budget speech, the president started to push back, defending the good that government does against relentless Republican attacks, standing up for the budget deals of the 1980s and 1990s that raised taxes and produced budget surpluses, and proposing a new budget deal that doesn’t delude people, as the Republican budget plan does, that we can cut taxes an additional $3 trillion over the next decade and still balance the budget. At a minimum, that would double the spending cuts necessary to stabilize the nation’s finances.
Whether Obama is successful depends on follow through. He can’t just give one speech and move on to other issues; he must be relentless, especially in spelling out the facts about the nature of taxes and spending, and the lies that underpin the Republican position. This is trench warfare and Obama should be prepared for it. I know that Republicans are.

Tagi


Artykuły powiązane

World Bank: NBP’s response - swift, large and effective in limiting the economic scarring effects of the pandemic

Kategoria: Macroeconomics
The policy response of Narodowy Bank Polski has been swift and large and effective in limiting the economic scarring effects of the pandemic – adequate liquidity provision remains critical in the short-term. The anti-crisis measures of the Polish government are also adequate, says Asli Demirgüç-Kunt, the chief economist for the Europe and Central Asia region at the World Bank.
World Bank: NBP’s response - swift, large and effective in limiting the economic scarring effects of the pandemic

The complexity of civilisation is a sign of development

Kategoria: New trends
Economic growth is underpinned by long-term technology trends. By observing them, we can make forecasts 20 to 30 years into the future. These days automation and digitalisation of the economy is key to growth: short term developments which come and go, such as economic crises, do not change the megatrends.
The complexity of civilisation is a sign of development

We are paying for free entertainment with lower productivity

Kategoria: Macroeconomics
Leisure-enhancing technologies, which are taking up more and more of people's time and attention, may explain a significant part of the slowdown in productivity growth observed in advanced economies in recent decades – says Łukasz Rachel, an economist at the LSE and Princeton University.
We are paying for free entertainment with lower productivity