A Silly Graph

The graph in question, highlighted by Washington Post blogger Ezra Klein, purports to depict current and future public debt. (“Tax Cuts, Wars Account for Nearly Half of Public Debt by 2019”) But the graph is silly. In fact, I would have thought that Klein grabbed it from The Onion.

The graph tries to show that most of the debt comes from tax cuts and the military. Yet it doesn’t mention anything about entitlement spending, which comprises about two-thirds of government spending – and which is by far the biggest factor driving the debt. The military, by contrast, comprises one-fifth of government spending. (Click here for the source, table 6.1.) Again, the graph makes no mention of entitlement programs – a tremendous omission, perhaps done deliberately.

Tax cuts? That’s like blaming your massive credit card debt on the raise you didn’t get. Or put it this way. If Ezra Klein were a spendaholic and came and told me his credit card debt is massive because his raises weren’t high enough, I’d take a few steps back, thinking he must be batty. Now don’t get me wrong – I don’t think he’s batty because he’s thinks the same thing vis-a-vis government debt. I just think he needs to re-take or take (if he’s never taken it before) Economics 101.

One other thing. After the Bush tax cuts, tax revenues…went up! Way up – from $1.8 trillion in 2003 to $2.6 trillion in 2007. So even with the tax cuts, we got a mega-raise.

A Proposal for Mr. Buffett

I have a proposal for Warren Buffett and his fellow billionaires like Bill Gates: Pool your tens of billions, and give that money to the U.S. government to reduce the federal deficit. Taken together, you may breach the $100 billion mark – a significant chunk of change, even when talking about the deficit.

Do it IMF-style, where there are conditions. I.e., if the government takes the money, it has to use it to pay down the debt rather than spend it. Like the IMF, disburse it in tranches, so that if the government isn’t living up to its commitment, then you can withhold the remaining funds.

Of course, you always could give your tens of billions without conditions, given that you seem to have a lot of faith in how the federal government spends its money, based on your campaign to raise taxes. But I would think that even you would realize that that’s like putting your money down a black hole (which should make you think twice about your eagerness to raise taxes).

Isn’t it obvious even to left-of-center people like yourself that the more money government takes in, the more it spends as opposed to pay down debt? That’s why I would think you would be reluctant to give your riches to the government without conditions. (And that reintroduces the irony of why you’re so eager to surrender your money to it through taxation.)

It’s telling that you are admirably giving so much of your wealth to charity, instead of to the federal government. You must think that charities are better stewards of money than the federal government. Why are you so willing to surrender your – and other folks’ – wealth to the government through taxation with no strings attached, but you don’t seem to be willing to give to it voluntarily? It must mean you don’t totally trust the government with your money – you have much more trust in private foundations and/or the private business sector. So why the campaign for higher taxes? It doesn’t make sense. Or if it does, please explain.

You should at least be demanding better accountability from the government in exchange for pledging your support for higher taxes. You have some great leverage – why don’t you use it? Or, are you satisfied with how the government is currently spending your money? If so, then why are you making your donations to private charitable foundations rather than to the government? It’s quite contradictory.

If I were a billionaire (keep dreaming, bub), I would try to set up a deal where I’d pledge my money to the federal government in exchange for it using that money to finance Social Security reform where the program is transformed from a spending program into a savings program via personal savings accounts (PSAs). But I understand that the likes of you and Mr. Gates, being left of center, probably aren’t too thrilled with government-sponsored PSAs. (Plus you’d get beaten up by your friends on the left, who’d accuse you of being handmaidens of Wall Street PSA money managers.)

But one thing you are in favor of is reducing the national debt, correct? So let me repeat: Pledge your billions to the federal government in exchange for it committing to using that money as seed money for paying down the debt, and committing to using its tax revenue (in addition to grants from you) to pay down the debt.

I doubt right-of-center billionaires would go for this idea because they don’t have as much trust in government being a good steward of money. But you seem to have more trust based on your willingness to raise taxes. So see what your left-of-center billionaire friends think of the idea. Who knows – it may even be the beginnings of the U.S. government getting its fiscal house in order.

If you’d be worried that imposing conditions would be perceived by the general public (especially the Left) as plutocratic, i.e. billionaires telling the federal government how to spend its money, then pledge the money with no conditions. Of course, in that case, two-thirds of the money would go toward redistribution, and most of the money redistributed wouldn’t be going to the poor.  (I.e., two-thirds of federal government spending now goes toward redistribution rather than toward traditional government services, and most of the recipients are middle class or rich.)

In that sense I could see why you’d rather give your money to charities rather than to the government.

And that should make you reconsider your desire to raise taxes on the wealthy.

Bill Clinton: Don’t Raise Taxes Now

Even Bill Clinton disagrees with Obama’s desire to raise taxes now. In a Face the Nation interview, he indicated that we shouldn’t raise taxes when the economy is so sluggish. He said to wait “a year or two” for economic growth to return, and then tackle the deficit by raising taxes.

The best plan of action is to not raise taxes at all across the board, or if you’re going to raise taxes, do so by closing loopholes like the mortgage interest deduction (which drives up interest rates and penalizes renters). And close loopholes in exchange for an across the board rate cut, which will help spur economic growth. Economic growth is the biggest generator of tax revenue.

Lest there be any doubt that tacking the deficit is best achieve through spending cuts and not through tax increases, two Harvard economists analyzed 107 separate attempts at fiscal reform in OECD (developed) countries from 1970 to 2007. The goals in each case was to lower debt-to-GDP ratios.

Their study confirmed the obvious: Instances that failed mainly relied on large tax increases and only modest spending decreases, if any.  Instances that succeeded mainly relied on large spending decreases and only modest tax increases, if any.

They also found that instances that relied on spending cuts rather than tax increases are less likely to create recessions.

Obama is setting us up for failure yet again.

The country needs a new CEO. Fast.

NPR Should At Least Pretend To Be Impartial

You know when you and another person or persons generally agree on things and you want to test your arguments by playing devil’s advocate – i.e. pose a question that you think your opponents would ask? Stating you’re asking a devil’s advocate question almost always implies that you and the other person are in agreement.

That’s the question a National Public Radio reporter asked a New Yorker reporter. The latter, one James Surowiecki, argued that the debt ceiling should be scrapped. The NPR reporter, Mary Louise Kelly, said, “Let me play devil’s advocate….many would argue that having a sort of ceiling in place fosters accountability.”

Mary Louise, you work for a taxpayer-subsidized radio corporation that is supposed to be for all Americans, not just left-leaning ones who are sympathetic to scrapping the debt ceiling. Your taxpayer subsidies don’t just come from lefties but righties as well. You can at least try to convey the appearance that you’re speaking on behalf of Americans of all political stripes. You should have dropped the “Let me play devil’s advocate.” That implies that you’re on Surowiecki’s side in the matter and that you don’t want him to think that you aren’t.

No, a hard-nosed reporter should in no way be worried about putting the  person he or she is interviewing in a tight spot provided the question is a legitimate one. And asking about the accountability issue is very legitimate.

Meanwhile, Surowiecki at first dodged the question. So Kelly asked it again. The only thing Kelly could muster up was that because Congress has raised the debt ceiling so many times in the past without a fight, it shows that the debt ceiling is a weak way to foster accountability.

Hey James – it appears that that’s changing. Congress is now starting to take the debt ceiling issue seriously as a way to foster accountability. In fact what’s happening now in Congress – a deal to raise the ceiling in exchange for spending controls – is unprecedented as far as I know.

So finally, the debt ceiling is fostering accountability! That kind of destroys Surowiecki’s argument that the debt ceiling is unnecessary because it has never worked in fostering accountability in the past. Well now, it is! And hopefully this will start a good precedent for the future.

One other note. Surowiecki said we’re one of the only developed countries that have a debt ceiling. “And, you know, most other countries, developed countries, seem to do reasonably well in terms of keeping their books in order without one.”

Yeah. Like Greece.

 

A Love-Hate Relationship With Spending. And Spending Wins Out.

I’m no stand-up comedian, but I can’t help but run by you this one: Washington Post syndicated columnist David Ignatius is crying out, Spending, No! Obamacare, Yes!

(Audience laughter.)

Yes folks, Ignatius is positively appalled by the U.S. government’s massive spending sprees, and desperately wants someone to do something about it. But first, there’s just one little thing he’d like the government to do: put through the most massive spending spree in the history of the United States.

He does add the caveat that it would be great if the politicians would arrange it so that Obamacare cuts costs – i.e. results in less government spending. (At first his article seemed like he was advocating higher taxes to offset the spending, but then he writes “cuts costs”, which by definition means reducing spending.) But if politicians did that, then it wouldn’t be Obamacare. It would be something far, far different from Obamacare – more along the lines of true healthcare reform like substantially reducing healthcare regulations, decoupling health insurance from employers, and instituting health savings accounts for all combined with high-deductible insurance. (Obamacare is the opposite of all that.)

Gotta love all the folks who express shock – shock! at all the gambling going on in the house, and then happily proceed to hit the blackjack tables themselves.

More Revenue = More Spending

In the fall of 2008 during the discussion to implement the $700 billion bank bailout, even free-market types assured us the move would be OK because, as happened in Hong Kong, the money would be paid back to the taxpayers.

They were only half right. The money is being paid back, but not to the American taxpayers. Faster-than-expected repayments by banks is giving the government an estimated $200 billion windfall. Instead of using it to reduce our gi-normous deficit, the Obama administration wants to spend it on a “jobs program.”

So the next time there’s a government bailout, assume that it will result in permanent government spending – even on programs unrelated to the original bailout purpose.

Another lesson learned: Whenever the government gets extra revenue, it most likely will spend it rather than reduce the deficit with it. That means raising taxes will result in more government spending.

Another case in point was the SCHIP program during the late 1990s. Extra tax revenue and a smaller deficit prompted the Clinton administration to start a new entitlement program, rather than pay down the debt or cut taxes.

People who think they’re being fiscally responsible, like New York Times economics columnist David Leonhardt, want to raise taxes in order to pay for our unprecedented government spending. But that’s fiscally irresponsible, because once the government gets its hands on any extra tax revenue, it will spend even more.

George Lakoff, Where Are You Now?

(A previous version of this article appeared in The San Francisco Chronicle.)

How times have changed. The budget deficit is on track to be a trillion dollars year for the next 10 years, and the Left is as pleased as punch. Yet only a few years ago when the budget deficit was a few hundred billion, they went ballistic. They feigned concern over the burden on future generations. If we don’t take care of it now, they repeatedly warned, then our children and grandchildren will pay for it later.

They called it the baby tax. In trying to better connect with voters, the Democratic leadership tried out the old standby of re-labeling things. Back in 2005 they heeded the advice of George Lakoff, a Berkeley professor of linguistics and cognitive sciences, who recommended calling the Bush budget deficit a baby tax.

George Lakoff, where are you now?

The Left’s acquiescence to today’s trillion-dollar deficits has exposed how insincere they were about their earlier “baby tax” rhetoric. Higher taxes, whether it be on today’s generation or future generations, are just fine with them.

Money to pay down the budget deficit comes from income taxes. The rich pay most of the income taxes: the top 1 percent of earners pay about 40 percent of all income taxes, the top 10 percent pay around 70 percent, and the top 50 percent pay in the neighborhood of 97 percent. If higher taxes on present-day rich people do not bother Democrats, why should higher taxes on future rich people bother them?

In fact, many if not most Democrats think higher taxes on the rich are a good thing. So in this sense, a Democrat might consider a budget deficit to be desirable, since it means higher taxes on the wealthy people of tomorrow.

Another strike against the Left’s baby tax credibility is that, while they used to purport to care about the future tax burden of our babies, they rarely give a hoot about the tax burden of yesterday’s babies: us. In addition to paying for the budget deficits of past years, today’s workers – mainly higher-income ones – are paying for the government spending going on right now.

If the those on the left really were concerned about the future tax burden of our babies – rich ones, poor ones, and middle-class ones alike – then they’d be joining the tea parties in droves. Obviously, they aren’t.

If and when we get a president again who wants to cut taxes across the board, and the Left starts to howl “baby tax”, don’t believe them for a minute.

Patrick Chisholm is editor of PolicyDynamics.