Fiscal Irresponsibility

by hilzoy

From the Washington Post:

"The House today passed a $56 billion tax-cut bill that extends for two years a reduction in tax rates for capital gains and dividend income.

After spirited debate, the House voted 234 to 197 to approve the bill, the fourth tax cut passed by the body in two days. The four tax cuts combined would slash federal revenue by $94.5 billion over five years, an amount nearly double the budget savings in a spending-reduction bill that Republicans pushed through the House last month."

This is just irresponsible. Our deficit is ballooning. It will be a drag on the economy for decades to come. Eventually, we will have to pay it off, and it's always better to start paying off a deficit when times are reasonably good than to wait until catastrophe strikes.

Moreover, while "Republicans insisted that it is needed to maintain a strong economy and sustain growth", that far-left haunt of barking moonbats, the Wall Street Journal (subscription wall), reports:

"A group of Federal Reserve Board economists concludes that the tax cut, which slashed the dividend-income tax on stocks to 15% from about 30%-38%, was a dud when it came to boosting the stock market when it was announced and passed in 2003 -- a time period, they say, that the stock market should have reacted most strongly.

Nor did the tax cut lead to a significant increase in the amount of money companies paid out to investors as a proportion of their earnings, the study adds. "We fail to find much, if any, imprint of the dividend tax cut news on the value of the aggregate stock market," the economists -- Gene Amromin, Paul Harrison, Nellie Liang and Steve Sharpe -- wrote in a paper they presented in October."

According to the Center on Budget and Policy Priorities, 40.1% of the House's tax cuts would go to households making over a million dollars a year. To the extent that the House is making even token gestures at fiscal restraint, those gestures involve cutting programs like Medicaid, which benefit those who can least afford those cuts. When people without any other way of paying for health care are cut from the Medicaid rolls, one large reason is: because the House of Representatives thought it was more important to benefit millionaires.

Finally, neither the House nor the Senate has really addressed one of the great looming tax problems that we face: fixing the Alternative Minimum Tax. The AMT was designed to prevent the very wealthy from using various loopholes to pay no taxes at all. Because it was not indexed to inflation, the level at which it kicks in is fixed, and so more and more middle-class families are getting caught by it. Fixing this problem will cost a lot of money, unless compensating tax hikes are adopted. Both the House and the Senate have proposed temporary fixes instead of dealing with the underlying problem. Especially in the case of the House, one obvious reason for doing this is to make their other tax hikes seem less completely irresponsible. For if they made clear how much fixing the AMT will cost in the long run, the case for cutting taxes on millionaires would get a lot more difficult to make.

This is irresponsible. We need to do something about the deficit. If this involves letting some or all of the Bush tax cuts expire, then so be it. The alternative is saddling our children with debt and a less productive economy, and risking a very serious economic downturn -- the dreaded 'hard landing'. And that's just wrong.

Comments

[stickler]

This is irresponsible. We need to do something about the deficit.

We did something about the deficit in November 2004. We elected a bunch of people, from the President on down, who don't give a flying fig about the deficit. There has been no discipline because the electorate doesn't care.

[cleek]

it's better for politicians' re-election chances to pay off voters than to pay off the deficit.

count me in favor of a single-term presidency, and term-limits on representatives and senators. do away with the permanent campaign, and maybe we could get politicians who are interested in policy.

[Mo MacArbie]

The trouble with term limits, as seen here in California, is that the permanent campaign is replaced with the permanent jockeying for the next job up the ladder. No one is interested in policy, as that tends to be boring and doesn't grab many headlines. We tend to get lots of Say No To Badness Acts and other forms of outright pandering.

[Yukoner]

Cleek

it's better for politicians' re-election chances to pay off voters than to pay off the deficit.

Oddly enough, it doesn't have to be this way. At the federal level in Canada the government has been running surpluses and paying down public debt every year for about 8 years now and those in power have been re-elected more than once.

It's now conventional wisdom that no one will dare run a deficit again.

[Pug]

Totally irresponsible.

But what you'll hear from the official propagandists of the Republican Party, Limbaugh and Hannity, is that revenue will now magically go up.

When I took economics we did sometimes look at what the text books called "empirical" evidence. What the empirical evidence shows is: Republicans = tax cuts = huge deficits. It's been that way since 1980, 25 years of empirical evidence. You can't deny it anymore.

Spin away with your theories of Laffer Curves and other crap now, Wingers. Meanwhile, let's go ahead and borrow ourselves into oblivion.

[john miller]

The right wingers will also probably bring up the always revered Reagan, and point out that we recovered from the deficit caused by the largets tax cut in history. Funny how they always forget to mention that Reagan also increased taxes 7 times while he was in office, which is what led us all to watch Bush I's lips when he said "No new taxes."

This is even more irresponsible when we are fighting a war.

Of course, they don't really have to worry about it, because it will be somebody else's problem when the economy comes crashing down.

[alex]

Oh hush. In 2016, after seven years of 20% unemployment, you'll fork over a $500,000 bill with the Gipper on it for your cup of Starbucks and ponder whether you should vote for the Christian Reconstructionist or the National Isolationist.

We have been lucky so far in this country because our leaders have so frequently been motivated by greed. Once they get a whole pile of money, they're satisfied. Theocrats are a different kettle of fish. My nagging paranoid fear is that some real power-hungry weasels (Yes, Mr. Norquist, I'm thinking of you.) are encouraging the accumulation of debt in order to seize power during an economic hard landing. They're willing to tip over the apple cart because they don't want apples--they want the cart.

I do hope I'm being paranoid.

[cleek]

Fafblog has a nice metaphor for this:

Money starts out in Congress where it rains from Senatorial clouds in the form of torrential tax cuts. It collects in rivers and flows downhill into billionaires and large corporations where it is evaporated by lobbyists and rises into the air in the form a campaign contributions which condense in the atmosphere which turn into Congress again, which rain the tax cuts and start it all over again and the wheel of life rolls on. The Money Cycle is all around us every day! Can you find yourself in the Money Cycle?

[Michael Cain]

...and term-limits on representatives and senators.

Colorado has term-limited basically all the elective state and local offices. Various informal studies suggest that one of the unintended consequences has been to substantially increase the informal power of the semi-permenant staff and the lobbyists. Increasingly, that's where the institutional memory of past debates and decisions resides. In informal polls, the legislators indicate they believe term limits have also increased partisanship; they cite the decreased need to get along with term-limited Senator X if he/she won't be back next year.

[John Thullen]

Yes, Colorado likes to be in the vanguard of destroying government and civil discourse.

Alex:

Paranoid? No, you look around, you observe, you report. Thanks for doing so.

[Barry]

Michael, that's what I've read about California term limits doing, as well.

Cleek: "it's better for politicians' re-election chances to pay off voters than to pay off the deficit.

count me in favor of a single-term presidency, and term-limits on representatives and senators. do away with the permanent campaign, and maybe we could get politicians who are interested in policy."

You weren't around in the 1990's, were you?

[Nell]

Term limits are counterproductive. Seats need to be made more competitive through changes in the Money Cycle (thanks for the clip, cleek!) and redistricting.

[Kermit]

I do not see how an economy can be considered as fundamentally sound, as we are hearing a lot of these days, when it is supposedly kept afloat by massive borrowing. It's like we're in a hot air balloon that is leaking badly. Luckily, other balloonists are lending us their propane to compensate. However, we have nothing to worry about because we are still going up.