130% of the Whole

--by Sebastian

It is primary season in California.  As a result I have been treated to many campaign ads smashing candidate (and state treasurer) Angelides for wanting to dramatically raise taxes.  In these ads, Westley takes what is normally the Republican anti-tax position and drives it home with a long and pricey list of separate taxes that Angelides has proposed.  The normal dynamic when talking about government budgets involves Democrats saying that voters want bigger and better government services while Republicans whine that voters want lower taxes.  Democrats appeal to the 60% of voters who want more services while Republicans appeal to the 70% of people who want lower taxes.  Unfortunately for the country that is 130% of the whole.   

Democrat candidates may suggest that higher taxes are necessary, but they don't talk about raising them enough to cover the new programs they propose.  Republicans want to slash taxes, but never propose enough spending cuts to bring the budget into balance.  The problem is that voters are not attentive enough to economic trade-offs and that politicians exploit this by obscuring the trade-offs. 

I've been wanting to write about this depressing fact for about a month, but I didn't have anything constructive to add other than noticing it.  But recently I've read an interesting post by Jon Henke which addresses the subject. 

Government does fulfill a public demand; it also extracts a public cost. In a free market economy, we balance these competing interests with the price mechanism.

A price mechanism is the process by which a market ensures an efficient allocation of resources - as prices rise or decline, consumers react by altering the quantity demanded. Unfortunately, there's not much of a market mechanism for determining the marginal utility of additional government spending, so voters simultaneously want more benefits and lower taxes - ultimately contradictory demands. Because consumers always overdemand goods and services that are underpriced—or paid for by someone else—this helps the Party (i.e., Democrats) that promises more public benefits rather than the Party (that once upon a time) promised less.

The path forward for libertarians and fiscal conservatives, then, is accept that voters will demand benefits, but to ensure that voters feel the costs of additional government through a Price Mechanism for Government.

He suggests two important changes:  increased transparency and a floating tax rate.  The increased transparency suggestions should be able to gain traction from the left and right.  Whether you believe that the country would be better served with higher or lower service levels and higher or lower tax levels, we should be able to agree that a clearer understanding of where the money goes and how it is collected will make for better decision making.   The suggestion that each appropriation gets a separate vote is a good one though I'm not entirely sure where you would make the break for separateness purposes.  An abortion expenditure pretty clearly doesn't go with a defense appropriation, but do you have separate votes for each different highway or can you bundle a highway bill?  That question could be thorny, but could ultimately be fruitful.  A floating tax rate could do a lot of good if paired with good transparency (if you can find out why your taxes went up or down).  It doesn't even have to be a flat rate (gentle graduated taxes combined with an EITC could be progressive, less obnoxious and cheaper to administer than many welfare programs, and not deform economic behaviour much).  If something like that was implemented, I would suggest that the new rates be announced a year in advance, to facilitate planning by the electorate. 

In any case it is clear that trying to to fulfill the contradictory wishes of the electorate doesn't really work.  Food for thought on what to do about it. 

Comments

[Jackmormon]

Is it just me or does this problem seem particularly bad in California state politics?

I like the idea of making the price of services more transparent, and I agree that voting on appropriations individually might be a good way of going about it (although bundling them together helps force compromises on tough issues).

The proposal for a floating tax rate makes me more nervous, though. I know more than one person who miscalculated or otherwise underestimated their tax bill and nearly went under. Maybe explanatory footnotes would make people feel less alienated from their government in early April, but that benefit would probably be wiped out in negative feelings if the tax rate changes were too unpredictable.

I'll be interested to read what others have to say.

[spencer]

the idea you are suggesting is one of the major problems the state of California now faces because of their system of referendums
requiring specific spending and collection restrictions.

It end up with a system without any flexibility when conditions change.

[zmulls]

The real downside is the loss of the idea of the "common good."

*I* am not likely to vote to fund *Your* highway. It's going to hard to convince an entire electorate, trying to save money, that a highway upgrade, or bridge repair, or whatever is necessary, when the majority of voters do not receive the benefit of the expenditure.

[LizardBreath]

On the federal level, isn't PAYGO a strong step toward a solution?

[kenB]

It's going to hard to convince an entire electorate, trying to save money, that a highway upgrade, or bridge repair, or whatever is necessary, when the majority of voters do not receive the benefit of the expenditure.

My first, somewhat facile reaction was along the lines of, "this is a problem??". Why should we pay for other people's roads, unless there's some benefit to us as well?

But you could work around this sort of thing by having the Feds pass, e.g., a generic highway maintenance bill that simply allocates money to the states to spend as they see fit. That way, you're not assigning your money to a specific bridge in Alaska, just agreeing to an overall level of Federal spending on highway projects in general.

[bob mcmanus]

Mostly this just strikes me as a variation on PAYGO. And not at all my side of the argument, but if you wanted to make this interesting and effective, how about treating the income tax or other taxes like FICA. Based on the previous year, taxes at all income levels are automatically deducted from paychecks. Excess is refunded once a year. That would probably get the attention of the $50k+ group that pays most of the taxes, but doesn't have the major portion of the tax bill deducted like the > $50k group.

[rilkefan]

Since spencer took my point, I'll just note that you misspelled "Democratic" in para 2.

[Sebastian Holsclaw]

"The proposal for a floating tax rate makes me more nervous, though. I know more than one person who miscalculated or otherwise underestimated their tax bill and nearly went under."

I agree. That is why it would probably be better to float it for each prospective year. It would work like this: the rate for a certain income was 18% in 2005. By January 2006 the new rate for 2006 is announced. The tax for 2005 is collected by April 15, 2006. The government analyzes how much it got (defict or surplus) and adjusts the tax rate and announces the 2007 rate sometime in late 2006. This gives people a full year to plan for the taxes. It means the government is operating on a one year lag, but we are effectively running on a multi-year lag now so that shouldn't be a huge issue.

"the idea you are suggesting is one of the major problems the state of California now faces because of their system of referendums
requiring specific spending and collection restrictions."

Which idea? The transparency or the floating rate? Transparency is about accurately disclosing where the money is going now and in the future. The floating rate doesn't require any specific spending, it merely goes up and down as spending and collections goes up and down.

[bob mcmanus]

Oh, and as far as "my side of the argument" goes, the longer I look the more evidence I see(tech bubble, real estate bubble, negative savings and massive credit-card debt, etc) the more I am certain that within a reasonable range, the people are better off with the government controlling their money than controlling it themselves. The range is an upper limit of 50% taxation. Call it the concious and deliberate wisdom of crowds. There are sunk and hidden costs, and misallocated, insufficient, and misinformation pervading private markets.

Warren Buffett:Why do you think you deserve 2% service costs and 20% of gross profits for your underperforming hedge fund?
Hedge Fund Manager:"Because I can't get 3 and 30."

RIP, Mr Galbraith.

[Steve]

One major problem is exemplified by the gameplaying that occurred with the push to pass the Medicare prescription drug bill. In theory, yes, it's great if people can understand how e.g. the war in Iraq affects their bottom line. In practice, very difficult to arrive on a number.

We do have representative democracy rather than pure democracy for a good reason, though. I'd shy away from any system where the voters actually choose whether to fund each and every program; I think California's system of government by referendum is extremely dysfunctional. The problem is that there's simply not enough time to educate every voter as to the costs and benefits of each and every program, nor is there enough time for each and every voter to study that information. Elect a government; let them come up with a taxation and spending package that everyone can review; and if it's not acceptable, throw them out and elect a different government.

The problem is that rampant deficit spending is what keeps Republicans in office and thus any sort of PAYGO rules will have to be passed over their dead bodies.

[Sebastian Holsclaw]

"The problem is that there's simply not enough time to educate every voter as to the costs and benefits of each and every program, nor is there enough time for each and every voter to study that information. Elect a government; let them come up with a taxation and spending package that everyone can review; and if it's not acceptable, throw them out and elect a different government."

I'm confused. I'm not suggesting a direct democracy approach and neither is Jon. The transparency is to allow voters access to good information on which to judge whether or not they should elect a different government.

[Bernard Yomtov]

I don't see much difference between "Let's agree to put both our appropriations in this bill and then both vote for it," and "I'll vote for your appropriation bill if you'll vote for mine."

And does Henke really believe that it is the Democrats who have made political hay out of fiscal irresponsibility? Has he been asleep for twenty-five years?

[Steve]

I took some of the other comments to be discussing the idea that a highway project, or even a certain level of highway funding, would have to be individually justified to the voters.

[Sebastian Holsclaw]

I don't see much difference between "Let's agree to put both our appropriations in this bill and then both vote for it," and "I'll vote for your appropriation bill if you'll vote for mine."

It means that it is much harder to say "I only incidentally voted for the 'Hopeful Levitation Bridge from Nowhere to Nowhere Else' because it was attached (completely without my notice) to the 'Save Our Elderly Mothers from Starvation Caused By Evil People' bill." It takes away the plausible deniability.

[Jackmormon]

Thanks for the clarification, Sebastian. Even with a year's warning (and how often do we see such deadlines fudged by government officials?), this proposal would give government much more flexibility for its planning than most individuals really have.

I suspect that under this proposal the people who don't plan their finances very carefully would get hosed and the people who do would feel jerked around. And then there are all the people, freelancers for example, who don't quite know at the beginning of the year how much money they're going to make or what tax bracket they're going to fall in: the yearly announcement might not help them much at all.

What do you think about McManus's suggest to withhold more income tax? Some of my friends in France went this route after going into debt a few times to pay their yearly tax bill; they swore up and down that it made managing their finances easier and more realistic.

[mac]

Is it just me, or have moderate democrats been saying the same thing for a long time now. I think Hilzoy's word for it is PAYGO....

[Sebastian Holsclaw]

I'm not against using tax withholdings so that people don't get 'surprised' by their taxes at the end of the year. Isn't that pretty much how it works now? In terms of filing and paying, floating tax levels wouldn't be different so long as they were announced a year in advance.

[mac]

... I guess it's not just me. As for transparency, if you go look at Clinton-Gore budgets, they are a lot more readable than Bush-Cheney ones, which read more like campaign ads. In any case, you won't get any argument from me.

That said, I'm not sure I like the idea of floating taxes. I'd rather see taxes be somewhat predictable, and also still think Keynes was right that government spending should be counter-cyclic, but long-term balanced.

....
Also, something very weird the first time I tried to post. I got back a "verify this message" that was a V10XX advertisement, rather than my post. Very strange.

[Sebastian Holsclaw]

"Is it just me, or have moderate democrats been saying the same thing for a long time now. I think Hilzoy's word for it is PAYGO...."

Similar aim I think. PAYGO rules (as opposed to social insurance PAYGO 'funding') seem to be very popular with whichever party is not in control of the House of Representatives (see Newt Gingrich and the response of Democrats to spending controls before his election success). I'm not convinced that it would be embraced by Democrats if they actually had control of the spending. The problem isn't only in the government (which PAYGO addresses) but also in voter perception of the tradeoffs necessary for government action (which a floating tax would address). Elected officials reflect the unrealisitic wants of the electorate. At some point we have to implement some tools which help the electorate understand their choices. If that leads to higher benefits and higher taxes, so be it so long as people understand what they are choosing and how they are paying for it.

[Sebastian Holsclaw]

"Also, something very weird the first time I tried to post. I got back a "verify this message" that was a V10XX advertisement, rather than my post. Very strange."

Something like that just happened to me. I wonder if the ad people are getting tricky.

[Francis]

maybe i'm just grumpy, but i find this post to be remarkably silly.

If voters were cool rational Heinleinesque individuals, the drive for increased transparency would be unnecessary. since they're not, the effort will be useless.

moreover, i don't exactly see how "increased transparency" will be enforced. After all, if there were a private right of action against legislatures and executives for misnaming bills and cramming in unrelated items (see, eg, supplemental defense appropriation bills), i could have made a pile of money on "Healthy Forests" alone.

as for price mechanisms, they exist all over the place. California's bond rating is among the lowest in the country. The Chinese central govt controls a staggering amount of US treasury debt which will need to be rolled over.

the real problems are that Sebastian doesn't like the fact that voters are illogical or that politicians will cater to their prejudices. Its been my impression that contempt for voters is something that republicans blame on democrats, not on themselves.

[Sebastian Holsclaw]

"Its been my impression that contempt for voters is something that republicans blame on democrats, not on themselves."

My mileage may vary.

[radish]

The transparency is to allow voters access to good information on which to judge whether or not they should elect a different government.

Oh I dunno. It all depends what you consider "good" information. Government spending in the US is already pretty darn transparent, and yet hardly anybody has any idea where the money goes. How do you explain that?

Now granted, both parties are about equally to blame for the spending part, but only one party has been spouting a lot of nonsense about Laffer curves and trickle-down economics and basically telling everybody that cutting rich peoples' taxes improves the lives of poor people.

And it's pretty clear that hardly anybody has any idea where the money goes (or comes from). How else to explain why the Republic party has had the wholehearted support of self-described fiscal conservatives for twenty-plus years of increasingly profligate and senseless deficit spending. I mean this is a whole generation of self-described fiscal conservatives we're talking about. You'd think people would have figured it out by now, even if it wasn't particularly transparent...

Not to get overly historical or anything but maybe it's time to accept that somebody's deliberately distracting the voters and concealing the real problem.

I think ten or twenty million copies of something like that WRL pie chart distributed at shopping malls around the nation would be very educational, don't you? Does that qualify as "good" information? You're well acquainted with the geopolitical lessons of the cold war, Sebastian. I'm suprised by your lack of concern about the economic lessons to be learned from the fate of the Former Soviet Union.

[CharleyCarp]

I'm not sure I understand with the how transparency on the appropriation side is supposed to be different from the current system. If you want to know how much any particular thing costs, it's not that hard to find out -- although most people don't, won't, and resist the truth (eg of how much of the federal budget is spent on foreign aid).

If you're suggesting we each get our own little phone book sized pamphlet every year telling us what we spent on each line item, the problem for most people is that the numbers are going to be very very small. Know what you personally paid for mohair subsisies this year? (If they even still have them). The answer will be vanishingly small, and the average taxpayer, having looked once at the book, will just toss it. Even though the cost per taxpayer of printing the book is going to be right there on the cover.

If you're looking to have a recorded floor vote on each line item, we'd better just have multi-year appropriations. They barely have time to get the budget and approps bills out now, with relatively rigid controls in the house that originates spending bills.

[Sebastian Holsclaw]

"I'm suprised by your lack of concern about the economic lessons to be learned from the fate of the Former Soviet Union."

You are really going to have to be a little less cryptic if you want me to respond.

If you are just ranting, of course, please continue.

[CharleyCarp]

I have a better idea, Sebastian: publish the phone book sized pamphlet, and sell them for, what, $8.95. Everyone who wants transparency in spending will buy one. You'll be rich!

[CharleyCarp]

The trick, of course, will be finding out just exactly how much has been spent on hookers and caviar.

[Catsy]

I'm all for transparency, but I'm highly skeptical of anything that smells like direct-democracy budgeting. Not being familiar with California's system, I can only speak from my experience with Washington State's initiative and referendum system, which has allowed anti-tax jihadi Tim Eyman to systematically gut what was once one of the best public transportation systems in the nation.

I will happily vote for tax increases to pay for things I think are important. But I'm weird that way. Most people, if you give them a choice between tax and no-tax, are going to vote for what puts more money in their pockets. Either they won't be informed enough to comprehend the impact of what they're defunding, or they won't care because it doesn't affect them personally and they have an atrophied sense of the common good.

The short version: the electorate, as a whole, really is selfish and uninformed about fiscal issues. While pretending otherwise is nice when you're trying to avoid insulting the people whose vote you want, it's stupid to budget a government that way.

[radish]

You are really going to have to be a little less cryptic if you want me to respond.

Er, never mind about the Soviet Union -- I'd rather discuss what kind of information is both "good" and (for lack of a better term) "easily digestible" by the electorate.

Steve, Francis and CharleyCarp have presented three different flavors of argument that asking for an informed electorate is unrealistic. (I don't entirely agree BTW). mac has provided an admittedly partisan data point supporting my contention that the way in which budgets are presented is deliberately obfuscatory.

I think what we're all getting at is the question of how the "transparency" you advocate is different from:

a) the transparency that already exists (wherein you have to wade through the budgets themselves in order to find out where the money goes)

b) the transparency represented by simplistic pie charts such as the one offered by WRL

I personally think that wide exposure to something resembling that pie chart would change the political landscape of the US, and I also happen to think that it's a reasonably accurate representation of the arithmetical reality of where the dollars go (though unfortunately it doesn't have anything to say about the equally scandalous problem of where the dollars come from ;-)

My own point, ultimately, is that if you want transparency you should get behind something like that chart.

[radish]

Oops, Catsy makes four arguments against asking for an imformed electorate.

Catsy, the CA system doesn't sound crazy in principle (I wasn't here when it went through), but somehow manages to suck royally, through mechanisms that are not entirely clear to me, even living here.

[Sebastian Holsclaw]

Perhaps the problem isn't with the solution I threw out there, but with my identification of the problem.

Do you think I'm wrong in believing that people (unrealistically) want both lower taxes and more government benefits?

[CharleyCarp]

I don't think you're wrong about that at all. One problem is that it's been amply proven that politicians who say 'it doesn't work that way' fare very poorly against those who say 'you can have all your services, we'll only cut those wasteful services that other people are abusing, and we'll cut taxes too. (Maybe not your taxes, actually, but we'll cut somebody's.)'

[Sebastian Holsclaw]

"I'm all for transparency, but I'm highly skeptical of anything that smells like direct-democracy budgeting. Not being familiar with California's system, I can only speak from my experience with Washington State's initiative and referendum system, which has allowed anti-tax jihadi Tim Eyman to systematically gut what was once one of the best public transportation systems in the nation."

I don't understand what any of this discussion has to do with the California system. The only reason I mentioned California was because the primaries are next week and one of the Democratic primary contenders accused one of the other Democratic primary contenders of being too pro-tax during St. Elsewhere, I mean Grey's Anatomy. (Which considering that the not-as-pro-tax guy looks likely to win the nomination makes the repeated insinuation that Republicans are the only ones with a budgeting problem look rather silly). The California system differs from the national system mainly in its practice of raising taxes which are 'earmarked' only for a specific use. That isn't anything like any of the proposals that Jon made and I relayed. California's system of earmarking is very similar to the Social Security tax fiction which doesn't seem to draw serious objections from many here in that context.

[radish]

Perhaps the problem isn't with the solution I threw out there, but with my identification of the problem.

Precisely.

One problem is that it's been amply proven that politicians who say 'it doesn't work that way' fare very poorly against those who say 'you can have all your services, we'll only cut those wasteful services that other people are abusing, and we'll cut taxes too. (Maybe not your taxes, actually, but we'll cut somebody's.)'

The reason I disagree about the inevitability of a poorly informed/commons-abusing electorate is that if you dig down a layer or two, this is a separation-of-powers problem. It's the sort of problem that doesn't have any perfect (or even near-perfect) solutions, but it does provide you an opportunity to play forces against each other in order to prevent runaway spending.

I could, in fact, argue with conviction (though maybe not with an entirely straight face ;-) that preventing runaway spending of the type you describe is primarily the responsibility of the press.

[hilzoy]

Seb: I agree. I think that the PAYGO rules are the best solution, mostly because they avoid the floating tax rate and the planning problems it presents. One of the hopes behind it is that it might force politicians to try explaining to people why they need to make tradeoffs.

About this: "How else to explain why the Republic party has had the wholehearted support of self-described fiscal conservatives for twenty-plus years of increasingly profligate and senseless deficit spending." -- With respect to a lot of people, I think it's just the familiar problem of old stereotypes taking a long time to die. The Republicans have been by miles the more profligate party for several decades; eventually, this will sink in, just as it will sink in that they are not "strong on defense", or on values.

Another part, I think, is that for a lot of people, oddly, military spending doesn't count somehow. Someone like Reagan is thought to have been a fiscal conservative; the only possible reason for this, I think, is that he cut back on domestic programs, which count as 'spending", but not on defense, which somehow doesn't.

But I've been asking people I know who are in business why the business community is still largely Republican, despite the fact that they of all people should see the potential for disaster in Bush's fiscal policy. Without exception, the answer has been: short-term self-interest. Which I find unbelievably depressing. For people like that, I think, it might be true that they just don't want to realize that the present Republican leadership is fiscally insane, or to give up the 'Republicans are the fiscally responsible ones', because then they would have to realize what, exactly, they are supporting.

[Sebastian Holsclaw]

"One problem is that it's been amply proven that politicians who say 'it doesn't work that way' fare very poorly against those who say 'you can have all your services, we'll only cut those wasteful services that other people are abusing, and we'll cut taxes too."

That isn't different from what I'm saying. The electorate chooses the latter.

[Sebastian Holsclaw]

"Another part, I think, is that for a lot of people, oddly, military spending doesn't count somehow. Someone like Reagan is thought to have been a fiscal conservative; the only possible reason for this, I think, is that he cut back on domestic programs, which count as 'spending", but not on defense, which somehow doesn't."

I think that is because military spending is considered a multi-millenia core function of government while social spending is not.

[Francis]

there is tons of information out there, including bar charts, pie graphs and spreadsheets complex enough to give MaxSpeak a headache, especially at the federal level. but GWB (and Reagan) got elected, twice, by telling people that he could cut taxes, increase miilitary spending and balance the budget.

the evidence strongly suggests that voters want to be lied to.

[Sebastian Holsclaw]

"the evidence strongly suggests that voters want to be lied to."

And/Or the evidence strongly suggests that the voters have contradictory impulses which need to be resolved somehow if we don't want to go completely bankrupt.

[Gary Farber]

"The short version: the electorate, as a whole, really is selfish and uninformed about fiscal issues."

Nonsense. The short version: the electorate, as a whole, really is selfish and uninformed about issues.

But not entirely.

[Gary Farber]

"I think that is because military spending is considered a multi-millenia core function of government while social spending is not."

But what's interesting is that (obsolete if ever true) stereotype is that conservatives and Republicans are skeptical of Big Government, and think that government can't cure problems, that government is inherently inefficient, and that throwing money at problems is no solution at all, but merely causes bigger problems, and that government and power is corrupting.

Except for defense.

[CharleyCarp]

Agreed that the voters choose the panderer, especially when it's the same guy/party pandering on many other issues. This is the whole point of the 'I don't do nuance thing.' The problems aren't complicated, they're simple. And they're not your fault. And they can be fixed at virtually no cost to you.

And if the press questions any of it, it's because they hate America. Or, more likely, they hate you (Mr. & Mrs. Middle American).

You know, I thought when George Sr. called out St. Ronnie on voodoo economics, it would make an impression. It did, but the wrong one. Especially (on a different occasion) when The Saint was snippy about who'd paid for the microphone.

It's an infotainment system, and I can't say I see any easy way out of it. Anyone who doesn't know where the money comes from and where it's going, though, doesn't want to know.

[radish]

the evidence strongly suggests that voters want to be lied to.

Well, the evidence certainly suggests that voters are being lied to, and that those lies are rewarded. Beyond that I don't agree that it's the result of their volition, because that presumes that voters are, collectively, idiots, rather than just misinformed...

Hmm... on second thought...

I think that is because military spending is considered a multi-millenia core function of government while social spending is not.

Considered by whom? First of all I doubt that you'll find any US research suggesting, even indirectly, that less than 75% of the population considers social services a core function of government, for any reasonable definition of social services. Seventy or eighty years ago it might have been a sizable minority. Nowadays, no way. Entitlement, baby.

I also doubt that you will find any research indicating that more than a very small fraction of the electorate can accurately estimate the disbursement of the federal budget or that of their state. IME people who find out how much money is being spent on the military are flabbergasted, and if you tell them how much of it disappears into abandoned projects they grow furious.

[ral]

Sebastian Holsclaw: I think that is because military spending is considered a multi-millenia core function of government while social spending is not.

Does the phrase "bread and circuses" ring a bell? Social spending has long been a function of government.

[Steve]

Of course the military is a core function of government, but no one is suggesting we shouldn't have a military. The fact that it's a core function tells us nothing about what the level of spending ought to be.

The tragic reality is that for every painful budget cut that disproportionately affects the poor, there's probably some boondoggle of a bomber program that could be cut entirely except that the contractor is located in some powerful senator's district, oh and if you propose cuts in military spending that proves you want to fight the war on terror with spitballs. But nothing about the military being a core function suggests that cutting military spending shouldn't at least be a plausible way to balance the budget.

[Sebastian Holsclaw]

"IME people who find out how much money is being spent on the military are flabbergasted"

Perhaps so, and if they could see their taxes going up and down every year in relation to the spending we might be able to get an informed idea about how much they want to spend on each of the various functions of government.

[radish]

and if they could see their taxes going up and down every year in relation to the spending

Forsooth. But in the meantime you agree that we need to either raise taxes or cut military spending? :D

More seriously, getting "an informed idea about how much they want to spend on each of the various functions of government" is indeed the ultimate goal. Which is why I think a mechanism to inform the electorate is essential, no matter how difficult it turns out to be.

It's also why I think that the Democratic approach (tax and spend) is better than the Republican approach (borrow and squander), and it now turns out that there is even some empirical evidence supporting that conclusion.

[Sebastian Holsclaw]

"But in the meantime you agree that we need to either raise taxes or cut military spending?"

We should raise taxes to fund the military, yes.

The borrow and squander approach is bad, but I'm not fond of the tax, borrow and spend Democratic plans either. I realize that there is no small government party now, but I don't have to smile about it.

[Francis]

Like fighting Jack Aubrey said, you must always pick the lesser of two weevils.

now, given that the republicans will control a substantial plurality if not outright majority of the senate for the foreseeable future, isn't it time for you to recognize, SH, that the lesser of two weevils is for the swing states to start going to the democrats in House and Presidential election?

[radish]

I don't have to smile about it.

As long as I don't have to smile either. In fact I think the traditional approach (stomping and hollering and directing sharp, pointy questions at one's congresscritters, who are, after all, supposed to work on one's behalf) is still the best.

[Dantheman]

Sebastian,

Congratulations on discovering what Ross Perot, Walter Mondale and Paul Tsongas learned, that being the only adult in an election is a recipe for defeat.

We had an interesting post on this issue last year, showing strong correlation, if not causation, on which party is better at fiscal responsibility.

[Sebastian Holsclaw]

That is why I'm not asking for a run on fiscal responsibility. I'm asking for changes which will make it more transparent and easier to run later.

[Anarch]

Speaking of tax burdens, everyone here is familiar with the general misperception about the portion of the budget going the military and SS/Medicare as versus, say, foreign aid or the NEA, right? [I ask because I can't find any of the damn studies offhand, though I'm sure someone will do so with a cavalier Google thirty seconds after I'm done typing.] I'm not just talking the raw numbers, though that's true too, I'm talking the raw numbers combined with basically no intuitive or visceral understanding whatsoever of orders of magnitude. That, I think, scares me far more than merely the simple impetus to get more stuff (= military, services &c) for less (= taxes): the fact that many people somehow think the problem can be fixed by gutting foreign aid or the NEA or what have you.

[Gary Farber]

"The borrow and squander approach is bad, but I'm not fond of the tax, borrow and spend Democratic plans either."

What plans? This didn't happen under the last Democratic President, who served two full terms. He was the guy under whom the budget was balanced for the first time since... oh, right, Lyndon Johnson.

Going back decades for an example simply is dishonest.

Moreover, it's not as if Bush has had balanced budgets. Or before him, Bush. Or before him, Reagan. Or as if Ford did. Or Nixon did. Eisenhower only managed it in 1956 and 1957.

And, you know, times under FDR had rather exceptional circumstances. And Truman had to deal with the establishment of worldwide foreign policy commitments, and something called "the Marshall Plan" (which would have been more appropriately called the "Truman plan" save that Marshall was more politically popular, but I digress).

And for what it's worth, FDR in 1932 ran on a platform of balanced budgets, and criticizing the Hoover admin for not having them.

Should we address and characterize contemporary Republicans by citing Herbert Hoover's policies?

It's time Republicans stopped making these phony claims about Democratic policies based on events of decades ago, and given their own utterly consistent lack of balanced budgets. It's completely dishonest, no matter that the Republican echo chamber suggests that the facts aren't what they are.

Democrats have a record under Clinton and Johnson of balancing budgets. The Republicans have 2 years under Eisenhower to cite.

You lose.

[Gary Farber]

Hadn't read Dantheman's cite of a post I wasn't around for at the end of last year when writing the previous, by the way.

[Sebastian Holsclaw]

"What plans? This didn't happen under the last Democratic President, who served two full terms. He was the guy under whom the budget was balanced for the first time since... "

I'm pretty sure you've heard of the internet bubble. Is it your contention that the tax revenue collected during the Clinton years in question was unrelated to that bubble? Is it your understanding that when the market fell and deficits resumed BEFORE the Bush tax cuts and indeed that the economy dropped before Bush even took power was indicative of nothing revealing about Clinton's amazing budgetary skills?

[Dantheman]

"That is why I'm not asking for a run on fiscal responsibility. I'm asking for changes which will make it more transparent and easier to run later."

I am not sure how you can believe that making budgeting more transparent will make it easier to run on fiscal responsibility later if there is no evidence that promising fiscal responsibility is going to be a vote winner. Can you explain how such a demand for fiscal responsibility will be created?

[Dantheman]

"Is it your contention that the tax revenue collected during the Clinton years in question was unrelated to that bubble?"

No, just that Clinton had taken steps towards fiscal responsibility (at considerable cost to his party's political standing) that enabled him to take advantage of such additional revenue to bring the budget into balance. Is it your contention that if a similar bubble took place that Bush could balance the budget? If so, please explain why the recent real estate bubble did not have that effect.

[Sebastian Holsclaw]

"If so, please explain why the recent real estate bubble did not have that effect."

It produces far less income for federal tax purposes than income derived from the sale of stock (due to slower turnover and numerous tax exemptions available).

[Dantheman]

"It produces far less income for federal tax purposes than income derived from the sale of stock (due to slower turnover and numerous tax exemptions available)."

Not necessarily. It likely created more jobs than the tech bubble, and the compensation was more likely to be wages than stock, creating more current (and less deferred) tax liability. Further, the profits of a residential real estate transaction are typically taxed as ordinary income, not capital gains at a lower rate (although there are more exemptions for real estate, including the ability to roll the profits over into a lower basis for a replacement house).

Note however, that the tech bubble under Clinton accelerated the existing closing of the deficit which had been going on slowly since the 1990 tax increase, and sped up with the 1993 tax increase. The real estate bubble did little to stem the widening deficit increases under Bush, which started with his tax cuts.

[Sebastian Holsclaw]

"Further, the profits of a residential real estate transaction are typically taxed as ordinary income, not capital gains at a lower rate (although there are more exemptions for real estate, including the ability to roll the profits over into a lower basis for a replacement house)."

That bit at the end is why profits on residential real estate transactions rarely get taxed by the federal government. And there is a huge initial exemption that doesn't even have to be rolled over into another house so long as you lived in the sold house for a short time.

"The real estate bubble did little to stem the widening deficit increases under Bush, which started with his tax cuts."

This is incorrect. The budget went from surplus to deficit before Bush's tax cuts came into play.

[Bernard Yomtov]

I'm pretty sure you've heard of the internet bubble. Is it your contention that the tax revenue collected during the Clinton years in question was unrelated to that bubble?

Is it your contention that the collapse of the bubble created the Bush era deficits? In 1999 taxpayers reported $531 billion in taxable gains. In 2003 it was $294 billion, a drop of $237 billion. Tax that at 20% and you get a revenue drop of $47.4 billion. The 99-03 swing in government finances was $540 billion. The '00-04 swing (the years when lots of the 1999 and 2003 taxes were collected) was $760 billion.

The fact is that both Reagan and GW Bush ran campaigns based explicitly on promises of fiscal irresponsibility, and they both delivered. When GHW Bush and Clinton increased taxes to try to stop it they were denounced by leading Republicans. Clinton's increases were predicted to be ruinous by the likes of Gingrich et al.

And now we get more supply-side nonsense from the Administration as it digs the hole ever deeper. If we want to fix the mess, let's at least be honest about where it comes from.

[John Thullen]

"Democratic" is still misspelled in the second paragraph.

"I don't have to smile about it"

Well, O.K., be like that .... no hip transplant for you. ;)

"I think that is because military spending is considered a multi-millenia core function of government while social spending is not."

Perhaps rephrase in more active voice, so I know at whom I shouldn't smile. I suspect if social spending (Medicare, etc.) were eliminated, military spending would need to be tripled just to defend the government from the moody, fairly uniformed People.

Uniformed probably because they heard "foreign aid" and "aid to black welfare mothers" once took up double-digit percentages of the budget, etc.

Bill Frist said today at the tax-cut extravaganza on Capital Hill that this money was ours and they are returning it to us. His tone implied that the money had been stolen from me and he found it in the street. Kind of like Neil Cavuto on FOX repeating the mantra during the first round of Bush tax cuts that "it's our money, give it back".

So I'm thinking, well, if it's my money, give it all back. Where is the rest of it?I'll give ya'll 24 hours to give it back, in arrears, since, say, 1980.

Or else.

Or do things get dangerous when demagoguery is taken literally?

Interesting post and thread. Thanks.

[democrat]

"The Columbia Guide to Standard American English. 1993.

Democrat (adj., n.), Democratic (adj.)

The proper noun is the name of a member of a major American political party; the adjective Democratic is used in its official name, the Democratic party. Democrat as an adjective is still sometimes used by some twentieth-century Republicans as a campaign tool but was used with particular virulence by the late senator Joseph R. McCarthy of Wisconsin, a Republican who sought by repeatedly calling it the Democrat party to deny it any possible benefit of the suggestion that it might also be democratic."

http://www.bartleby.com/68/27/1727.html

I don't think it's a misspelling.

[Dantheman]

Sebastian,

""The real estate bubble did little to stem the widening deficit increases under Bush, which started with his tax cuts."

This is incorrect. The budget went from surplus to deficit before Bush's tax cuts came into play."

Not really. Look at the table here . Public debt decreased between the fiscal years ending Sept 2000 and 2001. Total debt went up slightly, but far less than in future years.

"And there is a huge initial exemption that doesn't even have to be rolled over into another house so long as you lived in the sold house for a short time."

It's also a once in a lifetime exemption, and is not huge in today's real estate market (IIRC, it's $250,000).

[Sebastian Holsclaw]

"Is it your contention that the collapse of the bubble created the Bush era deficits?"

It is my contention that praising Clinton for 'creating' surpluses is incorrect and highly misleading. The surpluses which actually existed were artifacts of the inflated market. The surpluses projected on the indefinite continuation of that stock market level had already vanished by the time Bush took power.

Damning Bush for making deficits worse is both correct and informative.

Since my point was that voters don't seem to be all about balancing costs and benefits (they want both more benefits and lower taxes) and that politicians tend to play to that, I'm addressing the (I believe to be) incorrect idea that Clinton's policies were particularly good at balancing that. The Clinton-era tax hikes in 1993 were fine, though they would not have led to surpluses without the bubble. They would in no way have paid for the huge outlays which would have been required under Clinton's health care plan.

You can (and probably will) argue that Democrats are more fiscally 'responsible' than current Republicans. That is only tangentially related to my point. I'm not trying to show who is worse. I'm trying to show that the US electorate votes in such a way as to enable (or perhaps even mandate) fiscal irresponsibility. As such I am interested in proposals which might address that problem.

The fact that Clinton presided over momentary surpluses (caused by a market bubble) does not seem to me to call in to question the idea that the US electorate votes for what turns out to be an unrealistic mish-mash of higher spending coupled with lower taxes.

[Francis]

I'm trying to show that the US electorate votes in such a way as to enable (or perhaps even mandate) fiscal irresponsibility. As such I am interested in proposals which might address that problem.

step 1: punish the Republican party for continuing to put up candidates who stoke voters' fears, prejudices and innumeracy.

step 2: repeat.

[John Thullen]

"I don't think it's a misspelling."

At Redstate, it's not a misspelling. But Sebastian is a self-admitted lousy speller, which is why he posts at the bi-political Obsidian Wings, so I thought I'd second Rilkefan's correction.

On the other hand, it could be my sentence: '"Democratic" is still misspelled in the second paragraph.' is actually: "shut up with the 'Democrat' partisan trash talk and then I'll read the rest of this interesting post".

But, I'm not sure yet. Not a big deal. Only a smallish button pushed.

Related question: I've been reading about the years before Hitler came to power, during the Weimar, etc, and I'm wondering if it is a Godwin violation to compare various personages in the Republican Congress with von Hindenberg?

[Sebastian Holsclaw]

"It's also a once in a lifetime exemption, and is not huge in today's real estate market (IIRC, it's $250,000)."

It isn't a once in a lifetime exemption. It requires only that you lived in the house for 2 years out of the last 5. It is $250,000 per person for a married couple so it is regularly $500,000. It is on profit so $250,000 isn't chump change.

[Sebastian Holsclaw]

"step 1: punish the Republican party for continuing to put up candidates who stoke voters' fears, prejudices and innumeracy."

And how do you do that while the public still wants lower taxes and increased spending?

[bob mcmanus]

"The surpluses which actually existed were artifacts of the inflated market."

While economic conditions are important, it is hard to understand someone who thinks tax, fiscal, and monetary policy irrelevant to budget surpluses(or deficits?). If the case is made that Clinton is not responsible or in control of any of those three factors, then Bush has a very strong defense against blame for deficits.

Which, as a matter of fact, he does. But in a year of midterm elections, it is more convenient to blame Bush for out of control spending than the Republican-controlled Congess.

[Sebastian Holsclaw]

"If the case is made that Clinton is not responsible or in control of any of those three factors, then Bush has a very strong defense against blame for deficits."

Huh? My claim is that under Clinton's policies, in a non-bubble environment, there would have been deficits. That is without adding his health care proposal. If you add that, there would have been very serious deficits.

[Bernard Yomtov]

It is my contention that praising Clinton for 'creating' surpluses is incorrect and highly misleading. The surpluses which actually existed were artifacts of the inflated market. The surpluses projected on the indefinite continuation of that stock market level had already vanished by the time Bush took power.

I think it is fair and accurate to praise Clinton for balancing the budget.

During the Clinton years the deficit, which was $300 billion in 1993, consistently shrank, Internet bubble or not.

There were two years, 1999 and 2000, when there were "on-budget" surpluses, i.e., surpluses without counting Social Security and similar items. In 1998 and 2001 the deficit was in the neighborhood of $30 billion. This soon ballooned to $317 billion in 2002 and $536 billion in 2003. This is much more than just "making it worse."

As I noted above, simple arithmetic tells us that only a small part of this change can be attributed to the bubble burst, and that the 2000 surplus exceeded "excess" capital gains tax receipts. So while it is true that Clinton produced only one significant surplus (the 1999 surplus was very small) that ignores the magnitude of the changes wrought by Bush, which is much more important than the oscillation from a $30 billion 1998 deficit to a surplus back to a $33 billion 2001 deficit.

[Gary Farber]

"Is it your contention that the tax revenue collected during the Clinton years in question was unrelated to that bubble?"

My contention is that Clinton didn't engage in these "tax-and-spend" policies anti-Democrats love to talk about.

There was, in fact, a large push in the party and in the Clinton Administration to take the surpluses and invest them in a variety of forms of social spending. As previously mentioned here, Clinton chose to do otherwise, and to go against these major forces in the Democratic party and his own administration and some of his own party's Congressional representatives and instead focus on cutting deficits as the top priority. This is exceedingly well-documented history, and if you're not familiar with it, you might want to look into it. Read up on Robert Rubin. Ask Brad deLong.

This is among the sort of responsible behavior you want. It would be nice if you might recognize it and give it due credit, and stop talking about Democratic policies as if it were 1936, and Democrats also thought it was 1936.

[Gary Farber]

"And how do you do that while the public still wants lower taxes and increased spending?"

Fire the public and get a new one.

[Sebastian Holsclaw]

"My contention is that Clinton didn't engage in these "tax-and-spend" policies anti-Democrats love to talk about."

He attempted to and failed--see the Clinton Health Care proposal.

"There was, in fact, a large push in the party and in the Clinton Administration to take the surpluses and invest them in a variety of forms of social spending. As previously mentioned here, Clinton chose to do otherwise, and to go against these major forces in the Democratic party and his own administration and some of his own party's Congressional representatives and instead focus on cutting deficits as the top priority."

This was a function of the government divided between Republicans and Democrats. It might be excellent for the budget right now if Democrats controlled just the House. (I'm not personally willing to split the presidency and Senate until at least two more rounds of judges get appointed). It would be even better if the electorate was willing/able to make real cost/benefit decisions instead of believing that they can get more spending and lower taxes.

"Fire the public and get a new one."

Heh.

[Gary Farber]

"Fire the public and get a new one."

Heh.

I'm entirely sure I'm paraphrasing someone; probably several someones.

But I'm sure most of us can agree that the public is quite incompetent at its job, and deserves to be sacked and replaced.

Perhaps we should take out an ad.

[Sebastian Holsclaw]

"Perhaps we should take out an ad."

One of the problems is that no one is smart enough to run the interview properly.

[soThat's]

"I'm not personally willing to split the presidency and Senate until at least two more rounds of judges get appointed"

Okay, so you actually want to go on *record* as supporting Bush, Cheney, Frist and Santorum, as actually *wanting* them to keep their grip on power in this country?

You're fine with the incompetence, fine with the torture, fine with the lies, fine with the corruption and K-Street, fine with the refusal of oversight, fine with trashing the Constitution, just as long as you get to pack the courts a little while longer?

Just so we know where you stand.

[Bernard Yomtov]

I'm not trying to show who is worse.

Then why do you quote Henke's false and idiotic statement about Democrats?

I'm trying to show that the US electorate votes in such a way as to enable (or perhaps even mandate) fiscal irresponsibility. As such I am interested in proposals which might address that problem.

Perhaps one useful step would be for conservatives to admit that the supply-side dogma is nonsense. One reason people vote the way they do is because they have been told, repeatedly, the lie that tax cuts are self-financing. Maybe if that stopped it would help matters.

[Sebastian Holsclaw]

"You're fine with the incompetence, fine with the torture, fine with the lies, fine with the corruption and K-Street, fine with the refusal of oversight, fine with trashing the Constitution, just as long as you get to pack the courts a little while longer?"

Please feel free to bother to actually read what I think on the issues in question. I have a rather long history of posting on this blog.

And trashing the Constitution isn't exactly a Republican-only game. In fact the rise of the Christian Right in the US can be very closely traced to a certain Constitution-trashing that took place in 1973 and which has been ridiculously defended by Democrats ever since. And yes, I think reversing that atrocious trend is worth ensuring a non-Democrat in the Presidency for at least one more round unless the Republican Party nominates another complete ass.

[Sebastian Holsclaw]

"Maybe if that stopped it would help matters."

Since the problem existed before that, I don't think that is the solution we are looking for.

[Sebastian Holsclaw]

And RE: the presidency, if the Democrats nominated someone with a judicial philosophy I could respect I would of course be more likely to vote for that candidate. But I suspect that is ridiculously unlikely.

[Bernard Yomtov]

Since the problem existed before that, I don't think that is the solution we are looking for.

Look here and you will find lots of interesting tables. Table 1.2 tells us the following:

From 1947 through 1981 the on-budget deficit exceeded 3% of GDP only twice, in 1968 (3.2%) and 1976 (4.1%). Most of those years it was well under 2%.

In 1982 it went to 3.7% and the 1982-1993 average was 4.7%.

The deficit declined under Clinton, disappeared entirely, and then rose to .3% in 2001.

It then went to 3.1% in 2002 and 5% in 2003 and remains in that general vicinity.

I'd say facing reality about tax cuts would make a big difference.

[bob mcmanus]

"I'm entirely sure I'm paraphrasing someone; probably several someones."

I am on record as wanting to fire part of the public; and serious, tho not so serious as to play with synonyms.