Do you remember the cartoons you used to see in the newspaper comics How many things can you find wrong with this picture? You still see them occasionally but they’re nothing like as large or elaborate as they used to be. This morning’s New York Times editorial on the coming need to raise taxes reminds me of nothing so much as one of those cartoon features. Nearly every paragraph has a blooper.
So, for example, here’s the opening paragraph:
So far, the Obama administration’s plan for dealing with the budget deficit — an estimated $9 trillion over a decade — is to not dig the hole any deeper. That’s an important first step. President Obama deserves credit for proposing ways to pay for his two big initiatives to date: health care reform and energy legislation. Reducing the growth in health care costs, in particular, is vital to curbing future deficits.
The editorial writers have confused budget neutrality, i.e. not increasing the deficit, with reducing costs. When you spend an extra $10 billion or $100 billion on healthcare, as the healthcare reform proposals making their way through the Congress do, you are not reducing costs even if the extra spending is balanced with tax increases or cuts elsewhere in the budget.
The second paragraph is no better:
As for the hundreds of billions of dollars in economic stimulus, their impact on long-term deficits is marginal because the spending is temporary. More important, deficit spending is warranted in a recession because it eases the downturn and in so doing, averts even worse damage to the economy and the budget.
The stimulus spending itself may be temporary but the additional debt they constitute will undoubtedly be forever. That’s only marginal as long as interest rates remain low. If interest rates go into double digits, interest on the debt could soar to the largest single expense category in the federal budget and those are not under Congress’s control.
The fourth paragraph continues the sorry trend:
The deficits are not of his making. Some two-thirds of the $9 trillion shortfall resulted from policies that predate his administration; most of the rest is the cost of policies that both parties consider necessary, like continued relief from the alternative minimum tax.
In the opening months of his presidency President Obama added sharply to the debt. Pleading exigent circumstances or not on my watch doesn’t completely absolve President Obama.
The editorial continues in a similar vein: taxes on people making modest incomes will need to increase to pay for the policies enacted into law by the present Congress and its predecessors going back some 60 years. That’s probably true as far as it goes but why has the discussion of taxation become so constrained? Why, for example, is a wealth tax never mentioned? There’s nothing more moral or practical about taxing income than taxing wealth. The latter makes it harder to stay wealthy, the former to become wealthy. The main difference is that an income tax tends to enshrine those who are wealthy now as a permanent upper class. In all of the hagiography of Ted Kennedy that attended his death and memorial observations I saw no mention that he had never proposed a wealth tax as a means of paying for the programs he supported. Convenient for a beneficiary of the Kennedy Trust.
However, the biggest blooper in the editorial is that robust economic growth is the easiest, least controversial, and most painless method of dealing with the public debt. In the absence of robust growth taxing away the capital that is the engine of that growth is a wholly losing proposition.
And with the newly re-discovered Keynesianism nobody seems to have noticed that Lord Keynes’s prescription was for counter-cyclical increases in real spending matched by pro-cyclical reductions in real spending. Not merely ending the counter-cyclical spending but offsetting cuts. Somehow I doubt that our brave Congress will enact those any time soon.