Yes, Virginia, there is a revenue problem
posted at 2:06 pm on July 6, 2011 by Jazz Shaw
David Brooks provoked a significant backlash with what was obviously a rather insulting column regarding the GOP and current debt ceiling negotiations. One problem with throwing stones in such a wide spread is that you tend to turn off the readers who wind up ignoring any portions of your argument which might have made sense. Here’s what Ed Morrissey has to say, in part, about David Brooks’ analysis of the -lack of – a budget deal.
Well, let’s back the train up the tracks just a little bit here. The incoming Republicans who now resist tax hikes weren’t the ones spending the money in the first place. The Democrats in Congress ran deficit spending to absurd new heights over the last four years, and some of the Republicans now in Congress were around for the relatively smaller debt increase from 2001-2006. Neither group “pledged” to pay the money back, and Democrats to this day still aren’t pledging to do so. Tim Geithner just got done explaining that all the current administration wants to do is reduce the amount of borrowing incrementally without having any plan to eliminate deficit spending ever.
If we are net borrowing every year, adding to debt, then we will never be in position to fulfill a “sacred pledge to pay the money back.” That’s a rather large flaw in fiscal policy and in Brooks’ logic, which may be one reason why some of these Republicans don’t pay much attention to “intellectual authorities” like, er, David Brooks.
Errr… no. The first item which Brooks gets right and where I believe my friend Ed misses the point is that there is a very significant and important difference between money you borrow and money you decide not to spend. When the government actually borrows money – issuing paper in exchange for it – it absolutely carries with it a definition of a legal obligation (or a “sacred pledge” if you prefer) to repay it, along with a previously agreed upon amount of interest and/or other fees for borrowing the funds. This is very different from “spending less money” on things you have a choice about, no matter how difficult or painful those choices may be. If – just for an example, not the basis of an actual plan – we slash the reimbursement rates for Medicare, pass legislation to reduce the amount of payments to Social Security beneficiaries, or cut our military budget by not replacing equipment or reducing troop levels drastically, we have not “defaulted” on a debt for money we borrowed. We simply chose not to spend money which we had previously indicated an intention of spending.
In a rare case where I will agree with John Boehner and other Republicans who endlessly chant that we “don’t have a revenue problem,” (we do, but more on that in a minute) the default comes to pass when we fail to make good on scheduled payments for money we have borrowed in any form. We can make those payments this year while leaving roughly 90% of the federal budget on the table.
Second, even if some of the individual members of Congress weren’t around to run up the actual debts (i.e. actual “borrowed money”) from the Bush years, when spending was hardly conservative, (even if it was “relatively smaller”) the people who WERE around didn’t run up that tab on their personal Visa cards. It was a debt incurred by the United States government, and when the new class ran for and were elected to office, they became partial holders of that debt and are therefore responsible for it. Brooks is once again correct on this point, and arguing that the new members aren’t responsible to see that debt repaid is incorrect.
There is no question that the spending by Democrats these past few years has been completely out of control and GOP shortcomings in the Bush years pale by comparison, and that needs to be corrected, probably in a drastic fashion. But, again, the Democrats do still hold not only the White House, but one chamber of the legislative branch. Compromise of some sort is required to get things done, painful though it may be. Elections have consequences, as we are so fond of saying.
Which leads us to the final point, that being the tired meme which has been trotted out by GOP leaders for some time: we “don’t have a revenue problem, we have a spending problem.”
We do have a spending problem. Lots of Americans do. But for every American family, if your debts exceed your income, you have tough choices to make. If you cut out every luxury or optional item in your life, slashing your budget to the bare bones, and you still can’t cover the bills, you’re going to have to get a second job. You have a revenue problem, even if it originated from your longer term spending problem. This is the same situation facing the federal purse today.
And let’s not forget that no proposal floated by either side yet achieves the laudable goal Ed mentions of spending less than you’re taking in. Even the Ryan plan, (which he can’t even sell to his own party) under the most pie in the sky, optimistic forecasts, finds us nearly ten trillion dollars further in debt one decade out from here with spending being an even slightly higher percentage of GDP. Why? Because it tackles Washington’s spending problem in a dramatic, bold fashion, but actually decreases revenue by hundreds of billions at the same time.
It may indeed be time to admit that a deal might be in the offing which will contain a small bitter pill to swallow, but delivers a big old spoonful of sugar to help it go down. Doug Mataconis seems to be arguing this week that, as the old saying goes, we shouldn’t let perfect become the enemy of good.
In the current political environment, a 3-for-1 deal that ends up increasing the debt ceiling while also cutting up to $2,000,000,000,000 in spending over ten years, accompanied by a few hundred million dollars in revenue increases that come mostly from closing economically wasteful tax subsidies strikes me as a pretty good deal. Perfect? No, I would also like to see Congress deal with the long term entitlement problems, but there is no political consensus right now regarding entitlement reform. Anyone expecting perfection from government will be eternally disappointed, and anyone willing to play chicken with the economy over a tax pledge isn’t governing responsibly.
The chief problem facing us on the revenue front is not that the published tax rates are too high. (And make no mistake, they are too high.) The problem is that so few of the biggest potential revenue sources pay anywhere near those levels in their effective tax rate. It comes back to those tired examples of how Warren Buffet’s secretary pays a higher effective tax rate than he does. And argue as viciously as you like, but none of the biggest employers in this nation are paying anywhere near 35% and in too many cases actually pay much closer to zero once you take out all of the benefits they receive in return.
Meanwhile, the only people really getting hammered on taxes are at the opposite end of the earnings scale. Why? Because major corporations and the very rich can afford the expensive tax lawyers and lobbyists needed to obtain sweetheart deals from Congress and endless tweaking of a tax code which is probably verging on a million pages in length by now.
But back to “the deal” which may be within reach. Yes, there may be some “revenue enhancers” (which is the new Democratic Speak for more taxes) in the form of closing loopholes. But if it comes with a very long term lock down on spending and the growth of government, then some of the most desired goals of conservatives are suddenly within their grasp. And the dreaded “revenue enhancers” may be the nasty medicine which actually brings us one step closer to the dream of having Washington spend less than it takes in. We simply have no plan today which achieves that goal through only cutting spending.
So yes, Virginia, there is a revenue problem. The poison in this mix is that Democrats are addicted to spending and the Republicans are allergic to increased revenue in any form, which Brooks also correctly notes. The combination of the two is a recipe for a death spiral, and that’s what’s playing out in Washington this month. The Republicans are going to need to cut a deal in some fashion with the Democrats, and they might want to avoid shooting this gift horse dead, say nothing of simply looking in its mouth.
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