June 24, 2011
It’s like a boogeyman, a looming shadow above us, and the harsh realities of the deficit don’t always translate to daily life. However, the deficit affects interest rates which affect business which affects hiring. We know this, so I’m not going to argue against this. It took a while for the concept to sink in, but it did, for me. We know the deficit is bad.
Here’s the rock and the hard place: we aren’t making enough money to support not just discretionary spending—which includes military spending—and entitlements, not to mention the interest on the debt which we have to repay, or else our credit rating goes out the window and our money becomes worthless. If you don’t see a vicious cycle here, you probably believe in unicorns and faeries too.
What’s worse is the kind of discussion in Washington and how to go about this problem. Short story: Democrats won’t talk about cutting entitlements, which econ pundits call “mandatory spending.” Republicans—except for Paul Ryan—equate “broadening the tax base” with “raising taxes,” dragging the quality of the discourse to moronic levels.
There are two conflicting ideas here, which you have to keep in mind and try to reconcile. Concept 1: We are spending too much. So much so that if discretionary spending were cut to zero, we will still be crushed by our entitlement obligations. Concept 2: Hauser’s Law states that as a matter of outcome, total tax receipts have come out to a historical average of 19% of GDP. Which means, that no matter how you tweak the marginal tax rate, no matter what credits you add or remove, no matter what kind of tax policy you have, this is the percent of GDP collected. (Basically, if you tweak the marginal tax rate, “something” in “the economy” reacts and you get 19% of GDP, even as you try to rake in more hard dollars.)
The only way to increase gross receipts is to increase GDP. But how can you increase GDP when the deficit crisis basically creates a climate of fear for business, a climate that makes it difficult to hire people? The budget cutters believe that if you cut from the budget the right items, the government removes its competitive presence against the private sector in that market and you offset the loss in production generated by the government with production generated by the private sector. This is not just an “in theory” way of thinking. It’s been demonstrated.
However, cutting discretionary spending is not enough; we need to have a mature discussion on what to do with entitlement spending. No politician except for Paul Ryan is willing to have this discussion., and he’s taken flack from the Left with lies about how he wants to cut benefits for current receipients today.
Lastly, another item that Only Paul Ryan Has The Courage To Discuss, is this so-called “broadening the tax base,” or, as the President likes to call it, “spending in the tax code.” Over fifty percent of people do not, on net, pay taxes. They pay sales taxes, but not income taxes (on net). I say “on net,” because they pay taxes during withholding, but due to a slew of credits, they get everything back.
This untapped tax base is so large and so fragile and so populous that neither Republicans nor Democrats seriously discuss having them pay their “fair share.” I hate that term, but many of these people are voters, and they’ve elected leaders in Congress and the President and have given them the consent to govern and spend as they believe is right for the country. They have a fair share in this spending, because they are a party to this politics whether they want to admit it or not.
So: we know the solution. We have no political will or acumen to make it happen. And this is the biggest problem.