Tax plans, spending, and eyeglasses

October 31st, 2015 at 10:52 am

The lead editorials in both the WaPo and the NYT today riffed off of some points I made here a few weeks ago, points that have become more germane as the R candidates reveal more about their tax plans.

The R’s tax plans, which all cut taxes aggressively, largely at the top of the income scale, often get attacked as regressive and thus inequality-inducing. That’s true,* but it’s but one of two problems generated by these plans. The other is, simply put, we can’t afford them.

NYT:

All of these candidates deny fiscal reality. In the next 10 years, revenues will need to increase by 40 percent simply to keep federal spending even, per capita, with inflation and population growth. Additional revenues will be needed to pay for health care for the elderly, transportation systems and other obligations, as well as for newer challenges, including climate change. And interest on the national debt will surely rise because interest rates have nowhere to go but up.

The WaPo focuses on Sen. Cruz’s plan, which looks something like a consumption tax or a VAT (hey…that’s European…socialist!!). But they too note the fiscal shortfall (and yes, there’s the WaPo’s ed board patented swipe at entitlement costs):

Spending cuts can’t fill these gaps. In its latest budget deal, Congress implicitly admitted that the experiment with tight “sequester” budget caps on discretionary spending was a dangerous failure that threatened crucial defense and domestic programs. Money can and should be saved by reforming entitlements such as Medicare and Social Security, but, with old-age costs projected to rise significantly, the fiscal challenge should not be underestimated.

In a hand-waving routine you’ll see more of as these plans come under more scrutiny, expect the candidates to talk about all the spending they’ll cut. But the WaPo’s point about sequestration is well made in this regard. The Congress can’t live within the spending caps they themselves invoked. It is absolutely implausible that they’ll find trillions more in cuts such that these tax plans won’t blow out the deficit.

Another bit in the paper today seemed germane to this argument. In a profile of the life of Ben Carson, who clearly triumphed over deep poverty, the piece points out the importance of “the help he received from public school teachers, a federal jobs program, community mentors, government-supplied eyeglasses and, crucially, food stamps.” He was failing in fifth grade until the school realized his vision problems and provided him with the aforementioned glasses.

I know, it’s (the endless) campaign season, and people who want your vote invariably make promises they can’t keep. I’ve come to expect politicians telling us you can have Y for the cost of Y/2.

But this theme–our forthcoming need for more, not less revenues going forward–deserves a lot more attention than it’s getting. It is extremely important for a better-informed electorate to recognize the implications on their lives and those of their children if we choose to believe that 2 minus 2 somehow equals 4. Even young Ben Carson would have seen through that, especially once he put on his new glasses.

 

*In a dustup with the moderator in last week’s debate, Sen. Rubio claimed that his plan also lifted the after-tax income of the poor. That is, in fact, what this analysis shows (see fig 4**), but if I understand the plan, relative to the current system, Rubio gives significant new money to the lowest income families, and it’s not conditioned on work–something like a negative income tax for the poor. His plan also–at least as modelled here–zeroes out taxes on capital gains and dividends, so, as the figure shows, he gives a lot to the bottom and the top.

**This analysis is by the Tax Foundation, which leans right. I think their static analysis is probably sound but they juice their dynamic analysis with a bunch of assumptions that exaggerate the growth effects of tax cuts.

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5 comments in reply to "Tax plans, spending, and eyeglasses"

  1. D Peterka says:

    “Imagine 4.9 million new jobs. Instead of Obama’s income stagnation, imagine average wages rising 12.2 percent over the next decade. Capital investment rising 43.9 percent. And every income-level seeing double-digit increases in after-tax income. Imagine exports and manufacturing jobs booming. Our trade deficit falling as the tax bias against American made goods is eliminated. Imagine a 10 percent income tax, with every American filling out his or her taxes on a postcard or iPhone app. And abolishing the IRS as we know it.” – Ted Cruz

    Question 1: Where the heck does this 3 decimal points of accuracy come from?

    Question 2: Do the R’s really believe (of course they do) that cutting taxes will translate directly into employers paying their employees more and hiring more of them? What is the mechanism for further enriched rich people to aid the not so rich? What stops them from taking the money and buying another Lamborghini, yacht, or villa somewhere?

    Question 3: if flattening the tax code is such a great idea – why doesn’t Congress try it? Let’s see them propose to eliminate some loopholes, and then decrease the related corporate or personal tax rate a commensurate amount. If that can’t be done, then a flat tax is hopeless.


  2. Tammy says:

    I’m confused: 1) You hardly ever blog on Saturday. 2) I thought you were on vacation?


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