Friday, March 26, 2010

Good Things vs. Bad Things

Back in the day, Charles Krauthammer knew a good thing when he saw it:
On the domestic front, more shock. Democrats understand that the Bush tax cuts make structural changes that will long outlive him. Like the Reagan cuts, they will starve the government of revenue for years to come.
Bush, Krauthammer lectured, was viewed by Democrats as "demonic" for creating funding shortages that would force structural changes in government.

As you guessed, that was then, this is now:
But even if it were revenue-neutral, Obamacare preempts and appropriates for itself the best and easiest means of reducing the existing deficit. Obamacare's $500 billion of cuts in Medicare and $600 billion in tax hikes are no longer available for deficit reduction. They are siphoned off for the new entitlement of insuring the uninsured.
Spending and taxes are not separate issues. Bush's tax cuts didn't lead to the structural changes of Krauthammer's dreams - the Republican party is profligate, so tax cuts led to extraordinary deficit spending. If he were to try to hold a consistent thesis, Krauthammer would have to acknowledge that whether the cash shortfall he envisions as bringing about a "structural change" comes from taxing or spending, it will either "starve the government" (and force the cuts of Medicare, Medicaid and Social Security for which he yearns) or it won't. When the Bush tax cuts didn't prevent G.W. from pushing Medicare Part D through Congress without funding the new benefit, there was no caterwauling by Krauthammer about how Bush would have to raise taxes. (But he's never been one to strive for intellectual consistency.)

I find it fascinating that Krauthammer's new professed fear is that the Obama Administration will pass a "consumption tax". Recall the Republican "FairTax" proposal - here are Tom Delay and Bruce Bartlett back in 2005, describing a VAT / consumption tax / "national sales tax" as a cornerstone for "tax reform". In 2006, Rep. Darrell Issa took up the cause. A consumption tax was also recommended in 2005 by G.W. Bush's President's Advisory Panel on Federal Tax Reform. What other conclusion could you possibly draw, other than that a consumption tax is an evil Democratic plot to take over the world?

In fairness to Krauthammer, he loves the idea of replacing income taxes with a consumption tax - it would be, after all, regressive, easily avoided by the wealthy, and completely inadequate to fund the government. And then there's the issue that we're trying to reinvigorate the economy by boosting consumption. Whether nor not you believe that to be a good idea, it goes without saying that a VAT would depress consumption by making goods more expensive.

Krauthammer personifies the type of person who made healthcare reform such a mess. "It must be revenue neutral! Oh... it's revenue neutral? Then it must cut spending by hundreds of billions because it's not good enough for it to be revenue neutral - in the future spending may not go down, and taxes may not go up." We would likely have ended up with better legislation if the major goals of healthcare reform had been addressed independently. Even within one bill, issues such as universality, spending and improved efficiency could have been separately addressed, but that would have required more honesty from opponents of reform. That would mean, for example, no editorials selectively attacking out the components of the bill that would increase spending in willful disregard of other provisions that cut spending or raised revenue.

It would have made sense for there to have been a new payroll tax (albeit, one that did not implicate additional double- and triple-1... or perhaps create quadruple-taxation) to collect money for premiums (see, e.g., my suggestion from yesterday). But every politician since Mondale has been effectively forced to take a "no new taxes", or at least a "no new taxes on the middle class" position, much to the pleasure of people like Krauthammer. Between those promises and the import of stimulating the economy, no, we won't have a consumption tax - not even (or should I say "and certainly not") at the level of luxury goods - any time soon.

1. When you calculate multiple taxes based upon net pay, you're effectively taxing the same money over and over again. The Republican Party tends to be very concerned when this affects the rich, thus lamenting that taxes on dividends and large estates are "double taxation", but don't appear at all concerned about the same phenomenon affecting the wages of working Americans.

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