President Obama held a press conference this week to introduce a Twitter hashtag, #my2k, where middle-class people can complain about what the loss of $2000 to increased taxes would mean to them. That’s more or less the amount that will be lost if the Bush tax cuts for certain income brackets are not maintained.
On its own terms, this is a politically neutral topic of conversation; it should, in theory, pressure the Democrats to be responsible about spending cuts, as much as it would pressure Republicans to agree to tax increases. Of course, that’s not what the President was thinking when he inaugurated it. The “fiscal cliff” story has been written with Republican intransigence on tax cuts as the only stumbling block to an agreement. Users of the #my2k tag are supposed to be an army of accusing fingers pointed at them.
But many of the people posting Twitter messages in this thread are well-meaning folks who don’t see themselves as anyone’s political stooge. They believe something has to be done, and it must involve some sort of compromise between spending cuts and tax increases. I would offer a few words of advice and information to those people.
You’re taking President Obama’s talk of a “balanced approach” at face value, but you should realize there is no evidence that he sincerely means a word of it. You don’t have to look all the way back to the 2008 campaign, or his early days in office, or his comically imbalanced budget proposals, to judge his sincerity. Do you recall what he said about proposing $3 of spending cuts for every dollar of tax increases during the 2012 election, just a few months ago? But this quickly reversed to $3 of taxes for every $1 of cuts once the President was re-elected: at least $1.2 trillion in tax increases (he actually opened with a bid of $1.6 trillion) for about $400 billion of unspecified cuts over the next decade. Another $400 billion in entitlement reductions are supposed to happen between 10 and 20 years from now, but that’s so far off that it’s frankly absurd to consider it a real part of this “deal.” You’ll hear many mentions of figures that include “war savings.” That’s just money from the concluding military operations in Iraq and Afghanistan. It’s not a new “spending cut” – it’s already scheduled to happen.
And as of today, the President and top Democrats are talking about zero spending cuts. White House spokesman Jay Carney said of House Speaker John Boehner’s efforts to secure spending cuts in exchange for tax increases, “Asking that a political price be paid in order for Congress to do its job to ensure that the United States of America pays its bills, and does not default for the first time in its history, is deeply irresponsible.” That tracks with President Obama’s initial position during the budget showdown of 2011. He wanted a “clean” debt ceiling increase – no conditions or spending cuts at all.
Also today, House Minority Leader Nancy Pelosi took what Roll Call described as “a hard line on spending cuts,” saying of anything beyond the very minimal spending restraint already set to go into effect: “No, no, no. A trillion and half in cuts is a lot of money. I know we’re in Washington, D.C., and we get used to big numbers, but a trillion and a half dollars in cuts … you go beyond that you’re talking about hurting the growth of our infrastructure and the education of our people. The very pillars — the very pillars — of our economic strength. Not to mention the economic and health security of our seniors and the American people and their families.”
So there is no longer any serious pretense of matching tax increases with spending cuts dollar for dollar, let alone $3 of cuts for every $1 of spending or anything like that. This is a bold, direct, and absolute contradiction of what Barack Obama said during his re-election campaign. Doesn’t that bother you, My2K friends? At least a little bit? Doesn’t it seem foolish to trust these people to carry out difficult promises and make tough decisions in the years to come, when they can’t even stick to what they were swearing on the proverbial stack of Bibles just weeks ago?
I won’t get into the folly of static fiscal analysis, in which it is assumed that a dollar of proposed tax increases will bring in a dollar of actual revenue. That’s not true; it has never been true; it never will be true. It really isn’t hard to understand why: people take steps to avoid high tax bills, and high tax rates depress the economy. But let’s leave all that aside and talk about some very round numbers. The current yearly budget deficit is roughly equal to the amount of tax increases President Obama is demanding… over the next ten years. He wants $1.2 trillion in new taxes over 10 years. The deficit is a little under $1.2 trillion per year. So even under the most unrealistically optimistic scenario, we’re talking about covering 10 percent of the deficit with these tax increases. That makes balancing the budget a 90/10 proposition between spending cuts and tax increases.
Doesn’t it bother you that absolutely no one in the President’s party is talking about the details of the 90 percent? We’re getting constant, highly specific demands for exactly whose taxes must be raised. But we haven’t heard any comparable details of what spending will be cut. And those spending cuts would inevitably affect people who are highly dependent upon government benefits. It’s going to change their lives. If the Democrats were actually serious about balancing the budget, wouldn’t they be warning those people to prepare themselves? Wouldn’t they be meeting with the heads of agencies that are about to be eliminated, or face drastic reductions in budget and personnel? Shouldn’t all those people be given a chance to weigh in, before a grand bargain is struck, to explain why their government jobs or benefits should not be cut?
But of course, none of that is happening, because the people talking about spending cuts don’t actually intend to make any spending cuts. If they were serious, and if they really cared about the people they claim the government must help and support, they would be acting very differently right now, wouldn’t they? And if we’re not really talking about fiscal restraint, then this big “fiscal cliff” drama is about nothing more than trimming a very meager 10 percent off the deficit by raising some people’s taxes. That’s not what you’ve been led to believe we’re discussing, is it? And it certainly won’t make much of a difference in the long run. If you don’t care about running $900 billion deficits, then why not end the partisan squabbling and “fiscal cliff” danger, extend all of the Bush tax rates, and run $1 trillion deficits? A hundred billion dollars per year is not a big deal when new spending is proposed; please correct me if I’m wrong, but I don’t recall any of President Obama’s “infrastructure” plans or “jobs bills” weighing in at less than $100 billion. Even his long-ago wish for high-speed rail would have cost at least $53 billion. So why should $100 billion in new taxes be seen as the end of the world – a prize Washington must have, at the peril of increasing your middle-class tax bill by $2000?
You should understand that virtually all of the budget deals thrown around in Washington today are expressed as 10-year plans. But 10-year spending cut proposals are quite literally meaningless. Sessions of Congress last two years. No Congress can bind its successors with such plans. There will be many opportunities for each new Congress to declare that some emergency or special situation compels them to abandon spending-cut plans forged in previous sessions. The only thing stopping them would be the anger of voters at the betrayal of those old agreements. Be honest with me: in your heart of hearts, do you seriously believe the voters of 2015, 2017, or 2019 will be so firmly dedicated to honoring a budget deal from 2012 that Congress would fear to test their wrath?
Of course not. When the pressure for new spending grows in future years, the people who insist on honoring some 10-year plan hashed out in 2012 will be treated exactly the way Republicans who made a no-new-taxes pledge are being treated right now. They’ll be called inflexible fanatics who blind themselves to the needs of the present, by allowing the dead hand of the past to cover their eyes. That’s why tax increases for spending cuts are always a sucker trade. We must have real spending cuts, immediately, not on a decade-long timeline. Nothing else really counts.
You may have heard this before, but allow me to repeat that when Washington uses the term “spending cut,” it is more commonly talking about a reduction in the rate of growth. In other words, if a program would have grown $20 billion next year, but it only grows $15 billion, it is described as a $5 billion “cut.” If we did nothing more than freeze current spending for the next 10 years – spending not a penny less, but adding no new programs – it would be presented as a “cut” of about $4 trillion. That should give you some idea of the enormous momentum of government spending. There are very few times when the federal government has actually spent less in a given year than it did in the previous year. Of course, it can decline a little and still be much too high, or it can increase at less than the rate of inflation, but there are only a few times the government has spent significantly less in a new year.
And remember, even though balancing the budget seems like a daunting task, it’s not nearly good enough. We’ve got $16 trillion of debt to pay off. Even if it doesn’t get much bigger, and the rates hold fairly steady, it will cost us $5 trillion over the next decade just to pay the interest, according to Congressional Budget Office projections. So we’re arguing about $1.2 trillion in new taxes, and fighting a desperate battle to extract at least $1.2 trillion in spending cuts, when we’ll spend over twice those totals combined just paying the interest on what we’ve already borrowed. It’s going to be very hard to pay much of that debt off… but if we did, the next generation would be under far less fiscal pressure, wouldn’t they?
You’ve heard a lot of talk about returning to “Bill Clinton’s tax rates.” Well, during the last and most fiscally robust year of Bill Clinton’s administration, the government spent $2.33 trillion, and took in $2.63 trillion in revenue. The government spent $3.56 trillion last year, against $2.44 trillion in revenues. That would mean a $900 billion deficit if we had Clinton’s revenue with Obama’s spending... but we could get much closer to a balanced budget with Clinton’s spending and Obama’s revenue. Talking about “returning” to the Clinton tax rates was always a silly and superficial argument – the tax code and the economy are very different now – but making that argument based solely on tax rates is extremely dishonest.
For all of these reasons, if you’re really concerned about a balanced budget, doesn’t it seem reasonable to make the spending cuts happen first? We know that tax rates happen as promised: the laws are passed, the rates go into effect, and anyone who disobeys is fined or jailed. (Getting the desired amount of revenue, as mentioned above, is another story.) If we get spending cuts passed into law now, extend the Bush tax rates for another year, and then have tax increases in 2013, we know with total confidence that the new taxes will be legally enforced and paid. The part of this deal we have every reason to be extremely suspicious of is the spending cuts. In previous taxes-for-spending-cuts deals, the cuts never happened. If you’re posting to #my2k because you really want to solve the problem we’ve all gotten so worked up about, you should demand more than another bait-and-switch.
Of course, if you’re just posting to #my2k because you’ve been worked into a frenzy by political operators, and you want nothing more than the satisfaction of knowing that somebody else with more money than you got their pockets picked, or seeing a political party you dislike suffer defeat in yet another meaningless Washington game, then there’s no reason to think hard about all this… or expect the rest of us to give you credit for doing so.