Monday, December 4, 2017


Today's "Daily Dispatch" from The Economist makes the following point about Congressional Republicans' efforts at tax reform: "The tax bill passed by the Senate on Saturday morning makes a mockery of Republican claims to want to balance budgets. The only objective seems to have been to cut taxes."

With all due respect to The Economist: Well, duh.

No form of government is perfect, and one of the imperfections of a representative government is that there is always the temptation for voters to elect people who will promise benefits at the expense of people who cannot (or do not) vote. Back in the day, the enfranchised class could vote for representatives who would deliver benefits that women, or the Black population of the country would have to pay for. But near-universal enfranchisement has changed that. And so the the current group that's been elected to shoulder the burden of today's benefits are tomorrow's adults, who are now either too young to vote or politically disengaged.

Part of what drives this is that despite the fact that Republicans are primarily focused on lowering taxes, public peity demands that they make some sort of noises about "fiscal responsibility." It's another case of the public effectively asking elected officials to lie to them, because partisan support for spending through the tax code rarely erodes simply because it will increase the size of public debt.

It's a popular trope on "the Right" (to the degree that such a large group of people are unified in any one specific issue) that Democrats often "buy" votes by promising the (undeserving, by many Conservative standards) urban and suburban poor "free stuff," and in doing so, freeing them from having to work for a living. It's a popular trope, in large part because it grows neatly out of a particular conservative worldview that tends to break the world down into Makers and Takers (which are more moralistic than economic distinctions, the way they are typically deployed).

Cutting tax rates, and "letting people keep more of their hard-earned money," is often floated as a way of restoring a measure of fairness to the world, depriving the lazy and unindustrious Takers of the fruits of the hardworking Makers' incomes. But all in all, direct cash welfare via transfer payments is a fairly small amount of the overall federal budget. Social Security, Medicare and Medicaid, are, by themselves, about half of all government spending at this point, even when the net interest on the current debt is included. And these are programs that are popular all across the political spectrum. Reducing government revenues is not going to make these programs go away or immediately reduce their benefits. And in this, the Republican drive to reduce taxes, given the dubious chances that they will spark enough growth to fully offset their costs, is effectively, well, buying votes by giving their constituents "free stuff." It's just that the "stuff" comes in the form of retirement income and medical care.

While Senator Mitch McConnel can say that for the Republican tax plan to pay for itself only requires a boost of 0.4% to current growth rates, that's not as simple an issue as he makes it sound. While 0.4% is a very small amount, what that means in practice is boosting the current growth rate from around 3.17% to 3.47%. That's a jump of a little over 12.5%; or adding an extra dollar of economic growth for every 8 dollars of current growth. Not impossible, but a non-trivial feat.

I find it interesting that there doesn't seem to be a push to recreate the conditions that lead to the technology and internet boom of the late 1990s and early 2000s. Were it up to me, I'd be diligently attempting to understand how to create a sustainable version of that. And one doesn't have to sustain it forever. Just doing so long enough to allow for a substantial dent in public debt would be more than worthwhile. Had that rapid economic expansion been the direct result of lowering taxes, one would think that the Republicans would be shouting it from the rooftops, so that doesn't seem to be the Republican intent. The cynic in me has a suspicion as to why there isn't a move to spark another technological revolution, but since my cynical impulses are also uncharitable, I'll keep them to myself.

In the end, I hope that the Republican tax plans do drive enough economic growth to be revenue-neutral in the end. I doubt it will happen, if for no other reason than there will be heavy political pressure to not allow the individual tax rate reductions to sunset, but I have no desire to cheer the downfall of my own interests, regardless of whether I believe that they're honestly being looked after. But I do suspect that economic growth wasn't really the intent. It's well and good for the Republicans to cast doubt on each and every analysis that says that the growth won't make up for the shortfalls, but part of me thinks that it's simply to avoid admitting that they're buying votes, and since they won't be paying the price, the unit cost doesn't matter.

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