Friday, March 09, 2007

Tax us more?

Mark Schmitt and a lot of other liberals seem to think that the era of small government is over, or at least the era of Republicans being able to call for small government and actually win elections is over. He writes:

Just as the tax revolt era had a beginning, so will it have an end. And there are indications that the end might be approaching. In 2006, New Jersey governor Jon Corzine raised taxes. Many expected him to face the backlash that his ill-fated predecessor Jim Florio encountered in the 1990s. Instead, his approval ratings actually went up from the mid-30s to above 50 percent. In 2004, Gov. Mark Warner of Virginia formed a bipartisan coalition to raise taxes and left office in 2005 as one of the most popular governors in state history. This year, the movement to impose limits on state taxes using ballot initiatives (known as Taxpayer Bill of Rights or TABOR), failed in three states once voters— who appear to have become skeptical of tax-cut gimmicks and free-lunch promises—understood the consequences. Perhaps most tellingly, when Bush and the Republicans led a last-ditch defense of their congressional majority with millions of dollars in ads charging that Democrats would raise taxes, it had no impact. In fact, shortly before the election, voters said they trusted Democrats over Republicans on the issue of taxes by 12 percent—a result almost as unlikely as preferring Democrats on national security—even though they fully expected Democrats to raise taxes.

That's because the true rate of taxation is spending, and voters sense that even if they can't articulate it to pollsters. Democrats are more trusted on taxes at this point because over the last 30 years they've been more likely to keep spending fairly close to revenue. Since Democrats have had a hard time increasing revenues, it has in effect made them the party of small government, or at least smaller than Republicans would impose on us.

But the truth is that we are heading down a path toward fiscal crisis that will inevitably require a major increase in revenues. In case that sounds like a euphemism, I’ll say it plainly: Taxes must go up. If Democrats try to avoid that fact, they’ll become mired in trench warfare with Republicans over small-bore increases that will cost them political support and won’t really address the problem. But if Democrats seize the opportunity to define a new era of the politics of taxes, as Republicans did 30 years ago, they can shape the debate in a way that may actually help them to achieve some of their most-cherished policy goals.

Or it could result in spending cuts. In 1993, Bill Clinton's budget plan cut spending and raised taxes by equal amounts. If we did that today, we'd be back in surplus. And taxes would still be lower than they were in 2000.

To avoid an economic crisis or massive cuts to existing programs, taxes will have to increase by at least the amount of the 2001 and 2003 tax cuts that are scheduled to expire. And if we are to restore the promise of activist government that can solve problems and help families make it in a difficult, dynamic economy, then taxes are going up even more, beyond what can be raised by letting the tax cuts expire.Well before the election, budget expert Stanley Collender wrote, “Whether it is fear, resignation, or just reality setting in, an attitude adjustment in the federal budget world is now definitely palpable: there is a growing likelihood that taxes will have to be increased to reduce the deficit.”

Eliminate spending on Iraq, which won't last forever, and the deficit is less than 2% of GDP at this point. It's much easier to close that gap than it was during the Clinton years. Half spending cuts, half tax increases. Problem solved. Sounds to me like Schmitt is being alarmist in order to drum up support for higher taxes.

The first step will be to establish an acute sense of fiscal and economic crisis. That won’t be difficult, since it’s true. The difficulty is in expressing it the right way. “The deficit” is an abstraction. As long as we accept that balanced budgets every year are not a realistic goal, the difference between a deficit of $150 billion and $600 billion is meaningless. Instead, Democrats should emphasize tangible consequences—such as a choice between cuts to vital services and a devastating economic shock versus manageable tax increases.

Isn't that what Bush tried to do with Social Security? Didn't Democrats say there was no real problem, or that the problem was minor enough to be fixed by minor adjustments? Why the call for major tax increases to solve a crisis? The deficit is 2-3% of GDP. Where is this crisis? And how is increasing taxes from the current 17% of GDP to over 21% of GDP "manageable"? Not many of us can afford to give up another 4% of our income.

Of course, Democrats will do what they've done in states where they've tricked people into voting for higher taxes. They will claim that higher taxes are necessary for education, health care, etc., and won't mention how much we currently spend on subsidies for various industries, local pork barrel projects, and $500 hammers.

The government has more than two and a half trillion dollars of our money to spend every year. If they can't spend that responsibly, giving them another half trillion won't make them more responsible. Don't ever let them emotionally blackmail you with stories of starving elderly and children because they are short of cash. They have the money, they just choose to spend a large chunk of it on things that the majority of voters wouldn't support, at least not for the amount of money it costs.