Sunday, August 10, 2008

WaPo, Obama and the Budget

The Washington Post has an article today about a Tax Policy Center analysis of how Obama's tax plans would increase the federal deficit. I want to make two points.

First, the article is titled "Obama Tax Plan Would Balloon Deficit, Analysis Finds". This is an interesting title for an article about an analysis that finds

  1. Obama's tax plan would add $3.4 trillion in debt relative to current law by 2018.
  2. McCain's tax plan would add $5.0 trillion in debt relative to current law by 2018.
The article doesn't mention the McCain number until something like its tenth paragraph. Maybe a better title would be "Both Candidates' Tax Plans Would Balloon Deficit, Analysis Finds", or, perish the thought, "McCain Tax Plan Would Balloon Deficit Even More than Obama Plan, Analysis Finds". It's true that Obama regularly bashes the fiscal irresponsibility of the Bush years, and it's fair to call him to account on this. But it's also true that McCain also regularly bashes fiscal irresponsibility--and he even voted against the tax cuts he's for extending now. So, point one is simply that there is no reasonable way to defend the decision by WaPo headline writers, reporter Lori Montgomery, and her editors seem to focus this story on Obama rather than both candidates (or even McCain). It's as if the Post sports section's lead Super Bowl story had been "Brady rallies Pats to Fourth-Quarter Score". Doesn't make any sense.

My second point concerns Obama's plan itself.
I don't think Obama should get a free pass on fiscal policy. But he's been pretty honest: balancing the budget is less important to him than the other fiscal priorities he's made clear. McCain, on the other hand, wants and is so far getting it both ways. According to the WaPo article linked above, "McCain has said he would balance the budget through massive spending cuts." Anyone who looks at the federal budget can tell you that, given McCain's dedication to large military budgets, the only places to cut the kind of money he promises is in Social Security, Medicare and Medicaid. So a reasonable question for reporters to ask McCain would be "How much will you cut these programs?" McCain certainly hasn't addressed this question.

Like any reasonable economist, in a first-best world I believe the government should run balanced budgets over the full business cycle. This means that there are deficits during difficult years and surpluses during flush ones. The reality is that such a policy hasn't held for decades, if ever (my sense is that the year or two of surpluses during 1990s/2000 boom was more due to unexpectedly high tax revenue than to fiscal discipline; corrections welcome).

Since 1981, the basic thrust of GOP fiscal policy has been to keep taxes as low as politically possible, especially on higher-income households. The GOP has pushed for some cuts in social programs, though to my recollection it has never proposed specific cuts in entitlements (by which I specifically mean Social Security and Medicare) during an election year. What entittlement cuts the party has proposed have virtually always been after election years (think 1995 for Medicare and 2005 for Social Security), and they've been sold as not being cuts at all. (The big exception to all of this was the GOP's coopting of the Dems' proposal for a massive increase in federal entitlements via Medicare Part D; this was a naked play for political support among the elderly and, through the design of the program, payoffs to pharmaceutical supporters of the GOP.)

I mention all these things because the basic GOP playbook for close to 30 years now has been a "starve the beast" together with "lie to the voters". In the end, though, the political dynamics of fiscal policy have gone something like this:
  • Republicans cut taxes, either assuring people that it's affordable without spending cuts (during flush times) or underselling the spending cuts necessary (during bad times).
  • When the bill comes due, they shake their heads and say, we have to cut spending, because there's a deficit.
  • Democrats, meanwhile, must either
    • propose tax increases to pay for spending, or
    • agree to cut spending, or
    • agree to run deficits in order to fund their priorities.
As I said above, I'd prefer a balanced budget over the business cycle. But when the GOP runs a heads-we-win, tails-you-lose fiscal policy, the only way to do that is for Dems to sign on to the GOP's vision of a radically smaller public sector: Dems would have to do the GOP's budget-cutting for them. I don't see any reason why Dems in general, or Obama in particular, should agree to that trap. If the cost is longer budget cycles, then that's life. It's not what I'd choose if I could, but it beats agreeing to the GOP dream of ending or slashing the New Deal/Great Society programs.

1 comment:

MattYoung said...

A Rep8ublican congress and Obama as president would surely result in a cost cutting arrangement.