Days of Change

Day 760 – Fallback Position | December 4, 2010

Gridlock is generally good for Republicans. The unprogressive wing of the party thinks that the government that governs best governs the least. So, if the Republicans pass things a Democratic president doesn’t want to sign, less money is spent and less burdensome¬†legislation is created. President Clinton cagilily used the fiscal responsibility of gridlock to take credit for balancing the budget.

That continues for budgets. The Laffer Curve is not necessarily specific about tax rates, it simply points to two limits. If the tax rate is zero, tax revenue would be zero. If the tax rate was 100%, people would opt out of working at that tax rate and revenue would be zero. Tax cuts for “the rich” are predicated on compliance. All things being equal, if someone is paying 5% less in taxes, they may work more or make less of an effort to shelter the money from taxes and federal tax revenue would stay the same.

This 4% tax rate increase for incomes over $250,000 would presumably amount to $700 billion over 10 years. That probably assumes that higher income earners would not pay any less that they would at the previous rate, despite evidence to the contrary. It amounts to $70 billion per year, 3% of the budget or 1/3 of the tax cuts for every other income group.

Democrats are now using this additional cost to argue against the continuation of the Bush tax cuts, citing budget concerns. This doesn’t really fly. The majority of the budget is made up of programs designed to transfer money, either by taking to from others or giving it back to you after they took it years before. If the deficit is the problem, liberals don’t have a leg to stand on.

So, the new alternative economic theory is developing that the government can run debt equal to 200% of GDP without negative consequences. Japan supposedly did it. Of course, Japan was a small country with a smallish GDP and had a lot of takers for their debt. Our major debt holder, China, is not very interested in another trillion dollars of our debt and our major stakeholder, Social Security, is about to become a seller rather than a buyer of out debt.

We can grow our way out of a deficit, but only if our budgets are balanced.

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1 Comment

  1. “President Clinton cagilily used the fiscal responsibility of gridlock to take credit for balancing the budget.”

    Wouldn’t it be a step forward if the Leftist-in-their-hearts PUMAs admitted this truth!
    “4% tax rate increase for incomes over $250,000”

    I could swear that obama ran on a platform whose planks included “No new taxes.”

    Comment by Mary — December 5, 2010 @ 12:02 am

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