Tuesday, November 15, 2011

After Obama - the deluge

Steven Landsburg explains how the idea of raising taxes now should be understood.
The government's chief asset—in fact, pretty much its only asset—is its ability to tax people, now and in the future. The taxpayers are the government's ATM. Make a withdrawal today, and there's less available tomorrow.

Now the ability to tax is a pretty huge asset and the government has not (yet!) come close to depleting it. In that sense, there's a lot of money in the bank. But no matter how much you've got in the bank, a policy of ever-increasing withdrawals is nothing at all like a decision to earn more income. It's important to get the analogy right. And it's clear from the blogs and the op-ed pages that not everybody gets this.

Instead, the notion persists that an extra trillion in federal spending can be converted from "irresponsible'' to "responsible'' as long as it's accompanied by an extra trillion in tax hikes. That's like saying a $500 haircut can be converted from "irresponsible'' to "responsible'' as long as you withdraw the $500 from your bank account. If the super committee loses sight of this fundamental truth, it is doomed to fail.
Paul Ryan advises us to follow the example of Churchill.
Europe is learning the hard way what happens when you suddenly run out of road to kick the can down. And now its citizens are paying the consequences of decades of empty promises.

Churchill himself put it this way: “There are two ways in which a gigantic debt may be spread over new decades and future generations.”

The right way, he said, would be “to make the utmost provision for amortization which prudence allows.”

The wrong way, he said, would be “to aggravate the burden of debt by fresh borrowing, to live from hand to mouth and from year to year, and to exclaim with Louis the Fourteenth [sic - it Louis XV], ‘After me, the deluge.’”

I don’t need to tell you which path we’re on. It’s not too late to do this the right way – to get back on the right path. But there are two components to getting this right.
This is what will happen if we continue on the spending path we're on.
I actually wrote a letter to the non-partisan Congressional Budget Office asking them what kind of tax rates my kids and their generation would have to pay when they’re my age to finance the government’s current spending promises.

The CBO was quite clear: The bottom tax bracket, which is now 10 percent, would have to rise to 25 percent. The middle rate would have to rise to 63 percent. And the top rate, the rate many small businesses pay, would rise to 88 percent. Then, in the next sentence, they deadpanned, “This could have some negative effects on the economy at that time.”

So even the bean-counters in Washington understand that you cannot tax your way out of government’s spending problem. More importantly, we know from experience that tax hikes without meaningful, structural entitlement reform will simply chase higher spending, until we can’t borrow another dime.

The problem is empty promises. Each year that government fails to act, the U.S. government adds to a growing pile of empty promises made to future generations, and this President has worked to expand entitlements and even create brand new ones.
So what burden have we put on our descendants?
The non-partisan Government Accountability Office – more bean-counters, but I use that as a term of endearment – has done the math.

In 2009, they put the government’s unfunded liabilities – promises made to Americans for which the government has no means to pay – at $62.9 trillion. Last year it was up to $76.4 trillion. This year it is up to $99.4 trillion. The gap is growing by trillions of dollars every year.
My European history class just finished studying the French Revolution. It took a century of spending that the government couldn't pay before things fell apart. Confiscating property and printing up money didn't solve their problems. And raising taxes won't solve ours. We can't borrow from the future to fund spending today.