The All-Gain, No-Pain Conservative Fiscal Diet

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JONATHAN CHAIT JULY 29, 2010

The All-Gain, No-Pain Conservative Fiscal Diet

J.D. Foster, the Norman B. Ture Senior Fellow in the Economics of Fiscal Policy at the Heritage Foundation, explains why conservatives should oppose tax hikes even while deploring deficits. Let me quote and respond to it, not because it's remarkable but because it's an utterly unremarkable statement of conservative fiscal dogma:

Even under normal circumstances, at just over 18 percent the federal tax burden is already too high. Opponents of even higher taxes need to keep this in mind, just as they need to remember that the excessive budget deficit for 2010 and in the following years is not the result of a shortfall in revenue but is due entirely to an attempt by Obama and friends to increase the size of government substantially and permanently. Whereas federal spending as a share of our economy is typically just above 20 percent, under Obama’s budget it hits 25.1 percent, according to his own numbers, and stays around 23 percent for the balance of the decade.

Foster begins by asserting that federal revenue at 18% of GDP is "too high." Isn't it a little bizarre that we should set an arbitrary figure for how high revenue should be? Revenue, in the long run, should be equal to spending. And federal spending ranged between 20 and 23% of GDP during the entire reign of Ronaldus Magnus:

But Foster is perfectly the view of the conservative movement that tax revenue levels do not need to bear any relationship to actual spending.

Foster's next point:

Those who fight tax increases are not weak or hypocritical about the budget deficit. The deficit is dangerously high and must come down, or else we risk a fiscal crisis, as a recent Congressional Budget Office (CBO) report makes clear. But there is a higher priority than reducing budget deficits caused by excessive spending, and that is to protect taxpayers from the insatiable appetite of the federal goliath. Lower taxes would allow individuals to keep more of their own property. It’s their money, not the government’s money on loan or bequest.

Here we have argument #2: Taxes "belong to the people." It's a matter of abstract philosophical right, one which frees conservatives from having to consider any relation between revenues and government spending. On to #3:

Lower taxes generally mean a stronger economy. The favorite tax hikes of the big-government brigade, like higher taxes on capital income and higher tax rates on small business, are precisely those that would do great harm to the economy now and in the long run.

Some economists believe that lower taxes on capital increase growth. But those models are based on replacing the lost revenue from low taxes on capital with other revenue sources, or by reducing expenditures. There's no justification for reducing taxes on capital and financing it by deficit spending. Moreover, the most recent evidence hardly suggests that Bush-era tax rates are more conducive to growth than Clinton-era tax rates:


Finally, argument #4:

Lower taxes also mean that, deprived of sustenance, the federal goliath must go on a diet. Spending will have to come back toward historical levels to avert the crisis of which the CBO warns. This would be a victory for the economy, for workers, and for individual liberty.

Does lower revenue force spending to come down? The evidence suggests just the opposite.

Imagine a man who has to lose weight. Either he needs to eat fewer calories or burn more of them. Conservatives are arguing that he should exercise less, because this will force him to eat less food. Foster writes, "Lower taxes are evidently what the American people want, which is especially galling to the tax-increase crowd." And it's true -- Americans want to keep their spending and tax cuts too. Diets that promise to let you spend all day on the sofa and still eat lots of delicious food are also popular.

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posted in: jonathan chait, the heritage

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