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Caroline Baum tosses out three recent examples of tax-cut
– For over a decade, Democrats have disparaged the reduction in
marginal and capital gains tax rates enacted under
President George W. Bush as “tax cuts for the
rich” — at least until they were about to expire. Then
President Barack Obama discovered that, lo and
behold, the middle class had gotten tax cuts, too.
– Republicans want to reduce the deficit by cutting spending.
They disavow the Keynesian notion that cuts in government spending
have a contractionary effect on the labor market — except when
it’s defense industries that are facing cuts. Libertarians call
them “Military Keynesians,” to
highlight the inconsistency in their positions.
– The payroll tax cut in 2011 and 2012 posed a problem for both
parties. Republicans oppose temporary tax cuts because empirical
evidence suggests that they don’t have the desired effect. That’s
because individuals make spending decisions based on theirexpectations of
income over a lifetime. On the other hand, the GOP doesn’t
like to stand in the way of any tax cut. Democrats supported the
reduction in the payroll tax, which is regressive, on the grounds
that it would help the ailing economy. That put them in a bind when
they had to explain why tax cuts for everyone wasn’t a good idea
for the same reason.
Read the whole thing.
Baum also has a column up about why she knows the sequester is
Read that here.
President Obama is promising will happen if the sequester goes
through as he wrote it (yes, it was his idea, as a way of forcing a
“If Congress allows this meat-cleaver approach to take place, it
will jeopardize our military readiness. It will eviscerate
job-creating investments in education and energy and medical
research,” Obama warned in a speech at the White House, flanked by
emergency workers. “It won’t consider whether we’re cutting some
bloated program that has outlived its usefulness or a vital service
that Americans depend on every single day.”
By Friday, expect him to be invoking plagues of frogs and
As I noted earlier this week, the $85 billion figure that gets
invoked is wrong; cuts in fiscal year 2013 will amount to $44
billion or about 1.2 percent of all federal spending. We’ve been
hearing for a long time that sequestration alone would kill
about 700,000 jobs.
That’s a claim taken as gospel
that is based on what can be called “ugly
modeling” at best. Because virtually all government
spending is counted by definition as adding to GDP, any cut thus
means reductions in activity and jobs. Add to that the idea that
projectionists routinely assign a multiplier of more than 1.00 to
government spending, so that each dollar the feds spend magically
creates more than $1 in economic activity.
The country’s experience with recent stimulus spending should
give pause to all of us (if it doesn’t,
watch this). When the stimulus manifestly failed to reduce
unemployment by its own predictions, its architects and defenders
in the press nonetheless pronounced it a success and claimed that
it saved us from an ever bigger problem. The real problem, you see,
was that the stimulus wasn’t big enough. All it takes is a
government failure for stimulatarians to channel their inner
Yet there’s every reason to believe that stimulus spending has
multiplier that is well below 1.0, meaning that every dollar
that’s spent generated less than a dollar of activity, resulting in
a net drain on economic activity. Think about it in a different
context: Virtually everybody understands that when local
governments shell out massive tax money on sports stadiums, the
local economy doesn’t see any net benefits. If you’re lucky,
existing entertainment dollars may be spread toward sports
facilities, but nobody seriously believes any more that such
spending grows the overall economic pie or stimulates anything
other than owners’ and players’ bank accounts (in fact, simply
having a major professional team in your metro area shaves
about $40 per person per year). If building white elephant
stadiums and museums with public dollars worked, Cleveland would be
town in the country.
The recognition that stimulus spending
doesn’t work as advertised may not salve the hurt of the currently
unemployed but it has the benefit of being more credible than the
alternative. And in the context of sequestration, it suggests that
if and when the $44 billion of cuts for 2013 happen, they won’t
crater a $16 trillion economy. Indeed, they might even help the
economy by showing that the government, despite its Herculean
effort to never, ever rein itself in, can be halted.
Which, of course, brings us back to Caroline Baum’s insights on
economic hypocrisy from Dems and Reps alike. All I can say is that
it will be a great day when the Air Force has to hold a bake sale
to bomb all the Solyndra factories.
For more on that, read this.
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