Wednesday, December 26, 2007

What This Campaign Probably Should Be About
A little dose of reality now that Santa's come and gone:

A few genuinely conservative Republicans understand the fiscal depravity of spending and not taxing. But in the view of the party leaders, only suckers pay their bills.

And they were out tapping their toes last week. The president and congressional Republicans blocked Democratic efforts to offset the costs of fixing the alternative minimum tax with new revenues. When Democrats took the majority in Congress, they vowed to honor the PAYGO rules. That means any spending or tax cuts must be matched by spending curbs or boosts in revenues.

"It is critical," the Concord Coalition, a bipartisan group of deficit hawks, wrote last month, "that Congress resist the pressure to weaken PAYGO by exempting a politically popular item such as AMT relief."

Of course, the AMT had to be fixed. Without the one-year patch, an additional 19 million middle-class Americans would have been charged a tax meant for rich people.

But Republicans forced a detour around the PAYGO rules. As a result, another $50 billion will be strapped onto the national debt.

"The effort to 'pay for' the AMT is highly offensive to members of my side of the aisle," explained Senate Republican Leader Mitch McConnell of Kentucky.

And the White House spokeswoman praised Congress for passing the legislation "without raising taxes."

We beg to differ with that analysis. Someone's taxes will pay back that $50 billion -- plus interest -- and we know whose. Furthermore, the AMT fix was to be offset by closing a loophole that lets hedge fund managers pay taxes at lower rates than their chauffeurs. Sounds more like a strike for tax justice than an unfair burden on billionaires.

The Bush administration's religious prohibition against paying its bills has infected the Republican presidential race. Unlike Washington politicians, state officials don't have the luxury of spending more than they have. As governors, Mitt Romney and Mike Huckabee both raised revenues to cover shortfalls in their state budgets. For the sin of fiscal responsibility, the Republican free-lunchers taunt them.

This ends on the day when, for whatever reason, our various foreign creditors decide that the party is over. I don't know enough about economics to credibly describe what happens at that point, but my understanding is that some pretty smart people already have stated that we're edging up toward the worst economic contraction since the Great Depression... and that's with the money from China, Saudi Arabia and elsewhere continuing to float our deficit.

I don't know if the no-tax fanatics who call the shots within the Republican Party are blind to the total implausibility of their positions, or if they simply feel so detached from the fate of the country as a whole that they no longer care. What we do know is that the Tax Fairy, myth though she is, continues to wave her magic wand over the heads of way too many in our polity.

Meanwhile, if any of the Democrats now competing for the dubious honor of cleaning up this mess have mentioned it, I haven't heard them do so.


Feral said...

The bet the no-tax republicans are making, is that the foreign creditors will never decide that the party’s over. The US still has the biggest economy in the world (by far) and the largest sphere of influence in the world (for better or worse), and some morons are betting that people worldwide will always be interested in being in the US business, and therefore will never cash in all their chips, no matter how dreary the US economy turns. They are betting that owning a piece of the US is like owning IBM or GE stock; you don’t sell when it goes down to buy stock in a hot start-up, you’re in it for the long haul. Now, the no-tax morons may be right, but it’s still a stupid and unnecessary bet. Even if you’re betting with 1000 to 1 odds, if you keep betting forever, you will eventually lose on the sure thing.

David said...

This is true, and you certainly have a better understanding of the underlying issues than I do. But I'd think the central bank creditors wouldn't even need to pull the plug; just by virtue of the threat, they can exert a lot of influence.

Some cynical people might even claim this is already happening, in areas like, I dunno, regulations concerning the safety of imported toys from China. It's always bad form to criticize your banker's manners.

Otherwise, as other economies come to represent better bets, the relative appeal of owning our debt presumably will decrease, no?

Feral said...

You've got it exactly right. China is a great example of what holding US debt can do to help your international trade position. They murder the environment, they hold the yuan down artificially at the expense of their own people to keep their exports high, they have (to put it politely) highly suspect labor laws and conditions, they have a huge military build-up under way in the pacific, etc etc. Yet, they maintain their very favorable trading aggreements with the US, because they are holding a significant amount of I.O.U.s.

The problem is that the right wing free market fanatics see no problem with any of these, since they believe that unregulated growth, in theory, will find the best path, so there's no harm in letting places like China go hogwild, doing whatever they want. It results in cheap goods for the US, plus they keep putting all their profits back into the US economy in order to be able to keep making profits. Now, this is a significant advantage, and one that China cannot get by investing in, say, the solid economy of Belgium. The symbiotic relationship will most likely continue on semi-solid footing from an economist's point of view; whether it should, from a secular humanist's point of view, should be the argument the Dems have to make.