Friday, May 20, 2011

Long Run? See Keynes

Over at The American Prospect, Patrick Caldwell hits the Democrats for relying on soak-the-rich policies in their coming budget bid:
This is a smart political move by Democrats...But in the long term, only leveling new taxes on the wealthy is a bad policy. Obama pledged to leave tax rates as they were for the middle class during his campaign in 2008. When it came to debate the Bush tax rate extension last year, Obama proposed a rate increase only on couples making more than $250,000 a year. That would bring in an additional $700 billion in revenue over the next decade, but unless we revert to Clinton-era tax rates for everyone, the debt will still jump by $4 trillion during that same period. The truth both parties refuse to recognize is that if we're really trying to draw down the debt, doing so will eventually require the government to raise taxes on those in the middle class, too.
I'm going to disagree on two counts. First of all, even if Democrats are willing to break Barack Obama's pledge on middle-class taxes, there's no reason for them to make the first move, certainly not at this stage of the process. It's possible that the Republicans' magic asterisk contains middle class tax hikes; if so, let Paul Ryan spell it out and, if the deal is reasonable, accept it. (Of course, I don't believe that; I think it's just a budget-busting tax cut; either way, there's no advantage for the Dems in countering with real, painful tax increases or spending cuts).

But second of all...Caldwell suggests that the goal should be to "draw down the debt." Why? The same thing applies now as it has for two years: in the short run, there's no reason to increase the deficit; in the medium term, a PAYGO type plan is sufficient; and in the long run, the whole problem is health care costs -- and taxes aren't going to solve that. As for the debt: stabilizing it makes sense. Drawing down? Why? And you don't need middle class tax increases to stabilize. Especially in a political environment that isn't going to allow new spending on liberal priorities.

Let me elaborate a bit...long-term budgeting, in my view, is mostly a mug's game anyway. Matt Yglesias has been good about this (sorry, don't have a link available)...we really have no idea what things are going to look like 30, 50, or 75 years into the future. I wouldn't totally ignore the far-future (that is, more than ten years out) when putting together a budget, but mostly it's the effects now, soon, and a few years down the road that I'd worry most about.

No matter how many times people repeat it, the deficit isn't, at least in my view, something that people should be worrying about right now. Caldwell may be right (I'm not sure, but he may be) that eventually Democrats might prefer to push middle class taxes back to where they were in the 1990s, but it's hard for me to see why that should be a priority, even without the political damage it would cause for them right now.


  1. Let the Republicans make the moves. They think they have all the answers anyway. The Dems should counterpunch. If not for this nonsense over the debt ceiling ( something that shouldn't even be voted on to begin with ) we could just sit tight til the next election. The Repubs are just going for blackmail over the issue. Tax rates should go up the 4.6% on top earners and we'll take it from there. Some defense cuts and a little entitlement reform and we will be OK for now. We have to get the cost of health care down over time otherwise we can make much progress on the deficit in any event.

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