M2RB: The Beatles
Let me tell you how it will be
There's one for you, nineteen for me
'Cause I'm the taxman, yeah, I'm the taxman
Should five per cent appear too small
Be thankful I don't take it all
'Cause I'm the taxman, yeah I'm the taxman
What Obama's critique of Ryan tells us about Obama's budget plans.
Democrats
in Charlotte are pounding away at the savage budget cuts that Mitt Romney and Paul Ryan supposedly favor and their phantom plan for
"raising taxes on the middle class," as President Obama puts it. The
truth is the opposite, but table that for a moment. The President seems
not to realize his critique is really a scorching if implicit indictment
of his own time in office.
Think about his logic like this: Mr. Ryan's House budget details a
long-range plan to equalize spending and tax revenues
without—ahem—raising tax rates. But if such fiscal restraint is as deep
and draconian as Mr. Obama claims, then as a matter of arithmetic the
White House must favor a tax increase of an equal size, or something close to it, in order to pay for the amount of government he wants to sustain.
***
The nearby chart dramatizes this reality. It shows the accumulation of outstanding debt as a share of the economy in the modern era. This is debt held by the public—the kind the country has to pay back to bond investors, and not the IOUs that one part of the government owes to another part. These debt projections are highly speculative, and faster economic growth would do a great deal to mitigate them. But we offer them to help readers compare the Ryan and Obama budget visions.
For
reference, the top line shows the Congressional Budget Office's
"alternative fiscal scenario," which it considers the most realistic
prediction if current tax and spending policies continue. In that model,
debt grows two times as large as GDP by 2037 and the economy crashes.
Not good.
Barely better is Mr. Obama's 2013 budget, which is the second line
from the top. The White House purports to "stabilize" the deficit and
therefore the debt boom over the next decade. After four consecutive $1
trillion-plus deficits and a more than 70% leap in publicly held debt
since Mr. Obama's inauguration, that's a pretty modest goal.
But even discounting the usual
accounting gimmicks that the White House uses to show this "stability,"
check out the fine print. There, the document concedes that beyond 2022
"the fiscal position gradually deteriorates" and the deficit "continues
to rise for the next 75 years, and the publicly held debt is also
projected to rise persistently relative to GDP." In other words, Mr.
Obama's budget does not change the spending and debt trajectory.
Even in this best-case scenario by Mr.
Obama's own lights, debt soon exceeds the 112.7% debt-to-GDP high-water
mark in 1945, incurred to win a war for civilization across the world.
The U.S. would now be taking on a larger liability—well above the 90%
ratio that most economists consider the general boundary between safety
and crisis—simply because the political class refused to modernize the
entitlement state that drives the debt.
Mr. Ryan's budget, as shown by the third line, would gradually reduce
debt by 36% relative to the status quo by the end of the decade, by 59%
in 2030 and 80% less by 2040. No question that requires reforms that by
conventional political standards are large. But that's because they're commensurate with the magnitude of the fiscal problem.
Mr. Ryan's major contribution has been to expose the illusion that
Mr. Obama's re-election campaign rests on: pretending that raising taxes
on a few thousand "millionaires and billionaires" can fund an
ever-growing government.
The shaded wedge represents the smallest possible tax increase Mr.
Obama would need to achieve the same fiscal balance as Mr. Ryan—except
that, in his budget, spending would be at a quarter of the economy and
climbing fast. And that's by the White House's own most optimistic
projections. The reality will be far messier.
Every time Mr. Obama warns about Mr. Ryan "gutting" this or that
"investment," what he's not saying but is unavoidably implying is that
taxes must be far higher to finance this spending. Assuming he can read
the budget tables, he knows the government has made promises it cannot
mathematically keep—but he hopes nobody notices.
***
Mr. Ryan had an instructive colloquy with Tim Geithner on this point in February. The Budget Chairman noted that the Administration doesn't "have a plan to make good" on the promises the political class has made to voters. The Treasury Secretary replied that "As I said, we're not disagreeing in that sense. I made it absolutely clear that what our budget does is get our deficit down to a sustainable path over the budget window."
Mr. Ryan: "And then it takes off." Mr.
Geithner: "Let's ask ourselves why they take off again. Why do they do
that?" Mr. Ryan: "Because we have 10,000 people retiring every day and
health-care costs going up."
Mr. Geithner: "That's right. . . . We're not coming before you to say
we have a definitive solution to our long-term problem. What we do know
is that we don't like yours."
The only omission in Mr. Geithner's remarkable candor is that
Democrats do have a plan, kind of. As debt continues to build, at some
point U.S. creditors will lose confidence in the Treasury's ability to
repay. Then Democrats and even some Republicans will impose a
European-style value-added tax or another money machine to appease the
bond markets.
What voters should know is that this taxing big bang won't only hit
the affluent. Far from it. For evidence, consult a recent study by Eric
Toder, Jim Nunns and Joseph Rosenberg of the Tax Policy Center. We know
this Brookings-Urban Institute shop has credibility with liberals,
because it is the source of the fiction that the Romney-Ryan team wants
to boost middle-class taxes.
The researchers looked at how high income-tax rates would have to
rise in the top two or even three tax brackets to lower debt to
sustainable levels under something akin to CBO's alternative fiscal
scenario. They conclude that even if the top rates hit 100%, the budget
"cannot achieve the debt-reduction targets in some or any of the target
years." Though conceding that near-total confiscation is "completely
unrealistic," they report the results anyway "to indicate the
infeasibility of achieving a high debt-reduction target simply by
increasing top individual income tax rates." And this is from economists
who favor higher taxes.
***
Another way of putting it is that the rich aren't nearly rich enough to finance Mr. Obama's spending ambitions. Sooner rather than later, Washington will come for the middle class, because that's where the real money is.
Another thing Mr. Obama likes to say is that Messrs. Romney and Ryan
"know their economic plan is not popular." Perhaps he can read minds,
but at least they have a plan they're willing to put before voters. The
President knows that voters won't like his, which is why he isn't honest
about it.
A version of this article appeared September 6, 2012, on page A16 in the
U.S. edition of The Wall Street Journal, with the headline: Desperately
Seeking Middle-Class Taxes.
Taxman - The Beatles
Let me tell you how it will be
There's one for you, nineteen for me
'Cause I'm the taxman, yeah, I'm the taxman
Should five per cent appear too small
Be thankful I don't take it all
'Cause I'm the taxman, yeah I'm the taxman
If you drive a car, I'll tax the street,
If you try to sit, I'll tax your seat.
If you get too cold I'll tax the heat,
If you take a walk, I'll tax your feet.
Don't ask me what I want it for
If you don't want to pay some more
'Cause I'm the taxman, yeah, I'm the taxman
Now my advice for those who die
Declare the pennies on your eyes
'Cause I'm the taxman, yeah, I'm the taxman
And you're working for no one but me.
There's one for you, nineteen for me
'Cause I'm the taxman, yeah, I'm the taxman
Should five per cent appear too small
Be thankful I don't take it all
'Cause I'm the taxman, yeah I'm the taxman
If you drive a car, I'll tax the street,
If you try to sit, I'll tax your seat.
If you get too cold I'll tax the heat,
If you take a walk, I'll tax your feet.
Don't ask me what I want it for
If you don't want to pay some more
'Cause I'm the taxman, yeah, I'm the taxman
Now my advice for those who die
Declare the pennies on your eyes
'Cause I'm the taxman, yeah, I'm the taxman
And you're working for no one but me.
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