Party of Higher Debts

By James Kwak

The Committee for a Responsible Budget recently released an analysis of the budgetary proposals of the four remaining Republican presidential candidates (hat tip Ezra Klein, who shows the key graph). In short, all of the candidates propose to increase the national debt by massive amounts relative to current law, which includes the expiration of the Bush tax cuts at the end of this year.

CFRB compares the candidates’ plans to a “realistic” baseline that assumes the Bush tax cuts are made permanent and the automatic sequesters required by the Budget Control Act of 2011 are waived, among other things. Relative to that extremely pessimistic baseline, Santorum and Gingrich still want huge increases to the national debt; only Paul’s proposals would reduce it. Romney’s proposals would have little impact, but that was before his latest attempt to pander to the base: an across-the-board, 20 percent reduction in income tax rates.

How is this possible, since all of them have promised to cut spending? Huge tax cuts, on top of the Bush tax cuts. Romney, as mentioned above, would reduce all rates by 20 percent, repeal the AMT, and repeal the estate tax. Santorum would cut taxes by $6 trillion over the next decade. Gingrich would cut taxes by $7 trillion. Paul, the responsible one, would only cut taxes by $5 trillion.

This is pure crazy talk. I’m not sure what is more remarkable: that the candidates would compete for the affections of the Tea Party (a supposed anti-debt group) by planning to increase the national debt; that they think that they can pose as deficit hawks while planning to increase the national debt; or that they are getting away with it.

How did this happen? It’s probably no surprise to you, but over the past thirty years the Republican Party has become not the party of balanced budgets, but the party of tax cuts—thanks in no small part to Grover Norquist’s Taxpayer Protection Pledge. This is a story we tell in chapter 3 of White House Burning. In power, they can strong-arm enough moderate Democrats to pass their tax cuts, but can’t muster the support to actually cut spending. The only surprising thing is how long they’ve been able to wave the flag of fiscal responsibility.

Not that I’m a fan of the Committee for a Responsible Federal Budget. The CRFB is another of those “centrist” groups or panels (like Bowles-Simpson, like Domenici-Rivlin, like the Gang of Six) that is using deficits as an excuse to cut taxes under the guise of “tax reform.” Tax reform, for these groups, means eliminating loopholes and lowering tax rates even below George W. Bush levels. By setting the baseline so low (assuming the Bush tax cuts are made permanent), they can claim that their tax reform packages will increase revenues and reduce deficits. In fact, compared to current law, they all support large tax cuts, mainly for the rich.

I can understand why you might want tax reform. I can also understand why you might want lower tax rates for the rich. (You might be rich, for one.) I don’t understand how you can use the national debt as an excuse for tax cuts. If you care about the national debt, you should want to let the Bush tax cuts expire and then close loopholes without lowering rates.

18 thoughts on “Party of Higher Debts

  1. People are offended by the idea that they have to sacrifice. So they push back and shift the proposed sacrifice downward until it reaches a level in society where those affected lack the power to prevent it, at which point it changes from proposal to reality. Too many affluent households view our political economy as a morality play where their own actions, past and present, and those of their class accord with nothing but virtue, as does the protection of every iota of their wealth.

  2. Of course, it’s not surprising Mitt Romney would have watched the American automobile industry die when Romney had already slashed thousands of other jobs in other industries in multiple states:

  3. Paul Krugman also writes about how economic proposals from politicians literally don’t add up. It’s a mystery why so many people fail at elementary arithmetic. Aren’t we talking 4th grade level here?
    What is mysterious, and maybe you take it on in your new book, is how Grover Norquist has come to have so much power. Why are Republican politicians afraid of him? Why don’t some of them just say “No!”?
    Looking forward to your new book!

  4. I lost interest in this B movie long ago. Any move to amend the expiring tax cuts in any fashion would be totally against the the rule of law. And it will be tough to hoodwink the new educated lower class, should someone provide resources in order for them to do so. This is about the most greedy, self-centered bunch o politicians I have ever seen, and I have seen a lot of them. When you can’t see them, they are in the closet shaken in their boots over how to keep their system intact.

  5. I’m no fan of either party.

    I was recently engaged in a dialog with a friend who was going to some lengths to point out that the Democrats were not nearly as bad as the Republicans… and that the government should be doing MORE not LESS in this crisis.

    (He was justifiably mistaken in assuming I thought the government should do less… since I was also trying to explain why Ron Paul was appealing to so many of the young.)

    While I was suggesting that it was what they AGREED on that was as much of a problem as what they had their public fights about.

    He asked what I meant.

    Here’s what I said:

    “YES! The government SHOULD be funding much more!

    I don’t advocate a smaller share of funds going to government or for public purposes…

    (I want Ron Paul to do well for entirely different reasons… I don’t expect him to win, I do expect him to help break the groupthink shared by both Parties and which I’ll try to briefly explain in the following.)

    My issue is with how fiat funds (and I support fiat money and Keynesianism in general)… how funds created via credit expansion are entered into the economy.

    For instance… we would have been much better off subsidizing a higher minimum wage (and keeping wages in line with rises in productivity) even if abetted by fiat FED issued money…

    Rather than encouraging consumption via borrowing (much of that credit expansion was fed through financial services to fund consumer debt) and greatly expanded that sector over the last several decades.

    An apt parallel in the globalization context would be for Apple… instead of taking a Billion of cash on hand to give a hire wage to Foxcon workers…

    Decided to become LENDERS to Foxconn workers (becoming the Company Store)…

    I’m no Republican or advocate of any austerity beyond what may be demanded by sustainable physical limits rather than because of failures in monetary technology…

    I’m very comfortable lauding the courage of Hilary Clinton standing up to Russia and China for their stand on Syria…

    But I can also criticize the Party that I believe SHOULD have kept those wages up… and not become a partner in the company store.

    And I do appreciate the better financial position we were in when Clinton left office… Bush was a disaster.

    But I can’t get past that Company Store problem…

    I’ve got a niece graduating from a very good Law School with a debt of $180,000.

    That’s where the problem lies… the Democrats wanted that education for all… and housing.. and the rest… all good! But they made a deal with the devil by making that ‘compromise’ with the other side…

    I support a well managed fiat money system… but why use it to destroy the middle class with debt so as to build a bloated financial sector?

    I believe that’s what’s happened… its a problem across the entire Western world and that much of that debt should be repudiated ASAP.

    I’d like the Democratic Party… or some Party to recognize this problem in the credit creation paradigm they’ve accepted.

    We need fiat money… but the system by which its created and issued is currently fatally flawed… and that’s a global problem.

    I don’t hate Larry Summers, Rubin, Greenspan and the rest… but I think he, and that school of thought missed some important implications.

    On Ron Paul:

    Yeah, he’s wrong on some real important things and doesn’t understand money and credit creation… but he does vaguely recognize something…

    you have to understand what he’s tapping into is a very real recognition by the general population that something’s wrong with the paradigm being pushed by the “Establishment’s” of BOTH Parties…

    And so long as we Keynesian’s won’t cop to the problem in financial services… we’re going to keep shooting ourselves in the foot.

    (and the Establishment’s of both Parties are Keynesian in practice as they should be… its a practical necessity… that’s why Ron Paul freaks them out… they don’t want to deal with the real issue either)

    So I’d like to think I’m actually supporting Keynes in the long run…

    And I don’t like what “credit creation via financial services” has done to an essential concept.

    And if Ron Paul can help Democrats wake up to the problem in their own house we’ll all be better-off.”

    P.S. The political micro-transaction is a critical tool for scaling political speech. I’d appreciate some notice for the model and concept.

    The Chagora Model: Scaling Speech

    Issues in Scaling Civilization: The Altruism Problem

  6. Re: Ron Paul

    I would appreciate further clarification on Ron Paul’s budget proposals. Your original blog post seems contradictory. It opens with the statement that the budget plans of all four of the remaining contenders in the Republican primary would increase the deficit. Further down, it states that Ron Paul’s proposals would lower it. Which is it?

    Clearly Ron Paul is the “candidate for change” in this election. I would appreciate more analysis on whether his proposals – “crazy” or not – could be change for the better from an economic point of view.

  7. @Tom Crowl, “….I support a well managed fiat money system… but why use it to destroy the middle class with debt so as to build a bloated financial sector?…..”

    That is the trillion $$$$ question, isn’t it?

    I suspect there won’t be a rational, much less practical, explanation…bottom line, though, is there’s no point in *saving* any currency that got so corrupted or leave the people in charge of the flow of life-maintenance currency that sneaked in this crap on the 99% by playing a completely different game while using the manipulative phrases of *altruism*…

    It’s not confortable or rational or useful to pretend that *iniquity* doesn’t pay better than *altruism*…

  8. May I offer the following theory to entertain the readers: The rich (and some misguided middle class people) are only concerned about the debt because they are convinced that the debt will be paid with their future higher taxes. Even after factoring in inevitable future tax increases, the benefit of lowering taxes now will still be a good deal, as taxes can only be raised gradually.

  9. This does more than confirm that the Republican Party is not just the party of the 1%, but is completely out of touch with reality. Talk about being unable to look at making tough choices which could have a positive effect on the country’s future, these guys are living in a pure fantasy world of cut taxes and destroy the American Public as their prime goals. It is hard to imagine that any but the most rabid Republican nihilist minority could imagine voting for any of them. Sadly, the one who emerges from the primary season with the nomination is likely going to attempt to back off these massively absurd positions in order to attract any voters from the moderate right to the middle in order to have a chance at victory in November. Unfortunately for them, they not only have spoken extreme language, but published proposals which are likely to encourage massive activism amongst the independents and moderates. Progressives and Left Wingers need no such encouragement, but will be running massive advertising to talk about what these views on taxation would wreak if passed, somehow, into law and policy. From my perspective, it’s game over. Now!!!

  10. Oh, and one more thing. These kinds of rhetoric and policy proposals seem highly likely to completely turn off the budgetarily conservative Tea Partiers. After all, the Tea Party and OWS have been coming much closer over the past several months.

  11. Zhang, “….May I offer the following theory to entertain the readers: The rich (and some misguided middle class people) are only concerned about the debt because they are convinced that the debt will be paid with their future higher taxes. Even after factoring in inevitable future tax increases, the benefit of lowering taxes now will still be a good deal, as taxes can only be raised gradually…”

    Glad you find being wiped clean by global liars, thieves and murderes through *tax policy* to be entertainment….ahahaha, yup, we’re still the best at it….stupid americans….

    Getting rid of Glass Steagall – in a fiat fractional reserve banking system – basically got rid of the *belief* that once you pay for it, you own it. Now you basically will never own the people who put down 20% or more for a house – chased out without even a 20% ownership stake, not to mention the % of monthly payments….so funny I can hardly stop laughing….

    So who OWNS the *debt*….? Looks like nobody, eh?

  12. If you care about the national debt, you should want to let the Bush tax cuts expire only for the upper class. You should also advocate the elimination of the FICA tax, since doing so would be so stimulative that it would pay for itself and then some.

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