A rotten tax deal?

On the right there is growing resistance to the tax deal Republican leaders negotiated with President Obama. The deal trades another extension of the Bush tax cuts for something like $500 billion in new spending and a small cut to the payroll tax (it’s devilishly hard to find any concrete details on the plan online – can anyone out there help?). The new spending virtually represents a second stimulus. Much of it is an unemployment insurance extension, but apparently there is a ton of pork as well – ethanol subsidies, wind subsidies, etc.

The bottom line is that the deal blows up the deficit even further. When will Republicans realize that spending is the problem, not tax rates? Spending will have to be paid for in taxes sooner or later. If Republicans really believed their fiscal-conservative rhetoric, they would oppose any deal that increased government spending at all. Say it with me, Republicans: “every spending increase is a tax increase.”

4 thoughts on “A rotten tax deal?

  1. Excellent observation, Jason: ‘Every spending increase is a tax increase.”

    Furthermore, deficit spending isn’t paid for by future generations. It is paid for today, through borrowing dollars that would otherwise be invested in the economy. Deficits are financed out of current consumption as dollars that would be invested TODAY in equities and corporate bonds or used for current spending are diverted to finance government spending. The Fed can choose to monetize debt, as it is doing with QE, thus devaluing our dollars we have in our pockets TODAY.

    We can’t borrow to spend today and leave the bills to future generations. It’s not that simple. We pay the price today in terms of lower savings and investment, lower wages, and fewer jobs.

  2. Yes, that’s right. Some commentators claim that crowding-out is not a problem right now because bond yields are so low. But bond yields are not that low when you consider how low inflation is – and how low other interest rates have been.

  3. But keep in mind their goal, Republicans or the Federalist Society, is to bring the Government down to the government which this and other tax deals will bring about. Congress will cut programs and services. They especially will want to cut anything that smacks of a social program to be sacked. Thus Social Security and Medicare are the two giants they want to sack. Unemployment is another.

    The Democrats or the Progressives need to make it clear that this will be the reality. And then the people of USA need to make clear what they prefer. The only action that can be taken in the next Congressional session is to decrease spending as a result of this tax deal. So people need now to start choosing which programs and services they want reduced and or eliminated as it is a smorgasbord.

    Recall in the NY Times Budget Puzzle- You Fix the Budget – Interactive Feature – that you could choose a smorgasbord of decreases in spending AND increases in revenue. With this tax bill the Republicans & the Federalist Society have managed to box Congress in to only DECREASING spending. So start choosing……

    1. That’s the “starve the beast” logic, and it doesn’t ever seem to have worked before. Tax cuts under Reagan coincided with large spending increases. Tax cuts under Bush 2 coincided with large spending increases. Tax increases and spending cuts went hand-in-hand under Bush 2 and Clinton post-Republican Congress.

      I really see no evidence yet that Republicans in Congress are willing to cut anything significant, and this deal just undermines everything they claimed before the election.

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