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Man Bites Dog


Democratic presidential candidate Barack Obama was less than upfront in his half-hour commercial Wednesday night about the costs of his programs and the crushing budget pressures he would face in office.

That's not news, of course--he's been doing that since the campaign began. What is news, and shocking news, is that the AP reported it. Better late than never.

[Update early afternoon]

Wow. Has something gotten into (or out of) the MSM water? CBS is criticizing The One's proposals as well.

If he closes every loophole as promised, saves every dime from Iraq, raises taxes on the rich and trims the federal budget as he's promised to do "line by line," he still doesn't pay for his list. If he's elected, the first fact hitting his desk will be the figure projecting how much less of a budget he has to work with - thanks to the recession. He gave us a very compelling vision with his ad buy tonight. What he did not give us was any hint of the cold reality he's facing or a sense of how he might prioritize his promises if voters trust him with the White House.

If he can't do what he promises, what will he do?

Not that McCain is a lot better in that regard, of course. But unlike Obama, who has a consistent leftist philosophy, McCain is ideologically incoherent, so there's at least a chance that he won't screw us over.


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Jim wrote:

Where, exactly, is this "crushing budget pressure" going to come from? Bush showed that a president can borrow trillions to pay for his spending (and tax-cutting) priorities, as long as those priorities are sufficiently popular. As Cheney put it, "Reagan proved deficits don't matter".

K wrote:

With Obama ahead, I expect the MSM to crib a bit at the end to try and knock the edge off of what is, in effect, a media coup d'etat.

John Ahrens wrote:

Since it's the House, not the president that controls the purse strings according to the constitution, it's actually Pelosi's budget deficit (at least for the last two years), not Bush's.

Mike Earl wrote:

Obama, who has a consistent leftist philosophy

Well, we can't rule out the possibility that's he's just using the hard left and doesn't personally believe much of anything - there's not really data either way. Best case, he's Bill Clinton with better impulse control.

Carl Pham wrote:

Jim, you ass, what Reagan proved is that moderate deficits caused by tax cuts (not spending increases!) don't matter over time. For the same reason that it's not lunacy to go into debt to pay for your college education. The debt is an investment that more than repays itself.

In the same way, the Reagan tax cuts were an investment in economic growth that were more than repaid, over time, as Bill Clinton (the eventual beneficiary) found out.

The "crushing budget pressure" is going to come from the way our progressive tax structure magnifies the effect on Federal revenue of an economic downturn. For a mini-example, you have only to look at California, which has one of the most progressive state tax structures in the United States, and which therefore has a wild boom-'n'-bust state budget problem.

The mechanism is simple. In a flat-tax system, if average income rises or falls 10% in a year, Federal revenue also rises or falls 10%. In a progressive tax system, however, if average income rises or falls 10%, Federal revenue rises or falls by much more than 10%. So the economic downturn we're about to experience will be far worse for government revenue than for our individual incomes. That's the "crushing pressure."

If you're curious about why progressive taxation magnifies the swings, run some toy numbers yourself. Imagine Joe the Plumber makes $50,000 this year, and has a net tax rate of 20%. He pays the Feds $10,000. Now, next year he has a bad year and makes only $45,000. But he has now fallen into a lower tax bracket (that's the nature of progressive taxation), so his net tax rate declines. Let's say it's only 15% now. That means his tax falls to $6750. So this is what happens:

Joe's income decreases 10%, from $50,000 to $45,000.

Joe's taxes decrease 33%, from $10,000 to $6750.

So you see, the Federal government's budget problems are far more severe than Joe's. Multiply by 150 million and you have the story for the entire nation. (Incidentally, one consequence of this fact is that an overlooked aspect of Reagan's economic success may be that, in addition to cutting rates overall, he made the tax structure less progressive, flatter, which meant he stabilized government revenue and put less pressure in the system for cycles of budgetary profligacy by Congress, in good years, followed by desperate borrowing and program-slashing, in bad years.)

Adam Greenwood wrote:

Vote for McCain, he might forget to screw you.

Brock wrote:

Carl's right, though the problem is worse than that. Because the $250K+ crowd (or the companies they own) pays the majority of the taxes in this country, the US tax code is usefully thought of as a profit-sharing scheme. Incomes over $250K only happen when business is going well.

Consider your average investment banking partner, public CEO or successful entrepreneur. Their salaries average $125K - $250K. They only make the big bucks if they make their bonus, which means in the company makes a profit. So their actual income in a year can vary up to 90% from year to year. $250K in years with no profits, and $2.5M in a year with profits.

Which is why in a recession where you're lucky to stay in business, let alone profit, Federal revenue can drop 30%. No profits that year.

Jim wrote:


The tax system was much more progressive in 1981 than anything Obama has proposed, and the 82-83 recession was deep, and yet Reagan was able to run huge deficits without any political consequences. And the deficits weren't all due to tax cuts -- there were big increases in spending as well.

Even conservative economists like Martin Feldstein (who worked for Reagan) are recommending that the next president run up the deficit to prevent a depression or long recession. The GOP is in no position to complain, not after they doubled the national debt in economic times that were relatively benign.

Carl Pham wrote:

Yes, Jim, the tax code in '82 was more progressive than it is now, but it was less progressive than it was in, say, 1972. That's the point. It's true there's been some more good work since then.

But, um, if you concede the point -- that this is the right direction to be going -- then what's up with your defense of Obama's proposals? You're saying sure, he's going in the wrong direction, but only a little bit. That's not what I'd call a real persuasive argument.

Reagan was able to run huge deficits without any political consequences

Well, that's because there were no evil economic consequences, and people are fairly bright. After a while -- you know, like in 1984, when he was re-elected in a landslide -- people realized it was working pretty well. You're thinking Republicans (say) are so tight-assed about The Principle Of The Thing that they'd toss a President who's making them prosperous out of office because he's violating this or that orthodoxy (e.g. deficit spending is bad)?

My friend, on economic issues it's the left that's rigidly orthodox, won't experiment or open their eyes, passionately attached to theory. (That can be said about the culture-conservative right, too, of course, but that's a different story.) It's the left that continues to believe in the magic power of central economic planning even though the entire history of the 20th century is largely the history of its dismal and cruel failures.

And the deficits weren't all due to tax cuts

True. He jacked up the Pentagon spending a fair amount. He was unsuccessful in some of the spending cuts he asked Congress to pass. An old story. It's always proven easier to cut taxes than rein in spending, alas. I mostly blame those time-serving blame-ducking gravy-train blowhards on Capitol Hill. If nothing else, they pass the spending bills, and, like a bunch of kids standing around the broken cookie jar, they can always point at each other and say I had nothing to do with this mess, it was somebody else's fault.

Even conservative economists like Martin Feldstein (who worked for Reagan) are recommending that the next president run up the deficit to prevent a depression or long recession.

Ha ha, I doubt it. Keynesian solutions to business downturns were discredited about 30-40 years ago. It's all monetary policy now. Which is not to say sound economists don't say recessions are not the time to raise taxes, no matter how noble your purpose. You want to pass that on to your Dear Leader?

The GOP is in no position to complain, not after they doubled the national debt in economic times that were relatively benign.

A good point. I won't argue. They should all be tied to a stake and flogged. Give me a Democratic Party that really truly is death on government spending, gets government out of the way as much as possible except for truly necessary social functions, and is culturally liberal as it wants to be -- total separation of church and state, the gays can do whatever the hell they want, so long as they don't do it in the street and scare the horses, and let's have all kinds of constitutional safeguards for American citizens (not shitheads from Waziristan) accused of crimes -- and I would vote Democratic in a New York minute, straight down the ticket, top to bottom.

But that's not who they are, not at all, and that's not even the direction they're moving.

Andy Freeman wrote:

> The tax system was much more progressive in 1981 than anything Obama has proposed

Unless Obama is planning to make the system less progressive than it is today, that's simply not true.

Folks with less than median income paid a much larger share of the not-retirement taxes in 1981 than they do today. Folks in the top 5% paid a smaller fraction of the not-retirement taxes in 1981 than they do today.

Yes, I exclude SSI. The lower income folks get an okay return from it, a return that is subsidized by upper-income folks. It's progressive too, but since it is capped and is a retirement account, it doesn't make sense to lump it in with other taxes.

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This page contains a single entry by Rand Simberg published on October 30, 2008 7:29 AM.

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