Austan Goolsbee: Tell Half The Truth

Debt Slave Baby

This is the sort of hacksterism that passes for commentary and analysis from those advocating for political outcomes these days….

Hard to know, then, if the wider public noticed the spat over a nonpartisan budget think tank’s finding that for Mitt Romney’s tax plan to avoid increasing the deficit, it would need to raise taxes significantly on the middle class. Researchers for the Tax Policy Center, a project of Brookings and the Urban Institute, found that Romney’s plan would cut taxes for individuals by about $4 trillion over the next 10 years, on top of the costs of extending the Bush tax cuts, by cutting rates by 20%, abolishing the estate tax, and abolishing the Alternative Minimum Tax, among other things.

Here’s the real problem — the rich don’t make enough money to close the budget deficit on their backs even if they are told they must pay for all of it.

Put in more-succinct terms, it’s quite simple — you could take 100% of every dollar over $250,000 that someone made — that is, tax it at 100%, and you would not close the deficit.

But the next year, nobody would make more than $249,999.

What would that do to GDP?  Nobody knows, but it’s a fair bet that it would cause it to go down, perhaps by a lot.  And that would then compress tax revenues even more.

The issue is that we keep calling the government tax side “revenue.”  This is a simple-minded view that is ultimately a convenient lie.

Government produces essentially nothing.  Government can only distribute the output created by the members of a society.  By definition it is incapable of doing anything else because every dollar government spends it must eventually take from someone else.

If government does this by taking the funds first, it has retrospective impact on the economy.  That is, government depresses GDP today in the hope of improving it tomorrow.  Government can accomplish this; it can tax you today and use the money to build a road.  The road increases (you hope) the number of vehicles and thus warm bodies that pass through your town.  That in turn results in more spending, which filters through to more entrepreneurs starting businesses.

Government retrospectively depressed GDP but, with wise management, produced a future GDP increase.  This is good, for it is the future we should be concerned with, not the past.

Now consider deficit spending.  Government retrospectively increases GDP, but does so by borrowing from tomorrow, which must eventually be paid in some form.  It thus prospectively decreases GDP!  It must, because you must either pay higher taxes in the future or you must suffer devaluation of your purchasing power through monetary and credit inflation.

This is sometimes necessary (e.g. when your nation is under literal attack and defense of the nation is an imperative — if you lose the war it doesn’t matter any more, right?) but in all other cases this is a net negative for the economy and the people of a nation.

You won’t hear either Romney or Obama talking about this.  Nor will you hear an honest conversation about this basic principle coming from the Libertarian party leadership, although you damn well should.

Rather, this perspective, which is not only logically consistent but trivially validated mathematically, comes only from people like myself, who are more-concerned with being honest than politically correct (irrespective of which label we may carry.)

The truly-galling part of this is that for anyone who has children this issue is the key issue that should be under consideration.  I am, of course, assuming that you love your kids — and most people do.  The reason is simple — your children are forced to inherit the prospective consequences of the decisions we make today.

Now consider that choice of prospective futures — a shrinking GDP as the deficit spending of today must be paid for in one form or another, or a growing GDP as today’s taxation and investment produces rewards.

Are you entitled to enslave your children?

If you follow Austan’s — or Mittens — views, that’s what you’re attempting to do.

It is my sincere hope that your children, assuming you live long enough for the outcome to be realized (and you probably will if you’re younger than 80 or so) place the responsibility for what is to come squarely where it belongs.

If this results in you having to “shop” for a refrigerator box and a handy spot under a freeway overpass as your next McMansion, I will call that “just desserts.”

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