Democrats & Liberals Archives

Freelunchonomics

It’s funny that a party that so trumpets the virtues of the free market believes tax cuts have such a profound effect. Tax cuts are the first kind of economic stimulus they seem to cotton on to, for any subject. Want to save the environoment? Give Tax breaks. Want to save the car companies? Tax breaks for their SUVs and heavy trucks. Want to save the economy? Trillions of dollars in tax cuts. Coincidentally, just coincidentally, this is accompanies by trillions and trillons of dollars in new deficits.

This is Freelunchonomics. You can have your deficit and eat it too. I call it voter bribery, because that's what it is. Who refuses free money? Who doesn't want more to spend? Wouldn't that just solve everything?

Except that free lunch isn't free. It's on credit, credit lent to us by our main industrial competitors: China and Japan. A few years down the road, they will be earning interest on that credit they lent us. They make their money the old-fashion way. They earn it. We make it the new-old fashion way. We spend what we don't have, using our future prosperity as collateral for the loan.

But for now, it's free money! Because it's free, we can spend all we want. We don't have to say "Well Jim, putting this measure in would put us over budget". No! Nothing so mundane as that! No, instead, since we're up to our neck in debt, going up to our eyeballs (or in over our heads) doesn't make much of a difference. We passed the real threshold of going over budget hundreds of billions of dollars ago. Now all our wealth is magically created! No more mundane revenues propelling the economy, no invisible hand nudging businesses towards profitable behavior. No more real world factors telling us what behavior we can economically continue or not.

No, we have tax breaks! We have the will to drive our economy! We have the rich passing down the benefits of those big tax cuts the Chinese and the Japanese are loaning us the money for to the working class and the educated middle class!

No, actually, we don't. The money's staying with the rich who save most of it, while corporate profit-seeking manipulates numbers by dropping good jobs, limiting the number of educated people employed, and shipping labor off overseas when they can help it.

This is where the magic runs out. The whole supply-side economics puzzled depends on the rich and the corporations doing something that is out of character for most self-interested economic actors: giving away the money and profits given you. It didn't work in Reagan's time. He eventually had to raise taxes. So did his successor. Clinton raised taxes without apology, and as a result we very non-magically began to actually pay off debt. I believe I mentioned this in a previous article.

Now there are complications in this, no doubt, but money doesn't magically come out of it. It hasn't magically come out with this round of tax cuts, either. It's no coincidence that massive tax cuts plus massive spending hikes equals deficit. To admit that, though, would force the Republicans (and Democrats, I hope) to stop giving the American people all these unpaid-for bribes, and actually ask them for the money.

Unfortunately, that isn't magic enough for this current Republican party. This isn't the magic free lunch only they, the Republican priesthood of the dogma of supply side, can give to the people of America. The tax cuts are a form of power, of control, over those who would otherwise feel motivated to oppose Republican policies. They are a way of stopping people short of holding them accountable for budgetary excesses, since they can tell voters that they would have to give up their free money to get them.

Now, of course, most Democrats like myself are no less susceptible to this. That's why Reagan got elected. We're not economic masochists, waiting at home for Mistress Helga the Tax Collector to show up and give us our punishment. Over the last few years, though, Bill Clinton's fiscal sanity, whether intended on his part, or forced, got through to us. We liked being the responsible ones, the ones who weren't running up the credit card bill.

Faced with the drunken-sailor-in-chief that we have now, and his crew of equally rowdy shipmates, we've actually begun to get angry about all this overspending. We, the Liberals! Who'd have thunk it.

The question now, which each of you has to answer, is whether we continue to spend money we don't have, promising our future economic prosperity to our rivals, all to subsidize our own co-opting through economic bribery, or whether we acknowledge the difficult path before us, and quit trying to make economic gold out of fiscal lead.

Posted by Stephen Daugherty at May 26, 2006 11:07 AM
Comments
Comment #151613

“You know, if you let me write $200 billion worth of hot checks every year, I could give you the illusion of prosperity too.” — Lloyd Bentsen, God bless him.

Except now it’s $500 billion in bad checks every year. Republicans never change.

Posted by: American Pundit at May 26, 2006 12:34 PM
Comment #151624

I sometimes wonder if the strategy is to bankrupt us, and when China tries to collect, that will be the excuse for a war to lead to totalitarian take over of the US by the NeoCon’s

But just in my most paranoid moments. Mostly, I think it’s simply a corrupt party devoid of values. Not that Democrats are that much better. They still spend the money, but then tax us to death.

Good quote, AP. He was a good guy, but a detached millioniare, too.


Posted by: gergle at May 26, 2006 12:51 PM
Comment #151625

There’s really not much that can be done. Our defense spending is not even double the rest of the world combined, we have to frisk grandmothers at airports, we have to subsidize oil companies, we have to pour money into New Orleans so everyone can feel better, and we have to make sure Paris Hilton gets her well deserved tax relief. What’s a body to do?

Posted by: Schwamp at May 26, 2006 12:55 PM
Comment #151628

Fantastic article, Stephen — five stars.
I’ve said it before, I’ll say it again: Trickle Down Just Doesn’t Flush.
Anyone who hasn’t grasped this fact by now, I feel really sorry for — because it must feel terrible trying to defend such a clear failure of a concept. But then, maybe those who keep spinning that lie just don’t have a conscience, and are made happy by the fact that the greedy rich are being so well satisfied at the expense of the vast majority.

Posted by: Adrienne at May 26, 2006 1:03 PM
Comment #151634

gergle-
I’m not meaning to sound to aggressive about this, but just how do we justify as face the claim that Democrats are looking to tax the country to death, especially given the party making the claim?

This is one more example of how much freelunchonomics has distorted the political picture. According to the GOP, support for any additional taxes is ipso facto support for excessive taxes. Might we be able to take a more moderate position and say that tax hikes of certain amounts are sometimes good, sometimes necessary?

Posted by: Stephen Daugherty at May 26, 2006 1:21 PM
Comment #151642

W is acting like a spoiled college student with a credit card,taking his friends on spending sprees and getting bad grades,too.If he truly wanted to benefit the country he would ignore the whiners and raise taxes a bit so he can start to undo this terrible debt he’s created.

Posted by: Theresa at May 26, 2006 1:49 PM
Comment #151646

God bless overspending! It makes perfect sense when you live by the credo Live Fast! Die Young!
Leave a good looking corpse!
It somehow does’nt work so well when your a country.

Posted by: jblym at May 26, 2006 1:59 PM
Comment #151647

gergle, I don’t care how much money a person has. The important thing is to be good and just.

Not that Democrats are that much better. They still spend the money, but then tax us to death.

I don’t recall Clinton taxing anyone to death. In fact, I remember a dramatic cut in the non-military government payroll and the longest sustained economic growth in our nation’s history. I remember millions of more jobs than are available now and a half-trillion dollar annual buget surplus.

Interesting fact: The CBO’s baseline analysis of the 2004 budget without the second round of tax cuts for the rich shows an $890 billion surplus in six years. With the tax cuts added, it shows a $2.2 trillion deficit.

Without the tax cuts for the rich, we’d be running surpluses.

Posted by: American Pundit at May 26, 2006 2:00 PM
Comment #151658

Great article, Stephen.

Freelunchonomics. A perfect name. When you remember that Republicans were forever talking about “no free lunch,” the irony is delicious.

Posted by: Paul Siegel at May 26, 2006 2:18 PM
Comment #151684

AP and Stephen,
Well, if there is anyone that can show me where the real size of government or the actual spending..off budget and on budget has actually been reduced..not just the rate of growth, I’d be happy to listen. Perhaps the Dems don’t actually tax us to death, but they haven’t exactly stopped spending either.

I do understand our Population and GDP has also grown, but not fast enough to outpace spending.

SSI would be fine if we’d stop spending it on other things. Gore was made fun of, but I’d like to see a lock box. One that puts congress inside prison for spending our money like drunken sailors.

I’m not a gold standard guy or even anti- deficit spending..when it makes sense, and when there is honesty about financial matters and fiscal disipline. Neither party has shown me that.

Posted by: gergle at May 26, 2006 3:13 PM
Comment #151706

I dont think you would have half as many people so excited about tax relief, if we weren’t so heavily taxed. Im not sure about everyone else, but I make a pretty good income - about 130K/year. I work my tail off for that, but consequently most of that income is gone even before i see it.

I make a small wage, with most of my income in commissions, which means that half of my paycheck is gone even before i see it. Add that to all the other taxes we pay without even thinking about it (sales tax, gas tax, property tax…etc). It adds up! Combine that with the fact that i live in the 50th most expensive place on this earth (san francisco), 130K is enough to get by, but im not getting rich out here.

I know a lot of that comes down to personal choice. I can choose where i live. I can choose my profession, but when it comes right down to it, i feel that I am being over taxed. The government thinks that i am in the top tax bracket, and penalizes me accordingly. At the end of the day, I want to be able to keep a bit more of what i earn. Is that so wrong? I think there is something fundamentally wrong with the fact that on my paycheck, I am being taxed more for medicare (someone else’s healthcare) than for my own PPO. I just find something wrong with that. I know im not going to convince anyone on this board. Im not trying to. I guess it is just a rant from “the other side”

I hate feeling like I am being critized for taking food out of other people’s mouths too! I am trying really hard to build a life for myself and my family. I hate the fact that i am made to feel guilty if I just want to retain more of what I earned. I contribute to several charities. Im not for throwning grandma out of a nursing home, or stopping the actual “free lunch” programs in school. But I think that we can all agree that BOTH PARTIES are responsible for our current mess. It is not all republicans fault - nor democrats…

Posted by: b0mbay at May 26, 2006 4:28 PM
Comment #151709

Bush has added to the size of government by creating the DHS, adding the Medicare Prescription Drug Benefit, and bulking up the Department of Defense seriously.

At the same time, he has dramatically slashed taxes. Neither he nor the Republicans in the congress or Senate seemed inclined to block this, and much of this has been done with the Republicans exercizing their full political prerogatives.

To the extent Democrats are helping to pass these bills, they should be ashamed of themselves. That said, the Republicans, given their years of propaganda on the subject, have turned out to be worse at controlling their spending as a party that we ever were. Even LBJ, and the Legislative branch of the 60’s didn’t increase spending that much.

I will tell you right here, though, that if my party pulls this shit when they get into power, I will jump on them in a moment. I don’t just bring this up to bash Republicans. I bring this up because the Republican fiscal policies bugs the crap out of me, it’s so illogical. Nobody’s even willing to discuss phasing out the tax cuts currently in effect, even though our debt accumulation is at record levels. People even still have the temerity to suggest that if we restore the taxes we formerly had,(you know, during the greatest economic expansion in US history) that this will encourage the government to spend more. From what I’ve observed, this attempt to starve the beast has failed, not the least of which because it can go over to the Industrialized Far East to feed on what voters here are not being called to pay for.

I think having a tax policy that matches our spending is crucial to maintaining fiscal spending and keeping taxes low in the long term.

Doing things that way explicitly links increased spending to increased taxes. There’s no Far East debt cushion to keep the effect from hitting people’s wallets. Additionally, breaking things even means there’s an actual line to cross by deficit spenders.

It makes government waste more pronounced, since the waste cannot be made up for by additional spending. It increases the public antipathy to porkbarrel spending, given the fact that it’s going to come out of essential spending.

Democrats like me advocate prudent cuts in spending, going after government waste, and cutting out porkbarrel spending. The question is why the Republicans allow excess spending, pork, and governmen waste to persist, given all their rhetoric over the years.

Posted by: Stephen Daugherty at May 26, 2006 4:32 PM
Comment #151724

bombay-
Far be it from me to suggest that it’s wrong to feel overtaxed. That’s where the Mistress Helga Joke came in. Paying taxes is no fun.

Still, you follow that logic too far, and what is an honest wish by all income earners becomes an economic dogma, and a long-term mistake.

In the end, tax cuts in a time of deficit are a waste of money in the making. Those investors in the far east are going to want their money back one of these days. When that happens, we will be forced to pay that money, which they so kindly lent us, back with interest.

We will end up doing one of two things. We will either pay higher taxes to cover both our debt and our budget for those years, or we will cover our debts out of the existing budget by cannibalizing programs and government services.

In essence, we will either be forced to pay more for the same government, or the same for less. As somebody whose taxes already feel excessive, I’m sure you don’t want more taxes. I’m also sure you would rather that the sacrifice your taxes represent go to doing something useful in the here and now, rather than redeeming the cost of budgetary items which are only a memory.

To put this in perspective, our interest payment for the national debt last year was $352,350,252,507.90. That’s up there with the cost of Health and Human Services and Defense. And all it’s doing is paying off the interest on our current debt of 8,348,185,073,893.70.

Personally, I think we got something better to do with the money, but as long as we insist on the more expensive and economically ruinous route of deficit spending, we’re going to keep on banging our heads against this wall. In the long run, the less debt we run, the cheaper we can pay for our government, and the more we can get out of it for the same money.

Posted by: Stephen Daugherty at May 26, 2006 5:19 PM
Comment #151735

Jesus,Stephen for a minute I thought you were posting the numbers for the lottery drawing!

Posted by: jblym at May 26, 2006 6:00 PM
Comment #151738

Since ww2 the largest deficit budgets have happened under Republican administrations. It is consistant.Look it up. There is a difference.
I would submit that the current insane level is an actual idealogical goal of this president and his handlers, a final and lasting cripling of the federal governments ability to realistically solve great social problems or even keep the promises it has made in the past. For example Social Security payments,medicare. They hope to prevent a real and workable national health care system like the rest of the 1st world. These Malthusian monsters resent and regard as evil all the institutions that have made this country a decent place for working people.
It won’t work. The people will come into their own,sooner or later. Clinton balanced the budget by cutting bloated military spending a little and a small tax raise on the wealthy. It was no accident,but a carefully planned economic plan that recieved not a single Republican vote in congress. There are those who will say the Clinton boom was just luck. He was helped out by the dot-com boom etc. They as well as the current administration, seem to forget that for industry to succeed there needs be lots of investment capital. When the goverment runs huge deficits it sucks up capital that would otherwise be available to actually build industry. The availability of capital was one of the reasons the dot-com boom occured. This little boomlet we are having now is the result of deficit spending. I could have one hell of a party if I could write all the bad checks I wanted too. It is not sustainable.
The measure that will be needed to correct this will have to be more drastic than Clinton had to deal with because the budget is so out of wack. Top of the list is a moderate to large ,steeply progressive tax increase on the rich. Unfair? Hardly,they do recieve a disporportunate share of the benefits of society. As Teddy Rosavelt pointed out,if it wern’t for the constabulary they would not even be able to sleep in their own beds.
The inheritance tax needs to be restored and graduated to amounts over a million or so. At which level it should be nearly confiscatory. If one believes in equal opportunity and opposes aristocracy this needs to be done.
A drastic overhall of military spending should be demanded focusing on military procurment. Right now the more a system cost, the more money a defense contractors make on their investment. Backwords from what should happen in a free market. The practice of “political engineering” should be eliminated. For example, the obcenely expensive B1 bomber has componants made in every state. It is more efficent to have manufacturing processs under the same roof or nearby but now there is a constituency in every state that wants the program to continue.

Posted by: BillS at May 26, 2006 6:21 PM
Comment #151741

Stephen,

I totally get your point. I cant say that i disagree. tax cuts should be a short term “shot in the arm” it puts more money in the hands of everyone (rich, poor, corporations…etc). and since we know that americans dont traditionally save anything, that money has to be spent somewhere… you follow the logic there.

The same goes for government spending. public works programs, infrastructure improvements… these all create jobs and hopefully stimulate economic growth. neither one is a long term solution. I think I am just overly frusterated with my taxes in general. I would much rather cut wasted spending then cut my taxes without curbing rampant spending. I think a previous poster mentioned this. Taxes should be in line with spending.

Our system is basically flawed. my observation is: the more necessary/needed a piece of legislation is, the more it is stuffed with pork. The two are directly proportional. And the reason this pork gets put into these bills is so the local incumbant can show his constituants what a great job he/she is doing for thier state. I think it is sick personally. No one side is to blame. Republicans can take the lions share of blame with regard to misusing tax cuts, where dems can own up to the spending abuse. Either way, something needs to be done. Our economy is rolling along nicely, gdp growth, unemployment down, real wages and productivity on the rise. But inflation is rearing its ugly head on the horizon. We arent out of the clear yet, and god forbid we get another terrorist attack. The economy isnt on firm footing yet.

Sometimes i wish that there was a really strong viable third party. One without its head up its ass. That is why i refuse to call myself a republican. I am a free thiking fiscal conservative. I am way more liberal on social issues, but i foam at the mouth when it comes to my money. Everyone has their hot button, and that one is mine.

Thanks for the post Stephen.

Posted by: b0mbay at May 26, 2006 6:26 PM
Comment #151742

The thing you have to understand is that people like former Treasury Secretary Paul O’Neill and Fed Chairman Alan Greenspan Believe that while tax cuts in a time of surplus were good for the economy, in a time of deficit, the modest shot in the arm would be offset by the consequences of increasing the deficit.

I’d say let the market recover by itself. It usually does, and if you’ve got your regulatory house in order, the economic growth will be organic, and more robust for it.

Posted by: Stephen Daugherty at May 26, 2006 6:30 PM
Comment #151758

Flat tax folks,flat tax. Even Reagan supported it.

Posted by: jblym at May 26, 2006 7:35 PM
Comment #151810
Even LBJ, and the Legislative branch of the 60’s didn’t increase spending that much.

Republicans have created more debt during Bush’s administration than all other administrations combined over the entire history of the United States.

Congratulations, Republicans. Another one for the record books.

Posted by: American Pundit at May 26, 2006 10:51 PM
Comment #151812
I make a pretty good income - about 130K/year. I work my tail off for that, but consequently most of that income is gone even before i see it.

b0mbay, somehow I doubt that “most” of your income goes to taxes. In fact, I’d guess what you pay in taxes is less than what the average American family lives on — $44,389, pre-tax.

Posted by: American Pundit at May 26, 2006 10:56 PM
Comment #151836

jblym-
The problem with the flat tax is that you can’t create a real one unless you tax even the poor, and if you don’t tax the poor, then your system really is just an enormously ham-handed progressive tax in drag.

We went for the progressive tax because we want to make things easier on those who can’t endure much, and ask more of those who can offer more.

Now, folks might say this is unfair, unequal treatment, but plain economics is unfair and unequal by its nature. Government doesn’t need to compound that. Nor does it need to make things artificially fair. To those who much is given, much should be asked.

And they should be good enough to give as asked by the rest of us. If they want to avoid a situation where the rest of society resents and envies their success, and keep the dangers of class warfare to a minimum, They should make allies and friendly rivals of those who are less fortunate than they, instead of enemies.

One way of doing this is not shirking their part in paying for the government. The more the rich act selfishly, the more they justify a hostile, suspicious view of their relationship with government and other sources of power.

Posted by: Stephen Daugherty at May 27, 2006 12:39 AM
Comment #151874

Nice article. Tax and spend is more sound than borrow and spend even more… This country needs to call one of those debt consolidation/credit counseling services!

Posted by: mike sommerkamp at May 27, 2006 10:06 AM
Comment #151890

mike,

“Tax and spend is more sound than borrow and spend even more”

At least with “Tax and Spend” we are paying for it ourselves.

Posted by: Rocky at May 27, 2006 11:10 AM
Comment #152382

Rocky, that’s the point I was making…. I’d rather tax and spend as opposed to what these idiots in Congress are doing…


Posted by: mike sommerkamp at May 29, 2006 10:17 AM
Comment #152571

Agreed Rcoky, as long as they do it upfront and not thru backdoor taxation. Then Americans might wake up and fire a few politicians for their larceny.

Posted by: gergle at May 30, 2006 5:39 AM
Comment #152601

Since the tax code is so complicated and changes are hard to analyze would it be reasonable to compare the income tax collected for the fiscal year to the GDP during the same time frame? How accurate would that be in estimating how much personal income was being siphoned off to the government? Are there any problems in comparing these two figures? Is there another figure that would more accurately indicate the true level of taxation?

Whatever figure the income tax is compared to would collecting a lower percentage of income taxes be preferred over a higher percentage?

A lot of questions I know but I would appreciate any and all feedback.

Thanks
A. H.

Posted by: Arm Hayseed at May 30, 2006 10:51 AM
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