At Least Dubya is Bankrupting the U.S. Government

I’m one of those sad, pathetic creatures who is occasionally gripped with visceral loathing for Dubya in spite of himself. I shudder with disgust when I hear him try to speak. My eyes water with anguish when I discover some new example of suffering his foreign policy is causing. If I pay too close attention, I’m a wreck.

But I’ve always had a sort of shameful respect for his tax policy. He’s been doing on an enormous scale pretty much what I’ve been trying to do on a feeble one.

I’ve taken myself off of the income tax rolls and I’ve done what I can do reduce the amount of money I provide for the government to pay with. Dubya, meanwhile, has taken millions of people off the income tax rolls, and has slashed government revenue with a vengeance.

Needless to say, I’m conflicted.

I think I’d always assumed that if the government was taking in less money, it’d eventually (once it maxed out the credit cards) have to shrink. That while Dubya’s certainly no government-shrinker himself, his policies would eventually have that effect. This is that “starve the beast” theory that the Norquist wing of Republican tax cutters has made notorious.

Daniel Shaviro thinks we’ve got it backwards. In his paper — The Bush Administration’s Huge Tax Cuts: Steps Towards Bigger Government? — he says, “the idea that the tax cuts would make the government smaller seems to have rested on spending illusion, or confusion between the actual size of government, in terms of its allocative and distributional effects, and the observed dollar flows that are denominated ‘taxes’ and ‘spending.’”

The size of government, Shaviro notes, is not measured only by the amount of money it inhales and exhales, but by the amount of control it has over other parts of society and the economy and how it chooses to honor or disregard its debts and obligations. As a simple example: If the government forces Peter to pay Paul, it is no smaller than if it taxes Peter and subsidizes Paul.

Shaviro believes that the indebting effects of Dubya’s tax policy will lead to a massive “wealth redistribution from younger to older generations.” By incurring debts now (obligations to those who are on or will soon be on Social Security, bonds to pay for war and government), the government is either forcing future taxpayers to pay for the current generation’s folly, or forcing future taxpayers to renege on this debt — either one of which will be a huge, government-mandated transfer of wealth.

There’s no substitute, it turns out, for reducing the size of government directly, says Shaviro — trying to “starve” it only makes it bigger:

[T]he case becomes quite powerful that the tax cuts will probably, over time, make the government larger on balance. The overall package is one of much more redistribution to older generations, accompanied by only a possibility of commensurately reduced allocative effects.

If one looks beyond the tax cuts themselves to the overall budget policy of the Bush Ⅱ Administration, the case for an increase in the size of government becomes almost irrefutable. This, after all, is an Administration that in its first two years increased Federal outlays by $222 billion, or from 18.4 percent to 19.5 percent of gross domestic product. Only about forty percent of this increase was for defense spending, suggesting that one could not attribute all (or even most) of it to the events of even if one assumed that any Administration would have responded to those events in the same way. By its third year, the Administration was busy proposing a new prescription drug benefit in Medicare that was expected to cost $400 billion over the following ten years.

If nothing else, this proposal pretty much exploded any notion that the tax cuts were aimed at shrinking the government’s allocative effects via Medicare, since simply recouping the expansion of government from this new benefit would be a tall task. Rather, the Administration appears to be seeking short-term political advantage and favors for particular groups, merely deceptively clothed in antigovernment rhetoric. Then again, conservative ideologues of the Norquist genre, even when opposed to the Bush Administration’s spending increases, appear no less convinced than it (if it is sincere) that tax cuts somehow have a greater impact on the size of government than spending increases. They evidently do not, or choose not to, understand the long-term budget constraint, under which a dollar of added government outlays today, if it does not reduce expected future outlays (which more likely it would increase, given the effect on political expectations) implies added taxes with a present value of a dollar.

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