Oh boy, strap on your seatbelts kids because Landsburg and I are going at it. You will never see such rapid-fire deployment of assumptions, rhetorical tricks, absurd scenarios, and kidney punches as when the two raconteurs from Rochester duke it out in the comments of his blog. (I was born and raised in Rochester, and Steve teaches at the University of Rochester.)
[T]he thrust…is that raising taxes can’t convert fiscally irresponsible spending to fiscally responsible spending.
If your household is over budget, you can address that problem either by spending less or by earning more income. It is tempting to fall into the trap of thinking that by analogy, the government can address its budget problems either by spending less or by raising taxes. But the analogy fails because raising taxes is not like earning more income; it’s more like visiting the ATM.
The government is an agent of the taxpayers. Raising taxes to pay for government spending depletes our assets just as visiting the ATM to pay for household spending depletes our assets. That’s not at all like earning income, which adds to our assets.
So insofar as the supercommittee relies on tax increases to address issues of “fiscal irresponsibility”, it will have failed.
I first read all the comments, and digested Steve’s responses. I even asked for a clarification. When I was pretty sure I had all the issues down, I let fly with this:
Steve, I think I get your general point, and obviously you are thinking about these issues much more clearly than (say) the NYT editorial board, but I don’t think you’ve really “got them” on this one. I think at best you would just force them to speak a little more clearly when stating their position.
For example, NOBODY would explicitly say, “I am OK with spending that we can neither afford nor need, since we can just jack up taxes on rich people.” Rather, they are saying, “By all means let’s slash spending wherever we can, without compromising important social goals. But to get back to a sustainable fiscal trajectory, we will need to bring in more revenue. So we need to raise taxes as part of the solution.”
In light of the above analogy of a loan shark, I think such a position is immune to your critique.
Let me put it this way: I think for your op ed to really work, you would have to argue that the present discounted value of government tax receipts is independent of the tax system. I don’t think that’s true, do you?
Last way to get my POV across: Suppose we have an Ayn Rand nightwatchman state that just spends $1 million maintaining an arsenal of nuclear weapons, which keeps foreign governments from invading. Right now the government levies an income tax just on red-headed, left-handed people named Jim who work in accounting; everyone else in the country is tax-exempt. With this tax scheme, the government extracts $200,000 per year in revenues. It borrows the remaining $800,000 in the first year. Then in successive years, more and more of the $200,000 (which itself slowly grows over time as the Jims get raises, etc.) is devoted to interest payments on the accumulating debt.
This is clearly an unsustainable situation. At some point, all of the revenue extracted from the Jims will be needed just to service the existing debt. So some people say, “Let’s be responsible people. Let’s raise taxes on the people in our society who are right-handed, or not named Jim, or don’t work in accounting. Then we can maintain this incredibly urgent and socially beneficial spending of $1 million per year to stave off foreign invasion.”
Does such a person not understand Econ 101?
It doesn’t get any better than this. What will Landsburg say? Who knows, but it will be fun.
And Bryan Caplan says economic consultants have a boring life.