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August 10, 2005

Tax Shifts

One of the most marvelous things about George W. Bush is how he has managed to make Max Sawicky sound like the Concord Coalition:

MaxSpeak, You Listen!: G.O.P. TAX HIKE WATCH: There are no tax cuts. Banish that phrase from your mind. You haven't seen any. Republican control of the White House and Congress has yielded trillions in tax increases since January of 2001. How can this be? Simple. When you spend more, and when you pass laws that commit the government to spending more in the future, you increase taxes, sooner or later. Spending not financed by current taxes will be financed by future taxes. A debt increase is the present value of future increased taxes. If taxpayers merely pay interest on the debt incurred, forever, the present value of the interest payments is the initial increase in debt.

Suppose you raise future spending on X but later you cut spending on Y? You have still raised taxes. If you had cut spending on Y and foregone the spending on X, taxes would be lower. To spend is to tax. There are no tax cuts. There are only tax shifts.... Exhibit A in the Hall of Bush Tax Hikes is of course the Medicare drug benefit. The cost of this over the indefinite future is $23.5 trillion-with-a-T (of which $18.2T is not matched by any dedicated financing source -- p. 112).... Exhibit B is our largest new government program, known as "Iraq." This is not nearly as big, assuming we slink out of there with our tails between our legs before the next election, proclaiming mission accomplished all the while. Approximate dollar cost to the taxpayer would be about $250 billion. The more important human cost is of course beyond ordinary economic calculation.

Exhibit C is a capital gains tax increase, otherwise known to morons as "death tax repeal." The Estate and Gift Tax termination legislation provides for the taxation of capital gains on assets bequeathed to heirs, when said heirs sell those assets (and "realize" the gains as income). Under current law, any gains up until the point of transfer are not taxed as income. For most heirs, they are not taxed under the Estate Tax either. Hence the "death tax repeal" is really a tax shift to beneficiaries of smaller estates whose bequests currently fall under the minimum taxable threshold.

Exhibit D is the merry run-up in non-defense discretionary spending, in what I call The Era of Hard Work for Limited Government. In keeping with our 'compared to what' stricture above, any assumption about a baseline rate of growth ought to be made explicit. I should stipulate that in general I welcome this sort of spending/tax increase myself. So how big is it? If we grant that this sort of spending "ordinarily" tracks GDP, then growth in excess of GDP growth should be defined as an increase....

Who will pay for these tax increases? Increasingly, as the "Bush tax cuts" (sic) focus the Federal tax system on wages, it will be current and future workers. You may recall that these are the folks upon whom we were told it would be immoral to bequath an insolvent (sic) Social Security system.

So pay no attention to rumors of tax cuts. To be sure there are rewards for assorted vested interests, as so-called tax cuts grease the skids for heavier taxation of wages in the future. Your invoice will be in your pay envelope.

Unfortunately, the Concord Coalition no longer sounds like the Concord Coalition. Its Republican members are pretty quiet.

It's no longer clear to me that there ever were many grownup Republicans. They're certainly thin on the ground today. In an average day I see more wild turkeys than I do grownup Republicans

Posted by DeLong at August 10, 2005 05:22 PM