The Great Lie of Supply-Side Economics

I am very pleased to see this, and not just because there's a link to this site. I've been frustrated with the press on the 'Laffer curve, tax cuts have paid for themselves' issue because the press has enabled a big lie. It's a lie Republican candidates, even the president, can still repeat with very little attention from the mainstream media. No matter how often reputable economists on the right and the left have said this is a lie, the press has ignored it and allowed it to continue unquestioned. Some of you around here are probably tired of hearing about it (though see here), but it's a lie with consequences. The tax cuts that went through were sold on false premises - what it costs us is far greater than advocates said, advocates who claimed it would actually increase revenue and cost us nothing. It does cost us, hundreds of billions of dollars so far, and that cost has not been presented honestly to the public by either the advocates of the tax cuts or the press reporting on the issue. Without an adequate understanding of the true costs, the public discussion on the issue is distorted and the result is bad public policy.

The big lie matters, and the sooner the press starts to call politicians on it, the better for us all. There are encouraging signs, Jon Chait's recent book being one example and this being another, but it's still possible to tell the lie with little consequence from the mainstream media. Here's James Surowiecki (whom I've come to respect as an excellent reporter on economics):

The Tax Evasion: The Great Lie of Supply-Side Economics, by James Surowiecki, The New Yorker: In American politics, supply-side economics is the monster that will not die. The supply-side argument that, in the United States, tax-rate cuts pay for themselves ... has little or no support within the mainstream economic profession, and no hard empirical data to back it up. Myriad studies have demonstrated that both the Reagan tax cuts of the nineteen-eighties and the tax cuts put through under the current Administration shrank government revenues and led to bigger budget deficits.

Yet the absence of proof for supply-side theory has not dimmed Republicans’ devotion to it. Last month, President Bush told Fox News that his tax cuts had “yielded more tax revenues, which allows us to shrink the deficit.” Dick Cheney insists that “sensible tax cuts increase economic growth and add to the federal treasury.” Every major Republican Presidential candidate ... is on the record as saying that tax cuts pay for themselves. And, just last week, a New York Sun editorial published a list of what “the Republican Party stands for.” First on the list? “Reductions in top marginal tax rates . . . lead to greater government revenues in the long run.”

This supply-side orthodoxy is striking in a couple of ways. First, it requires Republican politicians to commit themselves publicly to a position that is wrong—and wrong not as a matter of ideology or faith but as a matter of fact. ... Second, despite the fact that the supply-side faith has no grounding in reality, within the Republican Party there is little room for dissent on the subject, as Jonathan Chait details in his new book, “The Big Con.” Last week, the blogger Megan McArdle wrote that she had a book review for an unnamed right-wing publication spiked because in it she dared suggest that, in the U.S., tax cuts decreased government revenues.

The cynical explanation for the persistence of the supply-side dogma is that it’s simply cover for cutting taxes for the rich. But the supply-side orthodoxy has flourished for other reasons, too. To begin with, the absurd idea that tax cuts pay for themselves is based on an idea that is not at all absurd, which is that tax rates can have an impact on people’s behavior. Increase taxes too much, and people may work less ... and invest less..., and so the economy will grow more slowly. The opposite can happen if you cut taxes. (How much of an impact tax rates have ... is a subject of much debate in economics, but it’s inarguable that they do matter.) What supply-siders have done is start with that reasonable idea and extrapolate it to unreasonable lengths.

They’re aided in that extrapolation by the simple fact that the American economy grows over time. As a result, even if you cut taxes the federal government will eventually take in more tax revenue than it once did. And that allows supply-siders to fashion a spurious syllogism: taxes were cut in 2001, government revenues are higher in 2007 than they were in 2001, therefore the tax cuts increased revenue. The comparison that really matters in analyzing the impact of the tax cuts, of course, is ... the comparison between actual tax revenue in 2007 and what tax revenue would have been in 2007 had there been no tax cuts in 2001. And studies that make these types of comparisons—including one by Bush’s own Treasury Department ... find that government revenues would be greater had taxes not been cut. But that hasn’t stopped President Bush from claiming victory.

In one sense, of course, it’s odd that a Republican President should treat higher government revenues as a point of pride. Historically, after all, Republicans have been the party of small government...

The conservative pundit Larry Kudlow recently attacked the Republican candidates for failing, in their most recent debate, to explain what spending cuts they would advocate to accompany the tax cuts they propose. But Kudlow should hardly have been surprised, because supply-side rhetoric suggests that spending cuts aren’t really necessary. ... This tax-cut-and-spend approach is the promise of a free lunch, something that voters like to hear. The appeal of that promise may make it easier for politicians to run a campaign. But the fraudulence of the promise makes it awfully hard to run a government.

Update: Maybe I spoke too soon:

The Case of the Missing Surowiecki Column, by Felix Salmon: Memo to Jeff Bercovici: What's with Jim Surowiecki's column in this week's New Yorker? It's right there on the website – complete with no fewer than nineteen hyperlinks. (Someone give this guy a blog!) But it's in the "online only" section: if you pick up the actual magazine, it skips straight from the Talk of the Town section to the feature well, which means that Surowiecki's "Financial Page" is a page only in metaphor.

The most charitable explanation I can think of is that the New Yorker decided the column was simply too reliant on its hyperlinks to work in print. But if that's the case, why didn't they just ask Surowiecki to write a different column, or to rewrite this one so that it worked in print form? ...

I can't remember Surowiecki ever being banished from the print edition like this before, which is why it's so bittersweet to read this, from Mark Thoma:

I am very pleased to see this, and not just because there's a link to this site. I've been frustrated with the press on the 'Laffer curve, tax cuts have paid for themselves' issue because the press has enabled a big lie. It's a lie Republican candidates, even the president, can still repeat with very little attention from the mainstream media. No matter how often reputable economists on the right and the left have said this is a lie, the press has ignored it and allowed it to continue unquestioned.

He's writing, of course, about Surowiecki's column, which is about supply-side economics. And it turns out that the one time he singles out "the press" for praise in exposing the lie is also the one time that the article remains unprinted by any physical press.

Comments

[Brooks]

Kudos to Surowiecki and Thoma. We must work to debunk this "free lunch" myth. Given the enormous unfunded entitlement liabilities we face, we must address our long-term fiscal imbalance ASAP and base such policy on realistic assumptions, including assumptions regarding the relationship between tax rates and revenues.

I invite everyone to these links on my blog:

http://logicizer.townhall.com/g/f48d2bf3-1c51-4592-aa46-191f089d752f

http://logicizer.townhall.com/g/c5ecb3cf-2712-4f5a-ad89-7ae03da99280

[Bruce Wilder]

Is this a "lemons" problem of some kind?

For truth-telling and fact-checking to resume in journalism, it must become a characteristic that increases the career "fitness" of the journalist, who does it.

Just like being right about Iraq does not seem to have done anything for the career prospects of those, who were, and are, right, I remain skeptical that truth-telling will be all that rewarding.

What's Jon Chait's career path look like? Do you suppose he's getting any offers from Politico.com? Fox News calling?

[gordon]

Of course the tax aspects of supply-side get a lot of attention because taxes are a high-profile policy issue, but when Surowiecki can write: "an idea that is not at all absurd, which is that tax rates can have an impact on people’s behavior. Increase taxes too much, and people may work less ... and invest less [my emphasis]..., and so the economy will grow more slowly", it is necessary to remember that investment isn't actually doing much as a result of the US tax cuts. Lafayette made an insightful comment on this fact under the linked post - he noted that low investment might well arise from low capacity utilisation (and quoted some numbers). Obviously, sluggish investment bodes ill for future US growth. So let's not only focus on the failure of the revenue aspect of supply-side, but also on the failure of the investment implications.

By the way, I still see supply-side as essentially an attempt to revitalise the corpse of Say's Law, with the Laffer curve as being essentially a bit player.

[anne]

"Given the enormous unfunded entitlement liabilities we face, we must address our long-term fiscal imbalance ASAP and base such policy on realistic assumptions, including assumptions regarding the relationship between tax rates and revenues."

Nonsense; always deceiving nonsense; always deceving conservative nonsense; always deceiving conservative Republican nonsense.

What "unfunded entitlements" are we referring to? Say Social Security, which is a social insruance program and rolling in surplus and fine for decades to come? This is simply a way of advertising a Republican, blame the Democrats for what Repuiblicans have done, website.

Imagine a Republican who can manage to spell "Iraq," when it comes to thinking of say unfunding? Yuck.

[mark]

Growing an economy entails capital investment at a trade off of current consumption.

Would it be possible to increase taxes and have larger future growth? I would say yes. If the taxes fell on consumption and on those who have a propensity to consume verses save and invest.

In other words, a regressive form of taxation could take away from consumers and give to entrepeneurs. Which over the long term will grow the economy.

Would it be possible to decrease taxes and have larger future growth? Again I would say yes. If the tax cuts benefit those who save more by virtue of their large incomes. And those tax cuts go to those who take risks instead of wasteful government programs.

We know that in reality government taxation is not a form of savings but of consumption. (If you manage to trap those with the highest savings rates, double so.)

Tax policy matters with respect to the economy long term. Certainly, no economist would argue that a capital gains tax is a good idea.

The only question then becomes to what extent an income tax is masquerading as a capital gains tax on high income earners who save and take disproprotionate amounts of risk vs their income.

[anne]

"We must work to debunk this 'free lunch' myth."

We must work to stop the war and occupation of Iraq immediately. My heart goes pitter-patter when I find an anti-war Republican. Can you count to $200 billion for the year for war and occupation? Can you count to $650 billion for the years for the military? And, there will be more to come. Duh?

[anne]

"Would it be possible to decrease taxes and have larger future growth? Again I would say yes. If the tax cuts benefit those who save more by virtue of their large incomes. And those tax cuts go to those who take risks instead of wasteful government programs."

I know, I know, I know. Let's cut taxes on the richest to give to the richest. Goodie for me. Like let's have a 15% maximum tax on the profits of private equity fund managers, since we already have a 15% maximum tax on capital gains and dividends. Goodie for me, being so clever. Oh, and let's defer the 15% tax on private equity fund managers. I am so clever.

[anne]

Funny thing, we done got lower taxes for the rishest and lower taxes for capital gains, but investment has notably been relatively weak through this Republican Administration even with additional investment subsidies. Say what?

[anne]

When Republicans talk abolut them there wasteful government program, think they mean like Iraq? Think Republicans are worried about our having spent more in real terms on reconstructing Iraq than we spent on reconstructing Japan? Only Japan got like electricity, while Iraq is another matter.

I love anti-war Republicans in the spring-time; I love 'em in the fall. Be still my Republican anti-war caring heart.

[anne]

"We must work to debunk this 'free lunch' myth."

As I was telling them there Republican critters asking for another $46 billion for war and occupation. We will be at $800 billion in all for war and occupation by this December. Smoke those Republican entitlements. Oops.

[anne]

Know the Republican game which is flexible deception (I can watch football too). The game goes let's abandon paying $7 billion for the health care of 3.8 million needy children for the sake of $200 billion for war and occupation (lots of urban ariel bombings to go). Abandon the health care of enough children and poof low taxes are fine Laffer or not, but never ever mention the real unfunded titlement which is the titlement in funding the immoral insanity in Iraq.

War and occupation are free, healthy children priceless (or something). I do know football titlements.

[gordon]

Mark says:"...Would it be possible to decrease taxes and have larger future growth? Again I would say yes. If the tax cuts benefit those who save more by virtue of their large incomes. And those tax cuts go to those who take risks instead of wasteful government programs...". I think Mark needs to show that the savings of "those who save more" are actually being productively invested (see my previous comment).

Mark's "We know that in reality government taxation is not a form of savings but of consumption". Raises a complicated issue. It is necessary to partition Govt. expenditure into consumption and investment, and some of it is indeed consumption. But some of it is obviously investment, and some of the consumption expenditure (I would include both welfare and payroll here, as well as some other things) has a positive effect on demand and hence private investment. Dismissing all Govt. expenditure as consumption without considering that some is direct investment expenditure or what the stimulative (and possibly distortionary) effect of Govt. consumption is looks dangerous to me.

It would be nice to know if anybody has tried systematically to partition US Govt. expenditure into consumption and investment, and maybe if they ever did a time-series. I'm guessing there is a trend towards more consumption/ less investment, but I'm not sure. I have a vague memory there actually was a post on this on this blog at some time, but I can't find it. Maybe getting old.

[Brooks]

Mark,

Rather than get into all the points in your comment, I'll just address one: "Tax policy matters with respect to the economy long term. Certainly, no economist would argue that a capital gains tax is a good idea."

If you are suggesting that all economists would favor elimination of the capital gains tax (and I presume you would say the same about dividend income, but correct me if not), my question is, are you saying that they would favor it if taxes on labor income remained unchanged or only if tax rates on labor income were increased to compensate for the lost revenue from the elimination of the cap gains and divident taxes? Or do you contend that eliminating such taxes on investment income would be largely or completely self-financing through incremental economic growth and reduced tax avoidance, raising revenue on labor income taxation enough to mostly or fully compensate for the loss of revenue from the eliminated taxes?

[howard]

while comparing tax revenues to what they would have been is certainly a useful exercise, another one is to compare tax revenues to what the bush administration said the tax revenues would be when they cut the taxes.

i know you'll be shocked to learn they were, shall we say, optimistic, the way they were when they said, in 2003, that the tax cut would create 5.5m new jobs between july 1, 2003 and december 31, 2004, and waddya know? by 2007, there we were!

[johnchx]

anne asks: What "unfunded entitlements" are we referring to?

I don't know what Brooks has in mind, but I might suggest these for starters: Medicaid, SSI, Food Stamps, WIC, and TANF. All of these entitlements are unfunded, and not in some speculative future. Right now.

In (fiscal) 2006, if we had (a) repealed all of the Bush tax cuts (raising tax revenues $240 billion according to the Tax Policy Center); (b) saved the $95 billion which CBO says was spent on the Iraq war; and (c) zeroed out all five major entitlements that I listed...federal tax revenues would still have fallen $80 billion short of spending.

The shortfall isn't imaginary and it isn't something from speculative long-term forecasts. These are the simple current facts of federal revenue and spending.

Of course, in 2006 we found willing lenders: U.S. government trust funds, U.S. government employees and veterans (whose pensions and other benefits are not being properly pre-funded), and a number of foreign central banks and sovereign wealth funds. All at comparatively low interest rates. The sky didn't fall yesterday, and it very probably will not fall tomorrow.

But things that can't go on forever, don't. Really.

[Brooks]

Well said, johnchx. (I can't speak to your calculations, but you are certainly correct that our I was referring mainly to Medicare, SS, and to a lesser (but still substantial) extent, Medicaid. I didn't respond to anne because she seemed much more interested in speaking (rhetorically) than listening. For anyone interested in learning about the magnitude and urgency of this problem, I highly recommend the following links:

http://www.heritage.org/research/features/budgetchartbook/charts_P/p9.cfm

http://www.heritage.org/research/features/budgetchartbook/charts_P/p4.cfm

Watch video here:
http://www.cbsnews.com/stories/2007/03/01/60minutes/main2528226.shtml

http://www.concordcoalition.org/events/fiscal-wake-up/fiscal-wake-up-call.htm

Can someone please tell me how to make links "live" in my comments?

[Brooks]

I'll try again with those links. Not sure if I'll get the html correct.

First Heritage Chart

Second Heritage Chart

60 Minutes video

Concord Coalition primer

[James Killus]

Tax policy matters with respect to the economy long term. Certainly, no economist would argue that a capital gains tax is a good idea.

When someone says something this outrageous, it really should be required that they back it up with something other than bland assertion. For that matter, they should at least do some semblance of background checking, for example:

http://www.econlib.org/library/Enc/CapitalGainsTaxes.html

Brooks, the html tag for a live link is the "a" tag, which looks like this (with "<>" brackets substituting for the other kind ([]):

[a href="insert the web address here"] then some other text that will show the link [/a]

Just please do not use this for live links to The Heritage Foundation website. THF is a propaganda organization that is barely above Fox News in actual factual content. What you are linking to is part of the disinformation campaign to undermine Social Security. The very first graph gives the game away (try reading it without the Medicare and Medicaid component and then consider how the estimates for Medicare and Medicaid expenditures are calculated. Hint: look for the estimated growth rate of health care expenditures as compared to the overall economy).

Or you might look here.

[James Killus]

Ack, this is my day for cross-posting. Still, my comments about The Heritage Foundation still apply.

[johnchx]

Brooks writes: (I can't speak to your calculations, but you are certainly correct that our I was referring mainly to Medicare, SS, and to a lesser (but still substantial) extent, Medicaid.

Just to be clear: I mentioned neither SS nor Medicare. (SSI != SS).

Social Security is fully funded for the foreseeable future (although the liquidation of some or all of the "trust fund" may pose problems for the rest of government).

Medicare is trickier, being partially funded with an earmarked portion of the payroll tax and with "premiums." Medicare is a contributor to the overall fiscal gap, but I don't know the applicable dollar amount off the top of my head.

[calmo VIII]

Mark writesWithout an adequate understanding of the true costs, the public discussion on the issue is distorted and the result is bad public policy. and I finally get it...it's BAD public attitude engendering.
The public learns (in the same way that people learn that guys always drive the truck, unless of course he's impaired and then the girl (the girls know that some day they will be 'the woman', just not right now when it's time to go for a ride in the truck) is allowed) that tax cuts put money (this means some wages) in their pockets (but piles in the rich's portfolios, is not learned so much) and things will be swell later (if not then, then later still) when revenues just magically kick in.
Uncontested BS (and truck drivin behavior) is adopted by shear repetition --conditioning...BAD public training brought to you by (our?) networks that already have the participation rate down to half.
I finally get it: the media governs by default.

[Brooks]

johnchx,

You are correct that I misread what you wrote (apologies). I have to take back part of my compliment, in that case. I still agree with the general point of your comment -- that we are facing very serious unfunded entitlement liabilities -- but since you left out Medicare, you left out the biggest problem regarding unfunded entitlement liabilities and the one that most threatens our fiscal and economic future. As for SS, yes, there is less of a problem than with Medicare based on current tax and benefit structures, but it seems to me that money is fungible and the Social Security "Trust Fund" is actually used to cover the operating budget (rather than actually being saved as a funded trust fund), so we really should be looking at the whole set of unfunded liabilities together.

[Brooks]

James Killus,

Thanks for the html tip. (I found out online how to do it and got it right -- see my comment with correct links above).

As for the Heritage charts, I have those links handy because, on the topics of tax cuts' net impact on revenues and on the unfunded liabilities problem, I am usually debating so-called fiscal conservatives with the free-lunch mentality (extreme supply-side Kool-Aid drinkers) and I know anything I present to them from a non-conservative source will be disregarded or at least heavily discounted. (By the way, I consider myself a TRUE fiscal conservative because I favor low spending and low taxes, but I'm not delusional about the revenue impact of tax cuts, nor about the danger of our unfunded entitlement liabilities situation, nor about our ability (within political and moral constraints) to solve the entitlement problem entirely through cuts in benefits and eligibility.)

I'll look for comparable charts/data at the site to which you linked (thanks). If you know of any web pages with such info to which you can direct me, please do.

Just so I understand, what is wrong with the estimated growth rate of health care expenditures in the Heritage charts?

[Cyrille]

One simple figure to look at to understand that there are unfunded entitlements going forward is the federal debt.

It's big and growing. It seems that, quite simply, T-bounds are unfunded entitlements. And growing your way out of it is going to be tricky if (or rather when) there is a severe worldwide depression, probably linked to dearth of resources and environmental troubles.
That, too, is already happening. Did you notice how water is scarce in some parts these days? Or how rice has jumped 50%? Or how in Chinese cities you can no longer see the sky and how the rivers are so toxic that a massive epidemic is likely sooner rather than later?

I'd rather those things wouldn't happen, but since they probably will, I'd rather have a government with very little debt in order to best absorb them.

[anne]

"I was referring mainly to Medicare, SS, and to a lesser (but still substantial) extent, Medicaid."

Imagine my surprise. Imagine that lunatic mean-spirited conservatives are each and every day bent on slashing and bashing social insurance preograms for the sake of war war war and occupation occupation occupation.

Notice the intense meanness of the conservative who is worried that we might protect the health of 3.8 million needy children when we could be merrily spending $200 billion on the war in and occupation of Iraq. Spending $7 billion on the health of children - bad. War and occuption - good.

I understand the rantings of the titlement monsters.

[Cyrille]

Uh?

[anne]

"I might suggest these for starters: Medicaid, SSI, Food Stamps, WIC, and TANF. All of these entitlements are unfunded, and not in some speculative future. Right now."

The titlement monsters (sort of like mean-spirited cookie monsters) are ranting. Watch them rant as infant mortality increases through the South as Medicaid is slashed while they merrily throw another $650 billion to the military. These are the titlement monters.

(No food for you, little girl, no health care neither - cough cough cough.)

[anne]

Fuuny thing; since the initial budget from George Bush in 2002, spending on social benefit programs has grown only as fast as national income has grown. The portion of the budget that has grown far faster than the economy could grow since 2002 is the military budget. We will have directly spent $800 billion in all on Iraq and Afghanistan by December 2007.

But, the titlement monsters are fearfully worried about the danger of having too many healthy American children, too many healthy babies in Mississippi. Say what?

[mark]

Brooke

Or do you contend that eliminating such taxes oon investment income would be largely or completely self-financing through incremental economic growth and reduced tax avoidance, raising revenue on labor income taxation enough to mostly or fully compensate for the loss of revenue from the eliminated taxes?

Yes, this case. The more objective case as opposed to subjective case.

Gordon:

I think Mark needs to show that the savings of "those who save more" are actually being productively invested (see my previous comment).

Yes, I agree. For example, for what the eye can see elaborate real estate or real estate in general is glorified consumption. Although, real estate does add some collateral for future borrowing.

[anne]

"We must work to debunk this 'free lunch' myth."

Simply notice the language and understand. When free lunchs are the supposed problem, we are dealing with the titlement monsters who shudder at the thought of a child eating a free lunch while being blind as a turnip about war and occupation.

We are talking about the titlement monsters at the University of Chicago who were telling all in 2002 why war and occupation of Iraq would actually be a fine profit-making business. We are talking about the titlement monsters of Heritage, who only worry about the free lunch of a needy child and never a Heritage free lunch. These are the turnip people.

[Cyrille]

I don't think that brooks is David Brooks. The links to his blogs give very few reasons to call him conservative, especially not "lunatic mean-spirited conservatives [...] each and every day bent on slashing and bashing social insurance preograms for the sake of war war war and occupation occupation occupation."

Nor did johnchx (who explains that Social Security is fully funded for the foreseeable future, or FFFFF) say anything that seems to call for the description of "titlement monster" "fearfully worried about the danger of having too many healthy American children, too many healthy babies in Mississippi".

Sometimes there is a need for name-calling but I am afraid that looking for opportunities to name-call fails to enhance a reasonable debate. Meanwhile, I don't see how the only response to "an entitlement is unfunded" would be "drop the entitlement". I think "fund it" is an alternative, and the more likely one coming from someone who argued that the Bush tax cuts created a loss of revenue.

[Brooks]

anne,

Please listen to Cyrille above. Nothing wrong with feeling passionate about issues, but please try to engage in dialogue rather than monologue, and please don't be so quick to assume people are evil, or even that you are understanding them correctly. As for my comment that "We must work to debunk this 'free lunch' myth", the myth to which I referred was the myth that the Bush tax cuts have caused higher revenues, and more generally that lower tax rates (on labor and investment income in the U.S.) are likely to "pay for themselves". Yet you seem to be implying that that statement was a call for cutting entitlements. I do think we will need to phase in a means-tested reduction of eligibility and benefits, and I think economists from left to right would generally agree. But the "free-lunch myth" statement has nothing to do with that, and refers instead to the Kool-Aid being drunk by some Republicans.

[Brooks]

oh, and I am not David Brooks. I happen to generally like his columns and his comments in the discussion on PBS Newshour with Jim Lehrer, but I'm not him.

[Cyrille]

"I do think we will need to phase in a means-tested reduction of eligibility and benefits, and I think economists from left to right would generally agree"

Well, not Krugman if you are talking about healthcare (for example). And I'm with him. Why should there be means testing? Let's have universal healthcare, paid for and enjoyed by all! If you only make it available to the poor, the richer ones will be even more reluctant to be taxed for it...

With regards to your not being David Brooks, that's good -at least there is a good chance of reasonable discussion. With David Brooks that would be impossible, he is mere propaganda. Feel free to like it though ;-)

[anne]

"I was referring mainly to Medicare, Social Security, and to a lesser (but still substantial) extent, Medicaid."

There is a peculiar sort of titlement monster who can not quite understand what it means that since the initial budget of George Bush in 2002 spending on our domestic needs has increased only as fast as national income while military spending has increased far faster than the economy has grown or could have grown. But, for titlement monsters the problem is Social Security or healthy children or healthy grandparents or parents.

Titlement monsters will never spot a possible war they would not care to fight, but caring for the health of 3.8 million needy children simply terrifies.

Titlement monsters woul save us from healthy children but never from Iraq. I do understand.

Medicaid? Shudder....

[Cyrille]

*Sigh* The war in Iraq is not an entitlement. As such, it cannot be an unfunded entitlement.

[Brooks]

Cyrille,

Now how do I defend David Brooks without causing people to doubt my claim not to be him :p ? Obviously I don't share your opinion of him. In fact, ideology aside, one thing I like about him IS his reasonableness. Unlike many commentators on the right and left, he doesn't seem so consumed by partisanship or knee-jerk ideological talking points that he loses all objectivity and ability to concede particular points or criticize Republicans/conservatives at times (and I don't mean criticizing them for not being conservative enough).

As for my contention that we need "to phase in a means-tested reduction of eligibility and benefits", my point was that I think economists from left to right generally agree that we can't solve the problem of unfunded entitlement liabilities through increased taxation alone, that, therefore, some reduction from currently structured entitlement eligibility and/or benefits will be necessary, and that means-testing should be part of that solution (to protect those who need the fullest benefits most). I'm sure there are plenty of economists who advocate universal healthcare, but that wouldn't sufficiently solve the problem of unfunded liabilities and the need to reduce either benefits or eligibility for them, even with some politically and economically acceptable degree of tax increases and efficiency gains in healthcare.

I also think there's a good case to be made for means-testing from a moral perspective, IF one assumes, as I do, that raising taxes alone won't sufficiently solve the problem, and that insufficient savings could be responsibly found in the discretionary budget (i.e., totally eliminating the Defense budget, federal spending on infrastructure, education, etc.). Without means-testing, you have the working poor and middle class paying FICA and other taxes so the money can be sent, in part, to retirees who are relatively affluent.

[anne]

"I do think we will need to phase in a means-tested reduction of eligibility and benefits, and I think economists from left to right would generally agree."

We will need to phase in a mean-tested reduction of health care for children with no means, but there will never no-how be no mean-testing for the insane tragedy of Iraq.

Economists from left and right (and the other) agree when choosing choosing guns or butter choose guns and always pretend butter is the problem. I surely do understand.

[anne]

The reasonableness of David Brooks:

http://select.nytimes.com/search/restricted/article?res=F60C13FE355D0C728DDDA80994DB404482

Avoid War Crimes

To the Editor:

In ''A Burden Too Heavy to Put Down,'' David Brooks writes, ''Inevitably, there will be atrocities'' committed by our forces in Iraq. Did he forget to add that they must be prosecuted?

War crimes are indeed more likely if influential commentators foreshadow impunity for perpetrators of the ''brutal measures our own troops will have to adopt.''

The choice is not between committing war crimes and retreating ''into the paradise of our own innocence.'' A third option is for the United States to strive to avoid complicity.

It is untrue that ''we have to take morally hazardous action.'' Those who choose it, or urge others to, cannot evade or distribute responsibility by asserting that ''we live in a fallen world.''

BEN KIERNAN
New Haven, Nov. 4, 2003
The writer is director of the Genocide Studies Program at Yale University.

[anne]

http://www.nytimes.com/2003/11/04/opinion/04BROO.html?ex=1383282000&en=a52dd59eac5f7517&ei=5007&partner=USERLAND

November 4, 2003

A Burden Too Heavy to Put Down
By DAVID BROOKS

Iraqification is a strategy for the long haul, but over the next six months, when progress must be made, this is our job. And the main challenge now is to preserve our national morale.

The shooting down of the Chinook helicopter near Fallujah over the weekend was a shock to the body politic. The fact is, we Americans do not like staring into the face of evil. It is in our progressive and optimistic nature to believe that human beings are basically good, or at least rational. When we stare into a cave of horrors, whether it is in Somalia, Beirut or Tikrit, we see a tangled morass we don't understand. Our instinct is to get out as quickly as possible.

It's not that we can't accept casualties. History shows that Americans are willing to make sacrifices. The real doubts come when we see ourselves inflicting them. What will happen to the national mood when the news programs start broadcasting images of the brutal measures our own troops will have to adopt? Inevitably, there will be atrocities that will cause many good-hearted people to defect from the cause. They will be tempted to have us retreat into the paradise of our own innocence.

Somehow, over the next six months, until the Iraqis are capable of their own defense, the Bush administration is going to have to remind us again and again that Iraq is the Battle of Midway in the war on terror, the crucial turning point where either we will crush the terrorists' spirit or they will crush ours.

The president will have to remind us that we live in a fallen world, that we have to take morally hazardous action if we are to defeat the killers who confront us. It is our responsibility to not walk away. It is our responsibility to recognize the dark realities of human nature, while still preserving our idealistic faith in a better Middle East....

[anne]

http://www.nytimes.com/2003/11/04/opinion/04BROO.html

"What will happen to the national mood when the news programs start broadcasting images of the brutal measures our own troops will have to adopt? Inevitably, there will be atrocities that will cause many good-hearted people to defect from the cause. They will be tempted to have us retreat into the paradise of our own innocence."

David Brooks

[Cyrille]

Universal healthcare, without means testing, would be cheaper by far than healthcare as it is in the States now. So some economists do reckon that you don't need to cut benefits!
I have no problems with some of the money going to relatively affluent retirees (they would be contributing more than they would be getting in any case). I have nothing against the rich. I just reckon that access to healthcare is a public service that should be available to all.

[anne]

"I might suggest these for starters: Medicaid, SSI, Food Stamps, WIC, and TANF. All of these entitlements are unfunded, and not in some speculative future. Right now."

So that we understand the obfuscating use of initials:

Social Security (SS)
Supplemental Security Income (SSI) *
Special Supplemental Nutrition Program for Women, Infants, and Children (WIC)
Temporary Assistance for Needy Families (TANF)
State Children's Health Insurance Program (SCHIP)

* Designed to help aged, blind, and disabled people, who have little or no income; and provides cash to meet basic needs for food, clothing, and shelter.

[anne]

Brooks:

"I also think there's a good case to be made for means-testing from a moral perspective, IF one assumes, as I do, that raising taxes alone won't sufficiently solve the problem, and that insufficient savings could be responsibly found in the discretionary budget (i.e., totally eliminating the defense budget, federal spending on infrastructure, education, etc.)."

Fine and fairly stated. Trying to be fair, all I would ask is looking at the unsupported assumptions underlying this assertion and the illogic in pairing the words "responsibly" and "totally."

Since Social Security is wildly in surplus, and since means-testing is used for Medicaid and WIC, * the supposed problem can only be Medicare. Then, begin to examine whether and how Medicare is affordable which I would argue is easily so.

* Special Supplemental Nutrition Program for Women, Infants, and Children

[anne]

http://www.epi.org/printer.cfm?id=2806&content_type=1&nice_name=webfeatures_snapshots_20071010

October 10, 2007

War Spending Placed Above Domestic Priorities
By Monique Morrissey

The chart below * illustrates what happens if the president gets his way on the war and Congress gets its way on domestic spending. It shows that the entire increase in discretionary spending as a share of GDP since 2002 (the first year President Bush had any input on the budget) will be due to a growth in defense spending rather than domestic initiatives.

* Please note at site referenced.

[anne]

Notice what is so remarkable even with the tax cuts we have had since 2001,

http://www.epi.org/printer.cfm?id=2806&content_type=1&nice_name=webfeatures_snapshots_20071010

"[I]f the president gets his way on the war and Congress gets its way on domestic spending...the entire increase in discretionary spending as a share of GDP since 2002 (the first year President Bush had any input on the budget) will be due to a growth in defense spending rather than domestic initiatives...."

Congress however could not even get its way on spending $7 billion a year for children's health care while the approval of defense spending is all but assured. Growth in social benefit spending has simply simply not been a budget problem even with tax cuts. At least be honest enough to plainly ask for cutting social benefits for the sake of defense.

[Economicus]

If tax cuts increase revenue, why stop cutting at any level? Wouldn't a tax rate of zero generate the greatest amount of tax revenue according to Kudlow-Laugher Argument?

[anne]

So, we began:

"We must work to debunk this 'free lunch' myth. Given the enormous unfunded entitlement liabilities we face, we must address our long-term fiscal imbalance ASAP and base such policy on realistic assumptions, including assumptions regarding the relationship between tax rates and revenues."

This is a typical factless rant that is telling us Social Security and Medicare and Medicaid are problems we confront. The expressions "free-lunch" and "unfunded entitlements" are merely modern conservative deceptions made to undermine support for all civil rights programs from the right to the retirement income protection of Social Security to medical care.

Franklin Roosevelt described additions to our rights, to civil rights, and conservatives have been doing all they can with increasing vehemence to deny us civil rights.

I hold that a child has the right to health care, evidently compassionate-less conservatives argue a child has no such right. There is the issue; at the least let the entitlement monsters be honest.

[anne]

http://www.nytimes.com/2005/04/18/opinion/18herbert.html?ex=1271476800&en=9f23787f95925a8f&ei=5090&partner=rssuserland&emc=rss

April 18, 2005

A Radical in the White House
By BOB HERBERT

Last week - April 12, to be exact - was the 60th anniversary of the death of Franklin Delano Roosevelt....

That more wasn't made of this anniversary is not just a matter of time; it's a measure of the distance the U.S. has traveled from the egalitarian ideals championed by F.D.R. His goal was "to make a country in which no one is left out." That kind of thinking has long since been consigned to the political dumpster. We're now in the age of Bush, Cheney and DeLay, small men committed to the concentration of big bucks in the hands of the fortunate few.

To get a sense of just how radical Roosevelt was (compared with the politics of today), consider the State of the Union address he delivered from the White House on Jan. 11, 1944. He was already in declining health and, suffering from a cold, he gave the speech over the radio in the form of a fireside chat.

After talking about the war, which was still being fought on two fronts, the president offered what should have been recognized immediately for what it was, nothing less than a blueprint for the future of the United States. It was the clearest statement I've ever seen of the kind of nation the U.S. could have become in the years between the end of World War II and now. Roosevelt referred to his proposals in that speech as "a second Bill of Rights under which a new basis of security and prosperity can be established for all regardless of station, race or creed."

Among these rights, he said, are:

"The right to a useful and remunerative job in the industries or shops or farms or mines of the nation.

"The right to earn enough to provide adequate food and clothing and recreation.

"The right of every farmer to raise and sell his products at a return which will give him and his family a decent living.

"The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad.

"The right of every family to a decent home.

"The right to adequate medical care and the opportunity to achieve and enjoy good health.

"The right to adequate protection from the economic fears of old age, sickness, accident and unemployment.

"The right to a good education."

I mentioned this a few days ago to an acquaintance who is 30 years old. She said, "Wow, I can't believe a president would say that." ...

[anne]

http://www.feri.org/common/news/details.cfm?QID=2088&clientid=11005

January 11, 1944

Message on the State of the Union
By Franklin Roosevelt

To the Congress:

This Nation in the past two years has become an active partner in the world's greatest war against human slavery....

It is our duty now to begin to lay the plans and determine the strategy for the winning of a lasting peace and the establishment of an American standard of living higher than ever before known. We cannot be content, no matter how high that general standard of living may be, if some fraction of our people—whether it be one-third or one-fifth or one-tenth—is ill-fed, ill-clothed, ill-housed, and insecure.

This Republic had its beginning, and grew to its present strength, under the protection of certain inalienable political rights — among them the right of free speech, free press, free worship, trial by jury, freedom from unreasonable searches and seizures. They were our rights to life and liberty.

As our Nation has grown in size and stature, however — as our industrial economy expanded — these political rights proved inadequate to assure us equality in the pursuit of happiness.

We have come to a clear realization of the fact that true individual freedom cannot exist without economic security and independence. "Necessitous men are not free men." People who are hungry and out of a job are the stuff of which dictatorships are made.

In our day these economic truths have become accepted as self-evident. We have accepted, so to speak, a second Bill of Rights under which a new basis of security and prosperity can be established for all — regardless of station, race, or creed.

Among these are:

The right to a useful and remunerative job in the industries or shops or farms or mines of the Nation;

The right to earn enough to provide adequate food and clothing and recreation;

The right of every farmer to raise and sell his products at a return which will give him and his family a decent living;

The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;

The right of every family to a decent home;

The right to adequate medical care and the opportunity to achieve and enjoy good health;

The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment;

The right to a good education.

All of these rights spell security. And after this war is won we must be prepared to move forward, in the implementation of these rights, to new goals of human happiness and well-being.

America's own rightful place in the world depends in large part upon how fully these and similar rights have been carried into practice for our citizens. For unless there is security here at home there cannot be lasting peace in the world....

[anne]

There we have Franklin Roosevelt describing our rights, our inalienable rights, in the midst of World War, while we are confronted by compassionate-less conservatives who in the midst of a needless war insanely expensive who tell us a little girl or boy has no right to health care. We can afford no health care for a mere child. There no such right. I understand.

[Brooks]

anne,

I once met a guy at a party who described himself as "a philosopher". He then proceeded to speak to my friend and me continuously for fifteen minutes, until we extracted ourselves from the situation. I commented to my friend, "I have to question the wisdom of a philosopher who spends all his time speaking and none listening."

You've received some friendly advice to slow down just long enough to listen and consider what others are saying and to inquire rather than presuming that you have complete and accurate knowledge of others' evil agenda. I offer that advice once again. Not only will you learn more, but you will be more influential rather than just turning people off.

As for the "free lunch", I've already explained to you that it refers to the myth that some extreme supply-siders hold that tax cuts such as Bush's generate higher revenues. That's it. Period. And I'm much more accustomed to being attacked for that position by conservatives who understand what I'm saying (even if they disagree without good reason) than by liberals who misunderstand what I'm saying, the latter being you, repeatedly. Please knock it off.

You have at least one good point to make: that we should consider the cost of the Iraq war, and potential savings from ending it sooner rather than later, when considering trade-offs and sacrifices between higher taxes and entitlement benefits. Of course, if one believes pursuing the war is bad policy for reasons other than cost, he/she would oppose it even if it were free. If one believes it is good policy but not worth the cost, that is a more complex argument, and an important one. If you want to engage in serious dialogue on that question, I humbly suggest that you change your tone to a more inviting one.

[anne]

What "unfunded entitlements" are we referring to?

John Chx:

"I might suggest these for starters: Medicaid, SSI, Food Stamps, WIC, and TANF. * All of these entitlements are unfunded, and not in some speculative future. Right now.

"In (fiscal) 2006, if we had (a) repealed all of the Bush tax cuts (raising tax revenues $240 billion according to the Tax Policy Center); (b) saved the $95 billion which CBO says was spent on the Iraq war; and (c) zeroed out all five major entitlements that I listed...federal tax revenues would still have fallen $80 billion short of spending."

Evidently we are doomed, or this analysis is wrong or meaningless. What is being claimed is that the federal deficit in 2006 was more than $400 billion. Please show the precise figures and reference, and explain the reason for the deficit beyond taxes and Iraq and even Medicaid et al.

* Supplemental Security Income (SSI) **
Special Supplemental Nutrition Program for Women, Infants, and Children (WIC)
Temporary Assistance for Needy Families (TANF)

** Designed to help aged, blind, and disabled people, who have little or no income; and provides cash to meet basic needs for food, clothing, and shelter.

[anne]

Brooks:

"We must work to debunk this 'free lunch' myth. Given the enormous unfunded entitlement liabilities we face, we must address our long-term fiscal imbalance ASAP and base such policy on realistic assumptions, including assumptions regarding the relationship between tax rates and revenues."

The argument is that there is no free lunch, so we cannot cut taxes to increase revenues. Then, because we have enormous unfunded entitlements such as Social Security, Medicare and Medicaid we must do what? We must either cut entitlement benefits or raise taxes.

Am I being fair, finally, even to the point of using expressions I do not care for? What then?

[johnchx]

I can see that I was being too indirect (too obscure?). Let me clarify with a few observations.

(1) The "long-term entitlements crisis" meme is not just a right-wing talking point, although the right-wing has found it convenient on occasion. (And equally convenient to ignore, on others. See, e.g., the "fiscal policies," if we may call them that, of every Republican candidate for President.) The Comptroller General of the United States (basically the director of the GAO) has been traveling the country with a slide show not all that different from the graphs at Heritage.

(2) From a policy perspective, the "long-term entitlements crisis" is not actually a difficult problem. The driver of the "crisis" is the rising cost of health care services, operating through the Medicare and Medicaid programs. Contra Brooks, there are economists who contend that the establishment of a reasonable, reality-based national health care financing mechanism would solve this problem at a stroke. (Krugman is among them, but isn't really an authority in health care economics; his strength is that he knows actual health care economists and is in a position to communicate their views to a broader public.) The bottom line is this: either the U.S. will implement a reasonable, reality-based national health care financing mechanism (and the "crisis" is solved) or it won't (and the crisis is insolvable).

(3) The "long-term entitlements crisis" meme is largely about a problem that lies convenient decades in the future, and which is the product of projection models which rely upon assumptions which are handily unknowable. Which means that -- if we wish to distract and entertain ourselves -- we can chat (and chatter) endlessly about the "crisis" without the pesky discipline of actual numbers. I believe that this is the major attraction of the "crisis" meme for non-right-wingers. As long as we're talking about soft numbers, in some indefinite future, we can enjoy "policy wonk talk" without actually facing any facts.

(4) I personally view the preoccupation with distant, hazy "issues" as part of a general infantilization of public policy discussion. While it's undoubtedly preferable to rants and name-calling, it is still "pretend wonkery," and it doesn't bring the participants into engagement with real facts and real issues. Put another way, the "long-term entitlements crisis" is the opiate of the wonkishly-inclined masses.

(5) It is also my opinion -- perhaps an idiosyncratic one, but not, I hope, entirely without foundation in reality -- that a major obstacle to any serious, reality-based discussion of policy is the degree to which federal revenues and spending have diverged from one another. Taxing and spending decisions (and levels) have become "de-coupled" to an extent that makes coherent talk about trade-offs and costs of anything -- from SCHIP to the Iraq war -- virtually impossible.

As an illustration, consider the various proposals that have been floated by Democratic Presidential candidates (for many good things), to be "paid for" by allowing the Bush tax cuts to expire. But the expiry of the tax cuts won't begin to "pay for" the government spending we already have.

Or consider the annual Congressional votes on "emergency" appropriations to finance the Iraq war. Can there be any doubt that the financial costs of Iraq would be taken much more seriously if Congress were actually contemplating how they might be paid? (Hence my slogan: if you want peace, work for fiscal responsibility.)

Taxes and spending have drifted so far apart that talk of actually balancing the budget -- or, horrors!, running an actual surplus in good years -- is routinely dismissed as politically impossible. (Which, alas, may be perfectly true.) And if we can't bring taxes and spending into alignment with one another, why not borrow a few hundred billion for a war of choice?

In this context, discussion of policies with financial implications is simply unhinged.

(6) Free lunches: there are several varieties floating around. Of course, the bizarre Republican claim that lowering U.S. tax rates from their recent (or current!) levels would spark sufficient economic growth to more than offset the direct revenue impact of the tax cut is, perhaps, the most egregious. The liberal version -- which, in a confused misunderstanding of Keynesianism, contends that government borrowing always increases output, and (conveniently) by enough to re-pay the borrowing -- is less virulent, but (notice!) amounts to very much the same claim.

The core "free lunch" argument, in left or right varieties, is that government spending need not be paid for at all. (I suspect that a major reason for the resurgence of this myth on the Republican side is that the GOP has essentially relinquished the claim that it supports any actual reduction in government spending, having held the reins of power for so long while proposing exactly "none at all".)

(7) Fungibility. The crucial truth of government finance is that, in the public sector, the fungibility of money is a bug, not a feature. That's because, in the public sector, the decision to levy a particular tax on particular people is very often contingent upon an understanding of how the proceeds of that tax will be used. The whole point of much of government accounting -- including the invention of creatures like the Social Security "trust funds" -- is to defeat the fungibility mis-feature.

To attempt to render fungible what so much effort has gone into rendering distinct can serve only one purpose: to silently renege on promises and commitments made in years past.

Now, it would be perfectly valid to propose a regressive payroll tax increase to pay for, say, the Reagan defense build-up. What isn't valid is to pretend that we already have. That is, Congress is perfectly free to amend the law. But I do insist on treating that as a possible -- and certainly controversial -- policy option, rather than as the status quo.

[anne]

Then, in 2006, even if there had been no tax cuts, and there had been no war in Iraq, and if Medicaid spending had been cut to zero, along with Supplemental Security Income and Food Stamps and Special Supplemental Nutrition Program for Women, Infants, and Children and Temporary Assistance for Needy Families; even if the war and all these programs did not exist, there would have been an $80 billion budget deficit even if we had never cut taxes.

Please explain what this means.

[anne]

John Chx, thank you.

Sorry, I did not notice your fine explaining comment which makes complete sense. Did I state the "Tax Policy Center" argument correctly, though?

[Brooks]

anne,

Re: "The argument is that there is no free lunch, so we cannot cut taxes to increase revenues. Then, because we have enormous unfunded entitlements such as Social Security, Medicare and Medicaid we must do what? We must either cut entitlement benefits or raise taxes."

First, let's separate what is meant by the "free lunch" statement from any policy discussion. As I've said, the "free lunch" myth that needs to be debunked is that lower taxes will cause increased revenues. Period. Repeat, period.

Now, given our enormous unfunded liabilities, we must choose between lower spending vs. projected spending (TOTAL spending, not just entitlements) or higher taxes or some combination of both. Hopefully you don't consider that a controversial statement, particularly if you've read and viewed the information at the links I've provided upthread or if you are otherwise well-informed on the scale of our unfunded liabilities and the implications.

Ok, now on to policy. Based on what I've read/seen/heard, it would not be in the best interest of the nation as a whole to try to solve the problem of unfunded entitlement liabilities only with a combination of tax increases plus spending cuts in the Defense budget and other discretionary spending. Even with VERY substantial cuts in Defense and in other discretionary spending, taxes would have to be raised so high that it would severely harm our economy and the standard of living for most Americans (and as rates move higher and higher, the negative economic impact causes less and less revenue gain vs. static scoring -- we get closer and closer to killing the goose that lays the golden eggs). So yes, I do think we need to phase in means-tested cuts in entitlement benefits and eligibility as PART of the solution. We probably will also need to raise taxes, and I favor allowing all the Bush tax cuts to expire, although perhaps phasing them in over a few years would be best (not saying it is, just that it's possible).

Obviously the less we spend on Defense or other discretionary spending, the less we have to raise taxes or cut entitlement spending (vs. projections), and obviously the Iraq war is very expensive. As I said, the economic (and related moral) argument for ending the Iraq war sooner rather than later is a legitimate subject for debate. But if you are contending that it would be wise to address our long-term fiscal imbalance only by ending the Iraq war, perhaps cutting elsewhere in the Defense budget and increasing taxes (as opposed to including some reduction in projected entitlement spending), I disagree, and I think I'm in good company across the political spectrum.

[Brooks]

johnchx,

Your enumerated list contains some valid points, but I have to take issue with this one:

"(4) I personally view the preoccupation with distant, hazy "issues" as part of a general infantilization of public policy discussion. While it's undoubtedly preferable to rants and name-calling, it is still "pretend wonkery," and it doesn't bring the participants into engagement with real facts and real issues. Put another way, the "long-term entitlements crisis" is the opiate of the wonkishly-inclined masses."

"Infantilization"?? I couldn't disagree more. It is the very essense of maturity to defer current gratification, or to sacrifice in the present, for the sake of a better future, or to seek to raise awareness of the need to do so. We are on an unsustainable fiscal course that will ruin our economy and standard of living if we don't make major policy changes, and the longer we wait to make those changes, the more severe the ultimate pain will be. No economist of the left or right disputes that point (in fact, Comptroller David Walker is accompanied on the tour to which you referred by representatives from both Heritage and Brookings, as well as the non-partisan Concord Coalition).

So seeking, as I do, to raise awareness of our need to change course in some responsible way -- be it spending cuts of whatever sort vs. projections, tax increases, or both -- is absolutely mature, and ignoring a predictable disaster just because it's a couple of decades away is what is "infantile".

If your point is just that discussion of the unfunded entitlement liability issue is all-talk, no-action and is therefore just wonkery for its own sake, then I think your criticism is poorly placed, to say the least. Some folks (e.g., David Walker, The Concord Coalition, yours truly, etc.) are trying to get people to demand responsible action from politicians on this issue. Such efforts should be applauded, not ridiculed.

[anne]

John Chx:

"(1) The 'long-term entitlements crisis' meme is not just a right-wing talking point, although the right-wing has found it convenient on occasion. (And equally convenient to ignore, on others. See, e.g., the 'fiscal policies,' if we may call them that, of every Republican candidate for President.) The Comptroller General of the United States (basically the director of the GAO) has been traveling the country with a slide show not all that different from the graphs at Heritage.

"(2) From a policy perspective, the 'long-term entitlements crisis' is not actually a difficult problem. The driver of the 'crisis' is the rising cost of health care services, operating through the Medicare and Medicaid programs."

Precisely so, along with the entire fine comment.

[anne]

Brooks:

"Even with VERY substantial cuts in Defense and in other discretionary spending, taxes would have to be raised so high that it would severely harm our economy and the standard of living for most Americans (and as rates move higher and higher, the negative economic impact causes less and less revenue gain vs. static scoring -- we get closer and closer to killing the goose that lays the golden eggs). So yes, I do think we need to phase in means-tested cuts in entitlement benefits and eligibility as PART of the solution."

The argument, then, is apart from military and domestic spending we are incapable of affording Social Security, Medicare and Medicaid. Raising taxes help to a point but will be self-defeating if pushed. The answer then has to be means-tested cuts in benefits. Since we cannot afford universal Social Security, Medicare and Medicaid in the long term, means-tested benefits reductions will be most equitable.

Understood, and I am only paraphrasing and not arguing.

[anne]

Brooks, thank you.

The problem is that even if we agree, we are further trapped because we are using resources so fiercely against what we would consider domestic interests. So cuts in Social Security and Medicare and Medicaid will have to be all the more.

[anne]

Brooks and John Chx especially were kind and helpful, and I am grateful even before arguing again.

I do not agree that what I consider the civil rights needs of Social Security and universal health care are not affordable.

As for the Iraqi war and occupation, I am opposed beyond any material cost and never pretend otherwise. As for military spending, I am merely astounded.

[Brooks]

anne,

Re: "The argument, then, is apart from military and domestic spending we are incapable of affording Social Security, Medicare and Medicaid. Raising taxes help to a point but will be self-defeating if pushed. The answer then has to be means-tested cuts in benefits. Since we cannot afford universal Social Security, Medicare and Medicaid in the long term, means-tested benefits reductions will be most equitable."

That's close to what I'm saying, and thank you for paraphrasing and seeking confirmation that your understanding is correct. First, just to be precise with language, when you say "military and domestic spending" I think you mean (and what I am referring to is) discretionary spending (Defense and non-Defense), as opposed to entitlement spending. Second, I'm not saying my policy suggestion -- the degree of means-testing that I would prefer -- would be the "most equitable", since it's possible that the most "equitable" (i.e., egalitarian) thing to do might be to tax the rich even more than I would suggest in order to move the means-test qualifying income/wealth level higher, even if that meant that most Americans were worse off due to a worse economy. But I do believe that having no means testing and requiring working poor and middle class folks to pay additional taxes for benefits received by affluent retirees would be less equitable than having some means testing.

But for the most part, yes, you seem to have paraphrased my point appropriately.

[anne]

Actually, that is the fairest argument for reducing social rights benefits I can imagine which leaves me where I began which is arguing or railing about what is socially affordable. What I will do is ask myself the question repeatedly in coming days, as though from the perspective of a Malthus rather than the optimistic frame of technology advance from a Benjamin Friedman. When there are various levels of drought from California to the Great Lakes to Georgia, am I foolishly optimistic?

I should have written: "The argument, then, is apart from military and other non-military spending we are incapable of affording Social Security, Medicare and Medicaid...."

[johnchx]

anne writes:Evidently we are doomed, or this analysis is wrong or meaningless. What is being claimed is that the federal deficit in 2006 was more than $400 billion. Please show the precise figures and reference, and explain the reason for the deficit beyond taxes and Iraq and even Medicaid et al.

Fair question. I've written about this elsewhere, but I'm happy to run through it again.

You are quite correct to notice that my figure(s) for the fiscal gap in 2006 (between $691 billion and $811 billion) and the officially reported on-budget deficit ($434 billion). I try to use terms like "fiscal gap" and "difference between spending and tax revenue," rather than "deficit," to indicate that I'm looking at a different -- and, I claim, more meaningful -- measure than the officially reported figure. I'll explain the differences.

(Source for the following: Monthly Treasury Statement for September 2006, Table 6, "Means of Financing the Deficit...")

In 2006, the government reported a Unified Budget Deficit of $248 billion. The difference between this and the "on budget" deficit is the increase in federal debt held by the off-budget "trust funds" (OASI and DI), about $186 billion. However, there are other government "trust funds" which hold federal debt, but which do not happen to be "off budget." Notably, these are "trust funds" for civilian and military retirement benefits as well as veterans' and survivors' benefits. Federal debt held by all "trust funds" (on and off budget) increased by $309 billion (from $3.3 trillion to $3.6 trillion). So the total cash-flow shortfall totalled $557 billion ($248 billion + $309 billion).

But cash flow doesn't tell the whole story, of course. State and local governments, like businesses, are required to expense pension and other retirement benefit costs incurred in the current year, even though they won't be paid (on a cash basis) for many years in the future. Of course, these expenses are calculated on a discounted present value basis.

To see the annual increase in the accrued liability for retirement and veterans benefits, you need to look at the annual Financial Report of the U.S. Government. Note 11 discloses the change in benefit liabilities, which grew by $187 billion in 2006. Note 10 identifies the balances in the government's major "trust funds." Relevant for this discussion are the civilian and military retirement funds. The assets in these funds (which are, of course, federal government securities) grew by $53 billion. So, liabilities grew by $134 billion more than assets. That's a cost of services delivered in 2006 that will have to be paid by future taxpayers.

So, the cash-flow shortfall of $557 billion, plus the net increase in retirement & veterans benefits payable of $134 billion, yields a total shortfall of $691 billion.

Now, 2006 was actually a pretty good year from a macroeconomic perspective. Unemployment was below 5% and real growth was 2.9%. So if we want a balanced budget over the long term, 2006 was the sort of year in which we should probably have been running an operating surplus. To calculate a plausible surplus target, I look at the size of the national debt as of the beginning of fiscal 2006, and calculate the principal payment that would be due on the first year of a thirty-year fixed rate mortgage with that principal amount, and a 5% nominal interest rate. It's a sort of arbitrary benchmark, but it's one that can be explained easily -- most people have an intuition about how a thirty year mortgage works. In any event, this turns out to be $120 billion.

Adding the "good year surplus" target to the shortfall calculated above yields a total fiscal gap -- between general purpose taxes collected and the amount that "should have" been collected to finance actual spending and a very modest surplus -- of $811 billion.

Hence my "range" of $691 to $811 billion.

One way to understand this fiscal gap is to look at what would be different if it were closed. One major difference is that "trust fund" surpluses would actually improve the financial position of the U.S. government as a whole. Specifically, debt held by the public would fall dollar-for-dollar with every increase in debt held by government trust funds.

Since fiscal 2007 has ended, I'll be updating my "gap" soon. The cash-flow component of the gap has fallen from $557 billion to $456 in 2007, which is good news, as far as it goes. Updates on retirement, veterans and survivors benefits probably won't be available for a few months.

[anne]

Excellent, and I had not noticed the well detailed analysis before though I look to your commnents.

Though I need to think, the argument is that 2006 shows a structural budget deficit beyond tax cuts from 2001 and beyond even spending for Medicaid or Iraq. Then, if this analysis is correct, Alan Greenspan made a drastic mistake in 2000 and 2001. Greenspan assumed there was a structural budget surplus that would be sustained indefinitely, actually paying through the national debt during this decade. This was a widely considered analysis, that worried me only because of the license for needless tax cuts, but an analysis that I have never questioned.

[anne]

Paul Krugman and Brad DeLong did not argue with the assumption of a structural budget surplus in 2000-2001, though neither approved the tax cuts. Did we then have such a surplus in those years?

[johnchx]

Brooks writes:If your point is just that discussion of the unfunded entitlement liability issue is all-talk, no-action and is therefore just wonkery for its own sake, then I think your criticism is poorly placed, to say the least. Some folks (e.g., David Walker, The Concord Coalition, yours truly, etc.) are trying to get people to demand responsible action from politicians on this issue. Such efforts should be applauded, not ridiculed.

I think you mistake me. I am, in effect, accusing Walker, et al, of downplaying the seriousness of our financial "misalignment." By focusing on speculative projections of the distant future, they imply that that is where the problem lies.

But it doesn't. It's right here, right now. We live in a country which cannot decide how to pay for the government it wants, and which refuses to live with the government it's prepared to pay for. That is a fundamental failure of our institutions of self-government. And the impact of our failure to make choices is cumulative. Every year, our inability to choose is quantified and recorded, on somebody's balance sheet.

I too have a long-term doomsday scenario, though it's impossible to guess just how long-term it is. (We would seem to be living through a decades-long Wile E. Coyote moment...the difficulty is that, since the present situation appears irrational, it's very difficult to guess how long it can be sustained.) But where we are headed is a situation in which the national budget is written not by Congress, but by a committee of our creditors. (What's troubling, of course, is that movement conservatives have more or less let on that this is their goal: to create a situation in which the U.S. is financially incapable of supporting a modern welfare state.)

[Bruce Webb]

"I do think we will need to phase in a means-tested reduction of eligibility and benefits, and I think economists from left to right would generally agree"

Well I am late to this discussion. But any left economist that buys into this argument is an idiot and tool of the Brookes (both of them). Means testing is simply a way of undercutting political support for both Social Security and Medicare. The goal of the economic Right is always the same: eliminating tax on capital and transferring the burden to the wage earning middle class. Which they constantly couple with an attempt to drive a wedge between the upper portions of the wage earning middle class from the lower by transforming social insurance into welfare. The Gin-Grinches and No-Taxquists of this world are openly talking about returning to the world of McKinley when capital for all practical purposes unregulated and untaxed and charity simply at the whim of the holders of capital. You don' even have to Google 'Olasky' or 'Flat Tax' or 'Deregulation' or 'Death Tax'; if you put the entire spectrum of the Right economic and social program into place tomorrow then boom we are partying like it is '99 again. Just not Prince's 1999, more like Hanna's 1899.

Well let me cite my own lyric. "Won't get fooled again."

[johnchx]

anne wrote:Paul Krugman and Brad DeLong did not argue with the assumption of a structural budget surplus in 2000-2001, though neither approved the tax cuts. Did we then have such a surplus in those years?

By my measure, we were roughly in balance in 1999 (due in part to a fall in accrued benefits payable because of some changes in the actuarial assumptions), and 2000 wasn't too bad (about $140 billion short, most of which was due to increases in accrued benefits). But these were major boom years, so ideally we would have run significant operating surpluses. Still, I give the Clinton Administration credit; they proved that an honestly balanced budget is neither a pipe-dream nor a job killer.

[anne]

The question is then is whether the budget surplus of 2000, was a structural surplus as James Galbraith also assumed and objected to. If so, the deficit of 2006 should readily be coverable by assuming tax reversion and possibly assuming away the war in Iraq. If not, then either Greenspan, Krugman, DeLong and Galbraith were wrong or military spending is more pronounced than even Iraq accounts for. Was the surplus of 2000, necessarily an illusion? I think "no."

[anne]

Thank you, I understand the argument completely and will consider this freshly though leaning to a combination of Alan Greenspan and Bruce Webb. At the least, I understand properly now the caution of John Chx and advocacy of Brooks. Understand, does not mean agree with and certainly does not make acceptable what we have squandered materially.

[Brooks]

johnchx,

Apparently I did misunderstand you. The criticism as you expressed it could have been taken as criticism in either direction (my interpretation or what you actually meant). Anyway, what Walker is doing is (1) speaking honestly about the fact that the feces won't NECESSARILY hit the fan until a decade or two from now, and (2) urging action now to avoid much greater pain later. He says there is no immediate crisis, but this problem is like a growing cancer that will destroy us if we wait too long to start addressing it. Excellent analogy.

I think that is exactly the correct approach. I remember when I was a teenager in the 1970s and some parents told their kids that if they tried pot all kinds of horrible things would happen to them. My fellow teenagers and I quickly discovered that this wild exaggeration was baloney. Some kids ended up smoking so much pot that it screwed up their high school grades terribly. This story is not a particularly good analogy to the entitlements problem, but I'm offering it only to point out that if David Walker and others went around saying that the sky is about to fall tomorrow, and then day after day came and went and the sky didn't fall, he would lose credibility and the ability to influence the public and, in turn, public policy. His message is exactly what it should be. By the way, have you watched the 60 minutes video to which I linked upthread? I'll post it again here David Walker on 60 Minutes

[Brooks]

Bruce Webb,

"any left economist that buys into this argument is an idiot and tool of the Brookes (both of them)."

If I'm supposed to be one of the two Brookses, yes, you caught me and exposed my scheming, disingenuous manipulations. What a public service you have performed. Amazing how you saw right through me. And here I thought I was sincerely trying to advocate policy that was best for the nation as a whole while balancing the collective interests of the vast majority and the interests of individuals where the two conflict. But now I realize that I'm really just evil. Thank you for helping me see myself as I truly am and for exposing my true nature to the public.

[anne]

There is, by the way, an interesting nastiness to the language and analogies, and a narrowness of framework that never looks to Europe, that tells me even as I am thinking though the argument again, that the argument is merely a conservative excuse to undermine Franklin Roosevelt's legacy.

[ndd]

Brooks, if I may intercede, the summary version of Bruce Webb's point is that once Social Security is converted from an insurance program to a welfare program (which means testing does), it is doomed. At which point it will be neither.

Allow me also to point out the singular evil with means-testing Social Security. Take 2 otherwise identical citizens on identical career paths with identical lifetime salaries: Stanley the Spendthift Johnson, and Prudence the Saver Pennywise.

Stanley lives his life with the finest consumer goods, the luxury car, the McMansion, the golf club membership, the big screen TV. Prudence religiously pays into her 401k and IRA, drives reliable compact cars for years, lives in a modest 3 bedroom, and clips coupons.

Both turn 65. Stanley, having lived high on the hog and saved nothing, is broke. Priscilla, having scrimped and saved for decades, is a millionaire. Neither one can go back and change the past.

Means testing Social Security means that Priscilla's benefits are taken away from her in order to be given to Stanley.

Explain to me how that is just? Explain to me how that is sound public policy?

[worker]

While I agree that this big lie is being repeated too often, I think it is enabled by the Congressional Budget Office which has a political bias in the opposite direction.

Specifically, static analyses that assume no behavioral changes or secondary effects from tax cuts overstate revenues from tax increases and understate costs of collection. If those numbers are equally unreliable and biased, then what can the press do other than support both sets of numbers?

It is pretty clear that tax levels are not directly proportional to the amount raised- that increasing taxes has some effect on behavior and that people will change their behavior to avoid tax increases. Isn't this effect what the CBO does not model.

Or maybe I am brainwashed and the CBO is on the cutting edge of economics forecasting?

[ilsm]

The only necessary nd sufficient condition for Iraq to contnue is the profits some are making on it.

The profit makers are well connected and use fear and lies to hide the fct that there are other uses for the money and other "tactics" to provide for the common defense.

War especially long war is extended by the profits made by eliminating the sacrifices war of the war.

The only weapon against war for profit is to show there are better uses for the money.

Let's talk opportunity cost and the ineffective approach to the long war on the taxpayer.

The more war, the more money spent needlessly when we profitbly contract most of it out.

We must demand a debate about what is not being paid while the wasteful war provides profits for a few.

[johnchx]

worker writes: Or maybe I am brainwashed and the CBO is on the cutting edge of economics forecasting?

Well, a little bit brainwashed.

Actually, the principal source for forecasting the revenue impact of tax policy changes is Treasury, not CBO. And yes, it's a myth that Treasury uses "static" models. In reality, they do estimate behavioral responses to tax policy changes.

What you're probably remembering is the "dynamic scoring" controversy. This was a bit of theater in which supply-siders managed to convey the impression that the Treasury models didn't incorporate behavioral responses without ever quite saying so. (There's a pattern worth noticing here: they don't exactly lie, yet somehow listeners come away believing false facts. Someone should do a study.)

What the Treasury models don't include is the supply-siders' unsupported assertions that tax cuts automatically generate large increases in growth.

In July of 2006, the Office of Tax Analysis (the agency within Treasury that does this sort of thing) did prepare a "dynamic" analysis of the proposed extension of the Bush tax cuts. They wrote: The analysis reveals that the long-run effects of these policies depend crucially on whether they are financed by lower spending or higher taxes in the future and are sensitive to assumptions on underlying parameters. [...some pro-tax cut verbiage omitted...] If the tax relief is financed by future tax increases ... then it may result in lower output in the long run. The careful reader will notice that this is the opposite of the supply-side claim: without corresponding spending cuts, tax cuts reduce growth. (Not surprisingly; this is the conventional "crowding out" effect.)

The point being that "dynamic scoring," if it assumes realistic Bush-Administration behavior, yields a higher long-run tax cost than the more "traditional" model.

[johnchx]

Link to the Treasury document I quoted here.

[Patricia Shannon]

I don't know whether or not some sort of means testing is the way to go.

I did read of the Secret Santa millionaire, who used to secretly help people. He got in the news because he was dying of cancer, and wanted his program to continue to help others. It was mentioned in an Atlanta Journal-Constitution story (Nov. 19, 2006), that his cancer treatment costs $16,000 a month. "His insurance company won't cover the cost, which has left him concerned about his finances."

msnbc.com didn't mention the cost of his treatment, and his concern about running out of money. Not the first time I've noticed the appearance of possible conservative censoring on msnbc.com
This info was also missing on the news.yahoo.com report

[Brooks]

worker,

I think you are confusing different concepts.

Static scoring has it's purposes, but yes, of course it should be acknowledged that it does not factor in the dynamic effect that tax rate changes have on the tax base (due to changes in economic behavior in response to the rate changes). But that's not the "both sides" involved here. The two sides are, on the one hand, the strong, broad consensus of economists who contend that -- AFTER factoring in the dynamic effects -- the Bush tax cuts (and tax cuts generally on labor or investment income from rates anywhere near where they were prior to the Bush cuts) are highly unlikely to come close to revenue-neutralilty, and on the other hand, mostly laypersons (politicians, talk show blowhards, and ordinary folks) and very few contrarian "economists" (usually by a broad definition of the term) who argue the position opposite that of the consensus.

[gordon]

I wonder if Anne, Johnchx and Brookes are considering tax expenditures as part of discretionary US Fed. Govt. spending or not?

Tax expenditures (deductions, exemptions etc.) account for a lot of money. I haven't time to check out the US Govt. reports (I think OMB does regular reports) but this item from Centre on Budget and Policy Priorities (Furman, Jan. 2007) says in part: "In the last budget, Treasury listed a total of $911 billion of tax expenditures in fiscal 2006.[2] That total approaches the total amount of discretionary spending ($1.025 trillion in fiscal 2006) and mandatory spending ($1.418 trillion in fiscal 2006)".

[Brooks]

gordon,

I don't consider "tax expenditures" as you've described them to be "spending". I don't know if they are officially included as budget items or not, but I don't see how whether they are or not would affect my arguments or those of economists generally on the topics we've been discussing: the net revenue impact of tax cuts, and the problem of unfunded entitlement liabilities. As for the former, considerations of the dynamic effects of tax rate changes do include impact on the level of "tax avoidance" (whether via deductions, black market activity, etc.).

[Brooks]

worker and johnchx,

Also check out the dynamic analysis in this CBO analysis . Note the final sentence in the summary on the first page: Big estimated net negative impact on reveneus from a hypothetical 10% across the board tax cut on all individual income (that's 10% of the pre-cut rate, e.g., 25% to 22.5%, not 10 points).

[Arne (not anne)]

'Was the surplus of 2000, necessarily an illusion? I think "no."'

It retrospect it clearly was an illusion (regardless of the how to include off-budget numbers). It was based on an economy of "irrational exuberance" that could not be maintained. Taxes were paid on income from speculation.

Even at Low Cost, SS benefits in 2030 are paid in part by income from the interest on the trust fund, so we will require the full faith and credit of the US to repay the loan from the SSTF. Brooks has that right. Whether we need to reach a balanced budget may not be so clear.

The general trend seems to be to get closer to a balanced budget and then allow a Republican president to cut taxes and then start the cycle again. Will we stay on that edge even as we stop being able to borrow from SSTF?

[JB]

Just to second Brooks on Anne's approach to posting (and pile on a bit). As a long time reader (first time posting, or is this the second?), I can say that I almost always just scroll past Anne's bloated commentary to see if anything of interest has been posted.

That's not to say that Anne has nothing to contribute, but fer crying out loud, just get your own blog already...

[johnchx]

gordon writes: I wonder if Anne, Johnchx and Brookes are considering tax expenditures as part of discretionary US Fed. Govt. spending or not?

Well, I haven't referred to the discretionary spending concept at all, so I can't really give a meaningful direct answer to the question.

More generally, I'd say that eliminating "tax expenditures" is a perfectly valid way to close some or all of the fiscal gap. When I blog about revenue-side options, I do include elimination of a number of tax expenditures as options, with associated dollar amounts. My preferred data source is Congress's Joint Committee on Taxation, which annually publishes estimates of federal tax expenditures.

[Brooks]

johnchx and gordon,

Just as an FYI (not an argument), when people talk about the Kennedy tax cuts bringing down the top marginal income tax rate from 90%, they often neglect to mention that a lot of deductions were eliminated in conjunction with the tax cut, so the prior tax rate was not quite as extreme as 90% sounds, and the change in the effective tax rate was not as pronounced as it would seem. Obviously there are Laffer Curve-type implications when deductions are eliminated in conjunction with a tax cut (or vice-versa).

[johnchx]

anne wrote: The question is then is whether the budget surplus of 2000, was a structural surplus as James Galbraith also assumed and objected to. If so, the deficit of 2006 should readily be coverable by assuming tax reversion and possibly assuming away the war in Iraq. If not, then either Greenspan, Krugman, DeLong and Galbraith were wrong or military spending is more pronounced than even Iraq accounts for. Was the surplus of 2000, necessarily an illusion? I think "no."

The questions I think you're asking are, "If we were in balance in 2000, how could we have gotten so far 'out of whack' by 2006? Is there more going on here than just the Bush tax cut and the Iraq war?"

Good questions. Let me try to answer. For convenience sake, and so that we can begin from the same starting point (in balance in 2000), I'll ignore the issue of accrued unfunded pension and veterans benefits, restricting attention to the cash-flow portion of the fiscal gap. In 2000, the official Unified Surplus was $237 billion; the trust funds absorbed $246 billion, leaving a cash-flow fiscal gap of $9 billion -- close enough zero to call "balanced." In 2006, the official Unified Deficit was $248 billion, and the trust fund balances grew by $309 billion, so the cash-flow fiscal gap was $557 billion. That's the change we're trying to explain.

Now, a couple of figures to keep in mind as a backdrop for what's to come. Between 2000 and 2006, nominal GDP grew by 34% (or about 5.1% per year). Prices (measured by the GDP deflator) grew by about 16.6% over the same period.

So...our first question is the relative contribution of the revenue and expenditure sides to the deterioration of the fiscal gap. To answer this question, the relevant measure of revenues is net of increases in trust fund surpluses. (The basic idea here is to avoid letting trust fund surpluses, which are earmarked for future spending needs, mask the gap between current taxes and current spending.) I'll call this "available revenues."

Available revenues increased from $1.8 trillion to $2.1 trillion between 2000 and 2006, or about 18%. That is, tax receipts barely exceeded inflation (16.6%), and grew much less than GDP (34%). Expenditures, excluding the Iraq war, grew by 43%, a bit faster than GDP.

Now, if revenues and expenditures had both grown in line with GDP, the fiscal gap would have grown correspondingly, by 34% -- or about $3 billion. Which is to say, we'd more or less be in balance, just like in 2000. To calculate the relative impacts of the tax and spending sides of the equation, we can look at how reality diverged from the "grow with GDP" baseline.

If revenues and expenditures had grown in line with GDP, the fiscal gap would have been $545 billion less than it actually was. Revenues would have been $294 billion higher, accounting for 54% of the total. Expenditures would have been $156 billion lower, accounting for another 29%. And the Iraq war (costed at CBO's $95 billion for 2006) accounts for the remaining 17%. The Bush tax cuts, costed by the Tax Policy Center at $240 billion in 2006, accounts for 82% of the overall revenue "shortage" and 44% of the deterioration (compared with the GDP-based baseline).

Put another way, the tax cuts plus the Iraq war account for 61% (17% + 44%) of the "shortage."

One interesting fact to keep in mind is the trend in personal income tax receipts. In 2000, personal income tax revenues totaled $1.0 trillion. In 2006, they totaled $1.0 trillion (an increase of $39 billion, or about 4%, vanishes as rounding error). These numbers are not inflation adjusted. Personal income tax receipts grew by 4%, while prices grew by 16.6% and nominal GDP grew by 34%. Revenue growth has been concentrated in payroll taxes (up $170 billion, or about 28%) and the corporate income tax (up $147 billion, a whopping 71%).

Exenditures excluding Iraq are up by $771 billion, or about 43%. The Department of Defense, excluding Iraq, is up about 44%, more or less in line with average spending growth, and about 1.1 percentage points (per year) faster than GDP growth. Department of Health and Human Services spending is up by 61% ($232 billion), for an 8.2% annual growth rate, about 3.1 percentage points faster than nominal GDP. I haven't unpacked that, but I'm pretty sure we're seeing the growth of Medicaid and Medicare (including the addition of Medicare Part D).

So...that's a quick run-down of how we got from approximate balance in 2000 to a significant fiscal gap in 2006.

The improvement in 2007 appears largely due to a surge in personal income tax receipts, which are up 11% (about $120 billion) from 2006.

[Cyrille]

Thanks for that johnchx, it's very clearly presented!

[worker]

Thanks johnchx and Brooks! I will check out the links later tonight when I get a chance.

[real person from the real world]

No one has liked paying taxes in this country, from the time since a bunch of colonists dressed as Indians dumped a lot of tea into Boston Harbor, to today. When it comes to spending money and taxes, everyone wants to be sure that if he is paying, the guy on the other end is as miserable and destitude as possible. Maybe we have to do the right thing for the community, and accept the fact that occassionally someone in the grey zone might get a free ride. We vote, especially certain elites, on things based on "appeal." Some libertarian argues against paying for the obese and smokers (sinners make good targets) while they guitily shrug off denying children health care. Those who feel they are without sin, even some who do have sin, still cast stones.... We need healthcare for everyone, not just kids. We need a rising middle class, with decent paying jobs. We should not be paying for nation building in Iraq, when we have infrastructure needs that have to be paid for here at home. We need to stop giving our children's jobs away, on the altar of globalization.