On Morning Joe 11/30 there was a lively discussion of possible budget compromises between Republicans and Democrats going forward. One issue is whether the Republicans would be willing to support extension of unemployment benefits if the administration would support an extension of tax cuts in return. Some Republicans have said that unemployment benefits should only be extended if the additional spending is "paid for," observers more generally note that the Republicans seem willing to support an extension of tax cuts, even if those are not "paid for." The implication of some latter observers is that the Republican position is not consistent.
From a Republican standpoint, however, this point does not seem especially difficult to answer (though turning it into a sound bite might be difficult). First, few voters seem to think that the deficit is at bottom a problem caused by too little taxation; far more would point to spending as the root of the problem. (Some might disagree, but it would be hard to find anyone who thinks that either taxes or spending can be increased endlessly). Thus an approach that treats spending increases differently from tax cuts makes a sort of common sense if one is looking for an approach likely to resonate with voters.
Second, deeper analysis does not support the assumption that tax cuts and spending increases are the same economic phenomena. From a bookkeeping standpoint, of course, spending cuts and tax increases are the same--both are a net positive to the government's bottom line; spending increases and tax cuts are likewise both a net negative to the government bottom line. But in the long run, these things are unlikely to be similar, particularly if one takes a citizen's point of view, not the government's. Of course, it is *possible* that individuals' view of their economic prospects would be the same, whether they are allowed to keep more of their current earnings or given greater benefits essentially controlled by a central authority. But this seems doubtful. An expansion of unemployment benefits may prevent individuals from despairing, but it is not likely to inspire anyone to say "hey, time to get a new car!;" for that, one needs a paycheck with a substantial amount left on it after taxes.
To put it another way, imagine two identical countries, both with a deficit problem. One decides to address it by increasing taxes, the other, by cutting spending. It is certainly possible, five or ten years down the road, that these two countries would still look pretty much the same. But, again, it seems doubtful, and one could not fairly *assume* that this would be the case. One can argue about which approach is best, or if the two approaches can be coherently combined... indeed such an argument has been difficult to avoid; but this merely underscores my point that tax cuts and spending increases are unlikely to have exactly the same impact in the long run.
Third, more simply, the Republicans could make this whole consistency issue go away, by making a cheerful commitment to making sure that the tax cuts are paid for by further spending cuts. I would not be willing to bet a large sum on the probability of their doing so, but they might--or perhaps, admit it is a thorny issue at present, and leave it to the next Congress.
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Posted by: dlpedia | March 28, 2011 at 05:36 AM