Confronting Party Myths

Confronting Party Myths by George W. Liebmann

Some cheer can be obtained from recent fiscal events. The Reagan-Bush tax cuts ended the Democratic era of tax and spend. The debt limit crisis ended the Republican era of borrow and spend. Perhaps the hour of the late Adlai Stevenson, who told us “there are no gains without pains.” has arrived. Certainly the markets are eagerly seeking grown-up leaders.

Both phases of the recent tumult were legitimate. Congress’ power of the purse is the principal barrier to executive absolutism. The American Revolution was in important ways about the power to tax; the French revolution and others contested the right of absolute monarchs to promiscuously borrow. If President Barack Obama had embraced the Fourteenth Amendment to further mortgage his country to increase the debt limit without Congressional approval, he would have been impeached, and would have deserved to be impeached.

Both parties have now reached a dead end. “Starving the beast,’ per Grover Norquist, produces not slenderness but bloat, since Congressmen go on appropriating without inflicting the pain of tax increases. Cutting off the beast’s credit, without more, produces spasms and convulsions, already visible in the streets of Britain’s cities: 40% youth unemployment rates are a recipe for disaster. Focused, not indiscriminate payroll tax cuts are in order, as is effective re-training through apprenticeship and distance learning programs.

It is not true that the welfare state expands because its beneficiaries do not pay taxes. They may not pay income taxes, but payroll taxes have increased greatly in recent years. Most economists maintain that even the employer’s share of these taxes falls on employees, who thereby bear unemployment and workmen’s compensation charges as well as medicare and social security taxes. But the Republicans are right that a further ‘something for nothing’ syndrome should be avoided. Some added taxes on the rich are desirable lest the fruits of ‘carried equity’ and speculative capital gains be transmuted into political power, but the bulk of any new taxation should be broad-based. The bluff of those who glibly champion flat taxes should be called; the medicare payroll tax is the broadest-based and flattest tax we have, and should pay for most new costs of entitlements.

The Democrats, and the Tea Party, are in denial about the costs imposed by the aging of the population, which must be reflected in changes in retirement ages and cost of living indices. Obamacare contains unsustainable promises relating to life care, mental health counselling, and elimination of the ‘donut’ in Medicare prescription drug coverage, which will remove all restraints on physicians’ eagerness to prescribe drugs. Medicare costs cannot be restrained without co-payments which require real bills to be justified to real people, nor can Medicaid, or Obamacare be fairly administered by denying discretion to the states while imposing new burdens on them; they should be given power both to adopt single-payer programs and to voucherize benefits. Finally it should not be forgotten that long-delayed drug-law reform and immigration reform can have important fiscal benefits. Relaxed restrictions on marijuana use, already in evidence, need to be accompanied by lawful channels of distribution and taxation. “Guest worker” programs accompanied by strict tax enforcement are a middle way between amnesty and unrestricted immigration on the one hand and deportation and exclusion on the other.

The markets have given their verdict on the children’s hour of party myths in Washington. We now will see whether a dozen adults can be found to supplement or replace our passive President.

The writer, a Baltimore lawyer, is the volunteer executive director of the Calvert Institute for Policy Research in Maryland.


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