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Spending Cuts And Tax Increases Pushed By House Majority Leader Steny Hoyer

22 Jun 2010
Posted by Pete Davis

This morning, House Majority Leader Steny Hoyer (D-MD) spoke out for a long-term deficit reduction effort combining spending cuts and tax increases. He chided those who would rule out any tax increases saying:

"Conservative economics used to be in touch with fiscal reality—remember that even President Reagan raised taxes in 1982, 1983, and 1984. Today, Ronald Reagan would be kicked out of the Republican party. Conservatives abandoned the first President Bush after the successful 1990 budget agreement. For the same reason, anti-tax crusader Grover Norquist said this about the possibility of a budget compromise today: ‘At some point conversations about unicorns are tedious, because they don’t exist in the real world. Budget deals where they actually restrain spending and raise taxes are unicorns.’ I’ll only say that a budget agreement is entirely possible between two parties that look at reality as it is, not through the prism of 30-year-old ideologies that lead to defeatist falsehoods like ‘budget deals don’t exist.' "
 
Economists often prefer spending cuts to tax increases, but there's no immutable theory to that effect. We just recognize that higher taxes curtail investment and growth. Spending cuts can curtail growth too, particularly if investments in education or infrastructure are involved, but tax increases usually have a larger and more immediate negative impact on the economy than spending cuts.
 
The larger issue is how much slower our economy would grow in a year or two in the face of the sharply higher interest rates if we don't embark on a large and credible deficit reduction. Like most important decisions in life, it comes down to a judgment call. How much deficit reduction we need to do to maximize future economic growth? I would argue that we need a fair amount, at least 2% or 3% of GDP by Fiscal 2015, when the baseline deficit is estimated to be 5% of GDP.
 
Mr. Hoyer summed up our fiscal history since 1980:
 
Nevertheless, I’m still fairly hopeful that we can reach a balanced solution—in large part, because we have a history of success to draw from. In the 1980s, President Reagan and Speaker Tip O’Neill agreed on Social Security reform, and Reagan and Chairman Dan Rostenkowski agreed on tax reform. In 1990, the first President Bush agreed with congressional Democrats on a compromise to raise the top marginal tax rate and cut spending. Three years later, President Clinton enacted a similar spending-and-revenue agreement, even though Republicans unanimously said ‘no.’ What happened? Spending fell from 22% of GDP to 18%, revenues rose from 17% to 21%, and the Reagan-Bush deficits were wiped out. President Clinton and Speaker Gingrich also took our country in a more fiscally responsible direction by agreeing on the reauthorization of PAYGO. So let’s not pretend that what I’m proposing can’t be done—it was done, within the lifetime of every Member of Congress."
 
Now, we're talking about political economy. Can we and Congress agree on deficit reduction of only spending cuts or only tax increases, or will a combination be the way we go? As Mr. Hoyer noted, historically, we have legislated an equal mix of spending cuts and tax increases. One lesson I learned in Congress' deficit reduction efforts of the 1980s was that the public will support broad spending cuts and tax increases that are viewed as hitting everyone equally. Once you lean too hard one way or the other or allow to many exceptions, public support vanishes. With most incumbents hunkering down in an attempt to survive November's election, it's refreshing to find a political leader with the courage exhibited today by Steny Hoyer.
 
His conclusion is worth putting on the wall:
 
We can keep making easy choices and hoping that the crisis clock just keeps ticking. But sooner or later, if that’s what we choose, there will be a time when we find that we have hardly any choices left at all.”

Steny Hoyer needs a dose of

Steny Hoyer needs a dose of reality.

Steny Hoyer needs to be listened to....and then laughed at.


That is not true according to economic history

From article above... "We just recognize that higher taxes curtail investment and growth. .. but tax increases usually have a larger and more immediate negative impact on the economy than spending cuts."

This is one of those views that seem obvious but is in reality not true when you look at history... Here is a thread showing how tax increases lead to increased economic growth over the last 80 years in the US...

http://www.angrybearblog.com/2010/06/presidents-tax-burden-and-economic....

http://www.angrybearblog.com/2010/06/presidents-tax-burden-and-corruptio...

How does this happen? There are positive externalities in the economy when the government provides public goods and services as opposed to the private sector providing them...

And there are two other reasons why this happens...


Angry Bear and Edward Lambert

Angry Bear and Edward Lambert need to be laughed at even more than Steny Hoyer.

Bartlett, you still can't figure out why you have been laughed out of "conservativedom"?


Reality

First of all, this post wasn't by Bruce Bartlett. This comment does show why Bruce Bartlett is not listened too by conservatives though. The modern conservative movement is defined by a strict adherence to ideological myths not supported by facts, an immediate rejection of all alternative arguments regardless of merit, an elevation of tax cuts as the answer to all economic problems under any conditions and a complete disregard for how to pay for the necessary functions of government.

The fact that Bruce Bartlett is willing to reassess our fiscal policy based on changing conditions and look for credible solutions to our long-term financial outlook make him a pariah in the party that turned a record budget surplus into a record budget deficit with absolutely nothing to show for it but 2 unending wars and an economy in shambles.


What the .. .. .. .. .. ?

So he wants to throw more people out of work, cause more foreclosures, cause more businesses to close so the economy will not slow as much after one or two years of sharply higher interest rates?

Is this guy even aware that we've had nearly two years of essentially zero interest rates? That we've had nearly two years of essentially zero inflation? That with severe structural problems allowed to fester in the financial sector and dwindling hope of meaningful reform there is no sign of significant investment or growth on the horizon? How are we supposed to return to growth and prosperity by choking off economic activity even further?

They honestly seem to believe that real people should be really hurt today to fend off imaginary debt rollover problems in some imaginary future.

Sheeeeesh.


So pat-in-pitt, let me see if

So pat-in-pitt, let me see if I understand you correctly. Hoyer needs to be laughed at because you disagree with him, but can't give us a cogent reason for disagreeing with him? (Silly Old) Edward Bear needs to be laughed at because that's all you've got? No answer to the data that has been marshaled at the Bear blog on the relationship between tax rate changes and growth? And you are addressing Bartlett in response to a piece by Davis because...?


In the short run, spending

In the short run, spending changes usually have a bigger multiplier than tax cuts, especially when the economy is weak as it is now. The main reason for this is because with spending increases, all of the initial increase goes directly into the economy. With tax cuts, some of the initial amount will be saved rather than spent. Mark Zandi's recent estimates obviously aren't the last word, but I think they are good evidence.

In the long run, tax rate increases usually hurt the economy more than cuts in most types of spending would, because they distort incentives. However, curtailing "tax expenditures" such as deductions, exemptions, and credits is more like cutting spending than raising a marginal rate.


In our current situation a

In our current situation a large scale tax cut affecting the largest number of households, like temporarily suspending the payroll tax, might work.

But in normal times, the record indicates that robust economies are robust whether there is a tax cut or whether there are progressive tax tables. The difference is that tax cuts appear to strongly correlate to deficits, whereas progressive rates do not.

IMO, financial stability due to strong regulation, has more positive effect on an economy because it reduces volatility and engenders a positive outlook by the populace. Innovation can be important. But this is lumpy.

Of course we still need to kill EMH. Good luck with that. Everyone's already trained to believe in EMH and ain't no one going to overturn that pail right now.


Yup apinak The post wasn't by

Yup

apinak

The post wasn't by Bruce Bartlett? You are sharper than I expected.

It's sad to think anybody is reduced to having to make a living posting on a blog like this. It's even sadder to think this means pandering to followers who take this seriously.


What works is having events,

What works is having events, having lights on and doors open and someone on the stage




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