2009 April 19 Sunday
Tax, Borrow, And Spend: America's New Political Model

The Democrats were the Tax And Spend Party. Then in response the Republicans became the Borrow And Spend Party. America has a competitive political market where the two parties try to outdo each other with new offerings. As a result, now the Democrats have now outdone the Republicans and become the Tax, Borrow And Spend Party. The ambition of the Democrats is startling.

The Congressional Budget Office estimated last month that President Barack Obama's budget proposals would produce $9.3 trillion in deficits over the next decade, a figure $2.3 trillion higher than the estimates in the administration's first budget proposal in February.

How were they able to do this? Events (the economic crisis) gave them an opening and they took it. Barack Obama's chief of staff, Rahm Emanuel, knows to exploit crises to achieve larger goals:

"Never let a serious crisis go to waste...it's an opportunity to do things you couldn't do before."

So the needed attitude was there at the highest levels. But what caused the Democrats to take this latest step? Clearly they wanted to increase spending for their constituencies and saw they could cover their spending plans inside of a need for fiscal stimulus. But the Republicans had already increased spending and had already created a big deficit in the process. Well, if the Democrats raised taxes they'd effectively just be funding spending increases that the Republicans already made. So the Republicans would get the credit for the hand-outs and if the Democrats had stuck with tax-and-spend then the Democrats would get blamed for the taxes to fund the spending increases the Republicans already made. So the Democrats felt compelled to do even bigger borrowing so that they could enact their own spending programs too.

David Walker, formerly comptroller general of the United States and head of the Government Accountability Office, argues that eventually taxes must double to pay for all the profligacy.

Meet Owen & Payne (www.owenandpayne.com), partners in a fictional accounting firm that specializes in helping Americans fill out the "new" Form 483000, which spells out how our elected officials are putting our nation into more and more debt and how that bill eventually will have to be paid: By doubling your taxes. The campaign is all in fun, but the intent is very serious.

Owen & Payne: Do you get the play on words?

Unless we begin to get our fiscal house in order, there's simply no other way to handle our ever-mounting debt burdens except by doubling taxes over time. Otherwise, our growing commitments for Medicare and Social Security benefits will gradually squeeze out spending on other vital programs such as education, research and development, and infrastructure.

Think of Tax, Borrow, And Spend as a bubble. Eventually the spending and borrowing will have to go down and the taxing will have to go up. The Democrats are carrying us the rest of the way to the top of the political economic bubble. But both parties contributed to the government bubble just as they both did to the private sector's financial bubble. While the private sector's bubble has popped the government's bubble is still inflating.

Share |      By Randall Parker at 2009 April 19 12:17 AM  Economics Political

Wolf-Dog said at April 19, 2009 6:21 AM:

Eventually the spending and borrowing will have to go down and the taxing will have to go up.

Not necessarily. This depends on what percentage of the treasury debt the Fed is buying to replace it per cash every year. IF the Fed buys a lot more treasury debt in exchange for cash, there is no limit to how much more the government can borrow. This would cause price inflation, but the same mechanism can continue indefinitely, PROVIDED that foreign trade deficit (which caused dollars and treasury debt to accumulate in the hands of foreigners) does not impede this process. And the foreign trade deficit is precisely our problem now.

none business said at April 22, 2009 2:20 PM:

If Wolf-Dog is saying we should print money until the Dollar resembles the Peso, I'm all for it--I'd love to pay off my house for $10K in real purchasing power. Of course, that presumes I intend to continue paying my mortgage while the rest of the country continues to crawl on my tax-paying shoulders.

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