Thursday, October 01, 2009

Deficits DO Matter, Continued

James Pethokoukis has a post about how President Obama might just raise taxes by instituting a Value Added Tax or VAT that has been used in European countries. Pethokoukis isn't that crazy about adding a VAT, but would give it some support if some deals were made:

Obama wants a VAT? First, it should be part of broader tax reform, including getting rid of capital gains and corporate taxes. Second, it should accompany an Economic Bill of Rights much like Ronald Reagan used to suggest. Its elements: a) a balanced budget amendment, b) a line-item veto, c) a spending limit such as inflation plus population growth, d) and a two-thirds vote in the House and Senate for any tax increases. (Reagan also wanted a prohibition on wage and price controls. That would likely kill ObamaCare.)

And come to think of it, let’s cut spending and streamline government before cash-strapped, wealth-reduced taxpayers are forced to pony up a penny more, OK?

This is yet another example of how the GOP is not really serious about fiscal policy. I don't want to soak-the-rich-either for many of the same reasons that Pethokoukis does (though I do support letting the Bush tax cuts to expire), but the requirement of a supermajority to pass taxes is just lame.

Why? Well, I'm not an economist, but let's consider a state that DOES have a supermajority rule: California. That state is not the shining example of fiscal stability. Pethokoukis and others on the Right tend to think that if one makes raising taxes harder, then no new government programs (and therefore spending) will come to fore.

However, what Pethokoukis forget is that why it might stymie governments from raising taxes, such a law does nothing to slow spending. As long as the wider public can believe that one can get all the goodies from the government without paying more, then spending will increase. And when spending outpaces revenue, we have a funny little thing called a deficit.

Over the past 8 years, the GOP did not raise taxes, but they spent and spent and spent. There was no ephasis in cutting spending, because as much as people don't want their taxes raised, they do expect the government to cater to their every whim and fancy.

The GOP needs to take part in a "fiscal Lent" where we take stock in our fiscal record and decide to reform. We need to stop with all the silly gimmicks that only fool the people and actually try to find ways to provide good government services efficiently and for little cost.

That's a long way of saying call me when you are serious.

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