Obama’s “fiscal responsibility” summit will preview his soon-to-be-released budget. After leading a spending stampede on the stimulus, and starting another on the mortgage bailout, Obama now proposes to undo the fiscal consequences of this Bacchanal by–wait for it–raising taxes on businesses and the wealthy.
The phased, sequential nature of these steps suggests to the cynic in me that this was the plan: use panic and fear (rather than hope and change) to rationalize a massive spending increase; then use the resulting panic and fear over the resulting deficit to rationalize a major tax increase. Funny how this works to implement the traditional left-Democrat tax-and-spend agenda. Got to give the guy credit, in a way. Like Rahm Emmanuel says, a crisis is a terrible thing to waste. Obama has opportunistically exploited the current economic situation to implement what would likely have been a non-starter otherwise. (Why couldn’t the stimulus package be incorporated into the normal budgeting process?)
Is it churlish of me to suggest that these two pieces of the agenda are logically inconsistent? One the one hand, the Keynesian rationale of the stimulus bill means that deficit spending IS the stimulus. By this logic, reducing the deficit through large tax increases undoes the effects of the stimulus. Can’t have it both ways. (Now, I disagree with the assumption that the deficit was all that stimulative for the very reason that people would expect that it had to be paid for through higher taxes sooner or later. But that wasn’t the argument that Obama and the stimulators advanced.)
In other words, justifying the stimulus on Keynesian grounds completely undercuts the justification for reducing the budget deficit through tax increases.
And this fundamental inconsistency is what convinces me that the true motivation for Obama’s moves is not based on a logically coherent view of economics, but that they are instead motivated by a logically consistent political view. That is, this inconsistency, and the vertigo inducing speed with which these fundamentally contradictory policies followed one after the other, are what convince me that Obama is engaged in a cynical, opportunistic exploitation of economic distress to implement a long denied leftist agenda.
Think of it. Together the “stimulus bill” and the budget proposals: (a) profoundly shift the nature of the tax system, by dramatically increasing marginal tax rates and business taxes that are likely to have extremely perverse incentive effects, while at the same time implementing tax credits that are purely redistributive in their effects, and which have no salutary incentive consequences (quite the opposite, because they effectively raise marginal tax rates); (b) smuggle in an undoing of the welfare reform of the 90s; and (c) dramatically increase Federal spending as a fraction of GDP.
This is all playing out quite along the lines of what I had foreseen in my “the worse, the better” post-election post. (Which John Fund of the WSJ Political Journal characterized as a “rant.” Rant? Moi? I was the voice of sweet reason! And, perhaps, prophesy.) The main difference is that it has been executed more cynically, and cagily, than I had anticipated.
The main question is whether this audacious agenda will engender significant popular opposition. Too early to tell whether the tax/budget policies will do so, but it is interesting to see the nerve that the mortgage proposals struck. Whereas the tax proposals are difficult to grasp in their complexity, pretty much everybody can understand, intellectually and viscerally, the fundamental unfairness of the mortgage bailout.
I think that a focus on the complete intellectual inconsistency of the step-on-the-gas-slam-the-brakes nature of the stimulus and tax/budget efforts would also generate considerable opposition, though probably not of the same, personal intensity. The disconnect between the we-need-deficit-spending-to-fight-depression-but-we-need-vastly-higher-taxes-to-close-the-deficit is so stark that it will inevitably raise questions about the sincerity, and hence the true motivation, of these policies–and of the politician who is championing them.