I nearly fell off my chair.
Ben Stein’s column this week, “What McCain Could Do About Taxes,” is sensible and vastly more tightly written and argued than his previous work. No free association or gratuitous name-dropping, no leaps of logic, no wishful thinking.
More shocking, not only does he take issue with the Republican party line, he comes out on the same page as Dean Baker.
I wondered if he had gotten a ghost writer.
He tells McCain to forget about tax cuts, they burden future generations and leave us indebted to foreigners, and that tax increases need to target the rich.
Reasoning like that shouldn’t be cause for celebration, save that the Republicans have become hooked on faith-based economics. While one robin does not make a spring, Stein’s piece may be a hopeful sign that reality is finally starting to sink in among GOP loyalists.
I found nothing objectionable on a first pass, which (given my critical eye) is a noteworthy accomplishment.
This is the guts of his article:
Let’s start with the obvious. Almost everyone dislikes taxes. No sane person enjoys writing out a big check to Uncle Sam when he could spend that money or bank it for retirement. By the same token, almost everyone likes the phrase “tax cuts” for the same reason.The problem, and it’s a killer, is that over the years we have obligated ourselves as a nation to spend truly staggering sums. These sums are growing rapidly. They consist mostly of entitlements, like Social Security and Medicare; fixed obligations like interest on the national debt, pensions for federal and military employees and various subsidies that have already been enacted; and morally mandatory expenses like those for national security.
All politicians campaign on the promise to cut federal spending by identifying hitherto unfound waste, fraud and corruption. None of them ever do so in a meaningful way. Total federal spending has not once fallen noticeably since 1954, no matter the party or the promises of the incoming chief executive,
That is the first thing you need to know. The next thing is that the Republican Party (my party and yours) has for the last 30 years or so been operating under a demonstrably false and misleading premise: that tax cuts pay for themselves by generating so much economic growth that they replace the sums lost by tax cutting.
This would be a lovely thing if true, and the best of all ideas, the “something for nothing” idea. In fact, tax cuts lower federal revenue and generate federal deficits. It is also true that they do stimulate the economy and after a long period of years, federal tax receipts go back to where they were before the tax cuts.
For example, when President Bush enacted his tax cuts in the early 2000s, income tax receipts fell dramatically. It took almost six years for them to reach the level they had been in the last year of the Clinton administration, while G.D.P. in that period rose by roughly 30 percent. In the eight years Ronald Reagan was president (and I love and worship him), tax receipts did not fall anywhere near as much, but they rose more slowly, on a percentage basis, than they did in any other comparable eight-year period after World War II.
In other words, tax cuts do not pay for themselves, at least not on any basis I can see. Certainly, they are not worthless. They make taxpayers feel good and they generate growth. But basically, they shift the tax burden from us to our progeny and add immense amounts of interest expense to the federal budget. At this point, taxpayers shell out about $1 billion a day just for that item.
Moreover, immense federal deficits in modern life are financed largely by foreign buyers of our debt. This means that the American taxpayer must work a good chunk of the year to send money to China, Japan, the petro-states and other buyers of United States debt. In effect, we become their peons.
By flooding the world with debt, we in effect beg foreigners to take our dollars, and this leads to a lower value of the dollar and a higher cost of imports, including oil. If you feel pain filling up the tank, you can partly thank those tax cuts. If you feel the sting of inflation, you can partly thank the supply siders. Deficits matter….
You can propose still more tax cuts, create still more deficits and add to the debt, and say to yourself, like Louis XV, “Après moi, le déluge.”
Or, you can raise taxes. But whom to tax? The poor are, well, poor. The middle class is struggling to pay for its middle-class life. That leaves the rich. It would be lovely if we did not have to tax them. Many have worked hard for their money. Many have created useful businesses. Many of them are fine people.
But as Willie Sutton said when asked why he robbed banks, “Because that’s where the money is.” By definition, the truly rich have a lot more money than they need. If they don’t, then they are not rich by my standards. The first step toward putting our house in order, once we are past the seemingly looming recession, is much higher taxes on the truly rich and serious enforcement to prevent offshore tax evasion.
To put it even more starkly, the government — which is us — needs the money to keep old people alive, to pay for their dialysis, to build fighter jets and to pay our troops and pay interest on the debt. We can get it by indenturing our children, selling ourselves into peonage to foreigners, making ourselves a colony again, generating inflation — or we can have some integrity and levy taxes equal to what we spend.
Now some will protest that when we are entering a recession is not exactly a propitious time to raise taxes. Fair enough. But the general drift of Stein’s argument is a badly needed counterbalance to those who think the US can run up a tab to be paid by overseas is a game we can keep up forever.
Our foreign debt suppliers are already starting to wise up. They used to be content to buy Treasuries, which is the least costly way for us to compensate them. Put on your business hat: any startup prefers to fund itself with debt, preferably cheap debt, like friends and family. But more costly debt is preferable to giving up equity.
But now foreign governments, with massive foreign exchange reserves, are looking to invest overseas and are moving out of debt into equity related investments. That has the effect of increasing our cost of funding.
So even if we as a nation aren’t able to discipline ourselves, our friendly money sources will.
Anonymous 
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OT (on Ben):
The other side of the coin
Commentary: The Fed’s doing more damage than good
http://www.marketwatch.com/news/story/fed-may-doing-more-harm/story.aspx?guid=%7BA998669F-3FCF-4A3C-B756-6FA6FC3C39B1%7D
For example, between the end of December and the middle of February alone, the money supply M2 has expanded by a compound annual rate of 12%, according to the Federal Reserve Bank of St. Louis. This compares with a growth rate of only 5.5% from the four weeks ending February 19, 2007 through the four weeks ending July 23, 2007.
The rate of growth for highly liquid funds which the St. Louis Fed calls MZM (money zero maturity), is even greater. It soared by an annual rate of 22.7% between December 24, 2007 and February 18 of this year.
Guess what all this money has accomplished. That’s right, Virginia, it has created a whole lot of inflation.
The consumer price index rose 4.3% during the 12 months ending in January — up from little more than 1% in late 2006. For its part, the 7.4% leap in the producer price index over the most recent 12 months was the most for any 12-month period since October 1981!