Wednesday, July 14, 2010

Marco Rubio Proposes Heavy Tax Cuts. What About Spending?

US Senate candidate Marco Rubio (R-FL) has released a very gimmicky statement detailing "23 Simple Ways To Create Jobs, Grow Our Economy And Help The Gulf Coast Recover." Of the 23 listed items, 13 involve proposed tax cuts or reforms.

Only one proposal -- "repealing Obamacare" -- involves a specific spending cut. Rubio, however, makes a vague proposal for an alternative healthcare reform measure. This would presumably involve government spending as well. Rubio's plan does not look fiscally conservative at all.

Rubio's campaign website expresses a concern about government spending, but it does not propose any cost-cutting measures. The website, however, lists several categories of tax cuts. Rubio also boasts that he never voted for a tax increase. It is unclear how Rubio would balance the budget, given his support of tax cuts without any specific spending reduction.


liberal dissent said...

In my opinion, economically one of the most dangerous things facing this country is the tax-cut crowd who cannot accept that tax cuts increase the deficit, and that the Laffer curve is in fact, a curve, not a straight line.

Darren Lenard Hutchinson said...

Laffer = laughter. The implementation of this theory has created enormous budget deficits. Remarkably, they keep returning to it.

Josh said...

It's definitely a curve, it's definitely real, but it's shape is probably a little closer to a ski jump (gradual upwards slope approaching a sharp cliff) than a smooth, sloping bell curve, and we're probably on the left side of the curve, not the right.

It's definitely voodoo economics to support an ideology, but so is the Keynesian multiplier which Harvard's Robert Barro showed to be less than 1.0 therefore having a negative effect on growth.

Tax cuts aren't only reckless and disingenuous without the matching spending cuts, but they really don't make any difference. Friedman showed that through the crowding out effect on a limited capital market, borrowing, has nearly the same effect as taxing, and therefore government's true impact on the economy is not how much it taxes, but how much it spends.

Darren Lenard Hutchinson said...

Josh: both sides need to make concessions. How about that?

Hippi Chicki Niki said...

You need to have a reasonable amount of taxes in order to avoid deficits. There really is a floor below which you cannot cut taxes and be able to sustain those things that need to be paid for.

The simplistic view of some (no one in these comments made this point, it is just one that goes back to Rubio and others of the same pov) that the more we cut spending, regardless of the type of spending, is a good thing is dangerous especially in an economy like this one. There are some types of spending that are wasteful, unnecessary and have no positive effect and there are some that, if you eliminate them, have a huge negative effect on the economy.

People are so opposed to the Recovery Act as a whole because it has a big price tag and there was a huge campaign to make the "stimulus package" an evil thing, but everyone is grateful for those construction projects in their state employing their neighbors with those "American Recovery and Reinvestment Act" signs. Plus, when actually told about the individual parts of the Recovery Act, people are very positive about them and understand the value of federal spending for each thing. There has just been a very powerful and effective message campaign to mislead and misinform people about the Recovery Act and what the spending has done.

Plus, history supports the value in spending, and spending heavily in a depressed economy as does every reputable economist. And the Recovery Act, though smaller than what our economy needed, has had a positive effect as pointed out by economists of all political stripes. And even politicians of all stripes have admitted the positive effects in their states and have happily gone around their states discussing the good that the Recovery Act has done, though when it comes to getting on the television machine in front of a national audience those same guys and gals will say the exact opposite and tell you that's why they voted against it.

Federal spending is what finally alleviated the Great Depression and it has helped over the last couple of years. It is the only reliable way to stimulate a depressed economy and it is a necessary thing, though we all hate paying for it every April. There are a few extreme examples that journalists point out because they make shocking stories and, human nature being what is is, we all tend to generalize those few extreme outliers and assume most of the federal spending is like that. In reality "pork" and waste is a relatively rare thing. As if the hundreds of Congresspeople needed to pass any bill would vote for something that wastes money and won't help them get reelected. The "wasteful" spending we all oppose in the abstract are things a majority of us demand and require when it comes down to each of these things - from paying for war when we're scared or Medicare and social security when we're older or clean-up of an oil spill that put many of Americans out of work and affects the health of nearby residents and the edibility of one of our major sources of seafood, we expect this spending and would admit the necessity if we all looked in depth at the information the White House and Congress puts out there for us to read.

So, spending is a necessity, as are the taxes high enough to pay for it all. Denying that, as Rubio and other politicians have is their appeal to our desire to have somebody else pay for things and to get all the good things for little or nothing. Perhaps, if we had to pay the actual cost of the benefits we all get from federal spending for a few years we'd all suddenly appreciate the relatively low cost of sharing the cost as a country through taxes.

Darren Lenard Hutchinson said...

Niki: I agree that government spending helps stimulate the economy. But I do believe in cutting wasteful spending. Rubio has proposed 13 tax cuts without any spending cuts at all. That's a recipe for disaster. I am not saying that I agree with the tax cuts (even if they were matched with spending cuts).

Hippi Chicki Niki said...

I believe in cutting wasteful spending as well, like that one plane that isn't very good that we've been making for years (since the Cold War) that Congress would never get rid of because too many of the Congresspeople had people in their states employed in making some part or another of that plane. To top it off the hugely expensive unreliable plane was never used in combat but we kept making them. THAT should definitely go and I'm glad Obama and Gates finally gave it the ax. That airport in Southern Illinois that has no flights give that the ax too. I'm of the opinion we spent far too much on wars this past decade that was wholly unnecessary and felt that should have been axed years ago. But social security and Medicare, those aren't good areas to cut, but I have noticed a lot of the Rubio ilk talking about cutting entitlements with no concern for the human cost that will have. I just see it as being a bit like a househld that has to pay rent, transportation and food. There is a certain salary below which the family will have trouble surviving on their own. The country has a certain amount of things we HAVE to pay for and taxes, the government's "salary" has to be high enough to at least cover the essentials. With state governments struggling so much from the economic explosion a couple of years ago, it is nutty that Rubio would lower the amount of money the state takes in, whether he made spending cuts or not. States have made spending cuts like crazy over the last couple of years. It will be hard to continue to find areas that can take more cuts.

Josh Dowlut said...
This comment has been removed by the author.
Josh Dowlut said...

Find me a person who is for wasteful spending. The battle ground is what is wasteful vs what is not wasteful. Something that helps you but not me,I am likely to see as wasteful, as is vice versa from your perspective.

Here's our dilemma: we could flat out eliminate everything outside of transfer programs, defense and interest on the debt, and we'd still be looking at a deficit of about $600 billion a year. Considering the crowd I'm talking to, even if you cut defense spending in half on top of eliminating all discretionary spending we'd be sitting on a $300 billion a year deficit.

The numbers don't lie:

Hippi Chicki Niki said...

I agree with your "wasteful spending" point Josh. That is what I was trying to say, but you put it more elegantly and succinctly than I did.

I'm not for underfunding our military at this point in 2010. I'm an air force wife! I believe that underfunding the war in Afghanistan for years is what has gotten us to a point where those we are fighting against regained footing that they had lost in the first year of that war.

I always think it's great to hear Peter Orszag and Elizabeth Warren discuss these issues in interviews. Especially great are Jon Stewart's interviews with them, especially with Orszag, because Jon is highly skeptical about politicians and the economy and he challenges him more than other I've seen interview him.

"Considering the crowd I'm talking to," :D Josh D., you may not be a fan of Barney Frank, but the man knows numbers and the financial industry and has a memory like a steel trap when it comes to the history of what Congress has done in regards to the financial industry. Every new interview he does is an education for members of the public. I have never seen a congressperson that knows the subject he deals with so well. Plus, we've got to give the man credit. He's one of the few politicians not in bed with the industry his committee deals with. That, in itself makes him worth listening to.

Thanks for the link on the numbers, Josh D. I will definitely look into that.

Josh said...

I can't get over Frank's recent urging of Fannie and Freddie to loosen credit standards or the fact that he sat by and passed a placebo of financial regulation reform. An objective and thorough examination concludes the financial meltdown happened principally because of 2 laws:

1. the Financial Modernization Act of 1999 aka Gramm-Leach-Bliley (this undid Glass-Steagall and created the modern financial derivative)
2. the Commodities Futures Modernization Act of 2000 (this created the credit default swap)

Together these bills turned the financial market into a casino. The Dodd-Frank Act does nothing to address these. It treats symptoms and ignores root causes.

Hippi Chicki Niki said...

I thought this was an interesting article that deals with the horror that follows in the aftermath of enacting the same things Rubio is suggesting. Josh's comment directly above this one ties in really nicely with this article. Funny how I didn't see his comment until just now, when I was coming to share a link of a guy who got published in the NYT, partially for saying basically what Josh said. Perhaps Josh should send his comments to the times from now on!

Josh: I agree with those being two main causes as does Frank, if you listen to him talk. Unfortunately, Frank doesn't "pass" anything on his own and the system works in a way that, inevitably, things are changed and modified in ridiculous and sometimes counterproductive ways in order to get enough Congresspeople to vote to pass it. This has happened with health care reform, with cap & trade and with financial reform. A ridiculous number of the changes on those three were made to try to woo Snowe, Graham and Brown (respectively) in an effort to get that one Republican vote so they can call it "bipartisan". The result is that all of the effective, good ideas get gutted and you end up with this shell of a bill that has the same name but bears little resemblance to what started out as a pretty good plan to address the issue. It is a sorry state of affairs, but not really Barney Frank's fault.

Hippi Chicki Niki said...

Hippi Chicki Niki said...

Real Time Analytics