Thursday, July 10, 2008

Don't expect Obama and McCain to recognize fiscal reality

Steve Chapman of the Chicago Tribune takes note of the two leading presidential candidates' promises to impose fiscal discipline on the federal budget -- and blows wet raspberrys at their empty rhetoric.

The latest proof came when McCain unveiled his economic plan, in which he vows to eliminate the deficit in four years. His plan to balance the budget is simple: He plans to balance the budget. Exactly which programs he will trim to reach that goal are anyone's guess.

For someone with a reputation as a fearless foe of congressional earmarks and pork-barrel waste, McCain is amazingly timid in taking on the rest of the budget. About his only specific proposal is a one-year freeze in those discretionary programs that don't involve defense or veterans.

McCain doesn't say how much that would save, but it wouldn't be a lot. Those expenditures amount to only 17 percent of all federal outlays. Eighty-three percent of the budget would keep on growing. After a year, so would the other 17 percent. ...

When it comes to spending, though, Obama is even worse. The National Taxpayers Union Foundation added up all the promises made by the two candidates and found that McCain's would cost taxpayers an extra $68 billion a year. Obama's add up to $344 billion a year.

The Illinois senator's pledge to get tough on unnecessary expenditures is as solid as cotton candy. Among his vows is to "slash earmarks to no greater than what they were in 2001," but earmarks make up less than 2 percent of the budget. Trying to restore fiscal discipline by cutting earmarks is like trying to lose weight by adopting an exercise program for your left index finger.
As Chapman mentions, the National Taxpayers Union has tallied up both candidates' promises -- and found them poised to break the bank. Details on John McCain are here (PDF) and on Barack Obama are here (PDF).

The NTU estimates that Senator McCain voted for $8.8 billion in increased spending in the most recent Congress, while Senator Obama gave his thumbs-up to $40.5 billion of additional demands on the taxpayers.

How to pay for this spending binge?

It's popular now to call for higher taxes -- a "fair share" -- on "the rich" (whoever they are). But high-income earners are already paying a staggering share of the nation's tax burden. According to the IRS (XLS format), the top 1% of income earners paid over 39% of the total income tax burden in 2005, while taking in about 21% of adjusted gross income.

And the share has been going up. In 1986, the top 1% paid about 26% of income taxes; in 1996 it was 32% of income taxes. The latest figures are expected to put top earners' share at over 40% for the first time.

By contrast, the bottom 50% of income earners paid 3% of income taxes in 2005, down from a bit over 6% in 1986.

Importantly, almost a third of people filing tax returns pay no taxes at all.

Now, I'm not a fan of taxes and I think that keeping the tax burden low is a good thing (although it should be low for everybody), so long as expenditures match. But, when half of the population pays little or nothing for government services, it's exceedingly easy for them to demand ever-more goodies from politicians, because those demands are essentially free. And it's all too easy for them to pass the actual costs on to "the rich," a constituency wealthy in terms of taxable cash and assets, but poor in votes to offer politicians as a counter to demands to soak anybody who achieves a bit of financial success.

And the numbers show that those costs have been passed on increasingly over the past twenty years, while much of the population has seen its tax burden drop even as its demands for goodies increase. Whatever your definition of "fair share," high-earners have been paying more of it every year.

So new calls to make "the rich" pay a "fair share" of taxes, as if they haven't been paying a huge and growing portion already, look like blatant efforts to buy votes by handing bribes to a large part of the population and making a minority foot the bill.

Unfortunately, there's little in those numbers to provide incentives for professional politicians like Barack Obama and John McCain to face up to fiscal reality and propose realistic plans to balance the budget by cutting spending -- that is, by cutting the flow of free goodies. In fact, doing so would probably be political suicide.

Chapman is certainly right that "[t]here is a fiscal asteroid on course to pulverize us, and no one is coming to the rescue." I have to say, I can't conceive of a scenario under which anybody will.

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Anonymous Anonymous said...

^^ nice blog!! ^@^

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March 19, 2009 1:16 AM  

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