Phillips disparages Hinchey for supporting the stimulus, but his own view on revamping the economy through tax cuts doesn’t represent a viable alternative because it ignores the deficit. Writing in The New York Times, outgoing Congressional Budget Office director Peter Orszag advocated extending the Bush tax cuts for upper and middle income Americans for another two years, then letting both expire. His reasoning is as follows: now is a terrible time to raise taxes on anyone, but two years down the road, the anticipated rise in Social Security and Medicare costs brought about by retiring baby boomers will be nearly upon us, and it will be impossible for the government to meet its obligations without increasing revenue. To do this, further down the line — say 2016 or so — a tax increase above and beyond the pre-Bush rates would be necessary. Republicans say tax cuts create economic growth, which is true. But the revenue you get from taxing that growth doesn’t offset the revenue lost in the tax cuts.
One could make the argument that cuts to federal spending can make up the difference. But meaningful cuts would have to be made to entitlements like Social Security, Medicare, veteran benefits or defense, and such cuts are unpopular in the extreme. Holding up questionable earmarks is a good campaign tactic, but member items represent a small portion of federal spending.
Phillips says rooting out waste and fraud in government bureaucracy is the answer. That way, the government can reduce spending without any decent American seeing a cut in benefits! If it sounds too good to be true, that’s because it is. Politicians on both sides of the aisle have been saying that for years. To test the boldness of such a proposition, try to find one politician who would oppose it.
The ideal course of action would be to spend more money on the sort of things the country needs to compete in the future — education, infrastructure, business incentives — while reforming entitlements to something that won’t break the bank by 2020, get out of Afghanistan and cut defense spending, and raise taxes on upper income groups. While the rich will whine endlessly and accuse the government of socialism, actually a tax increase on this group would represent a return to America’s economic heyday. During what economist Paul Krugman calls “The Great Prosperity,” from the end of World War II to the mid-1970s, the rich paid income taxes of up to 70 percent, and economic inequality was far less pronounced than it is now. Single income households were capable of owning a home and a car without accruing massive debt. One reason for this is middle class people spend nearly all their money on goods and services while the rich can only spend so much before turning to speculation, which adds nothing to the economy (and sometimes destroys it). Since that time middle class Americans have found themselves underwater in bad mortgages and credit card debt trying to maintain modest lifestyles while the richest 1 percent have seen their share of the wealth grow from 10 to 30 percent.
If America continues to spend beyond its means and produce political candidates unwilling to address our long-term problems, these deficits will eventually catch up with us. But that needn’t happen. Politicians engage one another on the lowest level and speak vaguely about what they want to do because they think that’s what wins campaigns, but in a time like this, when Americans are anxious about our economic future like never before, the most radical and winning approach for either side would be to treat voters like adults and give it to ’em straight.