Don’t Balance That Budget!

Balanced BudgetRobert Reich was the first person I heard make the argument for not balancing the federal budget. The argument is simple. Imagine that you have a business partner. You work very hard to save the company money and collect payments from customers. But every time you take a couple days off, your business partner spends all the company money on booze and hookers. That’s what it’s like to be a Democratic president: you cut the deficit or even eliminate it. And then a Republican comes in and spends all the savings—And more!—on foreign wars and tax cuts for the rich.

It is even worse than this. To a large extent, Democrats don’t even get credit for being fiscally responsible. Most Republicans to this day don’t know that Obama has slashed the budget deficit the last three years. In fact, I’ve had conversations with Republicans who didn’t know that Clinton had balanced the budget. The only Republican to cut the federal deficit in the last 30 years was Bush Sr, and only by a little. Yet the perspective, even among some Democrats, is that the Republican Party are the fiscally responsible one.

Yesterday, Matt Yglesias wrote, Cutting Spending To Obtain Tax Hikes Is Nuts. He explains this whole dynamic in a lot more depth than I’ve ever seen:

When Republicans run the show, they enact gigantic deficit-financed tax cuts with the scale of tax cuts tempered to an extent by free-floating fear of public sticker shock and by the business community’s concerns about the extent of sustainable deficits. When Democrats run the show, they enact legislation on a pay-as-you-go basis where new programs have to be offset by tax hikes or spending cuts. When government is divided, the parties fight and bargain. These are laws of politics, not of economics, but they’re no less binding. But the impact is that during the “fight and bargain” phase of the game, the priority for sensible people should be to preserve valuable spending not to maximize tax revenue.

He notes that if Obama gives Medicare cuts in exchange for tax hikes, it hurts the Democratic program in the long run. Let’s suppose that Hillary Clinton is the next president. If she wants to start a program (Yglesias uses universal preschool as an example), she will have to pay for it, because that’s how Democrats govern. But where will she get the money? If Obama had not traded Medicare cuts for tax increases, she would have two options: raise taxes or shift money from Medicare to universal preschool.

The point of all this is that the budget isn’t some theoretical game. It is about policy choices: what you value. Obama may put the budget in a better state, but in doing so, he only makes good governance harder in the future. People—especially those like our president who suffer from “centrist syndrone”—generally think that anything that both sides hate must be good policy. Yglesias shows this is not true.

There is another aspect of this that Yglesias doesn’t talk about. But I think it is even more important. It is easy to cut taxes. It is hard to enact important government programs—especially now. Does anyone think we could ever get Medicare or Social Security passed now? I don’t. But once the economy starts running on all cylinders, there will be calls for tax cuts. Even before the economy is good, any eliminated deductions will be quietly put back in. And regardless, as soon as the Republicans are back in the White House, there will be tax cuts.

Obama spent most of his first term learning that bipartisanship was a crock. I fully suspect he will use his entire presidency to learn that budget balancing too is a crock. Alas.

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

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