This week’s Coals to Newcastle award for headline writing goes to the New Republic editor who came up with, “Democrats: Don’t Be Afraid to Spend Money.” The (subscription only) article by Bradford Plumer deserved better wrapping paper. It describes how the Democratic party “has backed itself into a corner by carping so loudly about the Bush administration’s prodigal ways.”
After six years of denouncing deficit spending, and a mid-term election that empowered them to do something about it, some Democrats are suddenly wondering if massive borrowing is really so bad after all. The Economic Policy Institute recently hosted a forum, “Beyond Balanced Budget Mania.” According to Plumer, “The purpose was to persuade Democrats that they could spend responsibly without sacrificing liberalism at the altar of fiscal rectitude.”
Plumer assured us that no one at the EPI event urged “the Democrats should just go wild and spend, spend, spend.” In fact, none of them really outlined “a detailed vision of what tax and spending levels they’d like to see.” But the general idea was that some combination of tax increases, health care cost controls, and lightening up about deficits would leave “ample room for growth in discretionary spending and public investment,” amounting to “tens of billions of dollars per year” for expanding child care and health insurance coverage, or developing new energy sources.
If Democrats are going to embark on these missions then, clearly, something’s got to give. Deficit reduction is one likely suspect. Increasing taxes is the other obvious one. But here, too, they’re backed into a corner by six years of their own rhetoric denouncing “massive giveaways to the rich.”
The Democratic presidential candidates favor John Kerry’s approach, promising to raise taxes only on households with annual incomes in excess of $200,000. That means the most prosperous 3% of the population will face higher taxes, according to the New York Times. Leaving the Bush tax cuts in place for families making under $200,000, however, will yield the Treasury $900 billion less than it would receive over the coming decade if all the tax cuts are repealed. As the Times says, “leaving even a portion of the Bush tax cuts in place means that the next president and the next Congress would have less money to allocate to spending programs than they would if they allowed all the tax cuts to expire, leaving them with a choice between further increasing the budget deficit or limiting their plans for addressing health care, education, energy and other needs.”
The $200,000 boundary better serves Democrats’ political needs than their policy ambitions. They’ll make 32 times as many friends as enemies by confining tax increases to the wealthiest 3% of the population. They just won’t get the money required to do the things they’re really enthused about – health care, education, alternative energy, midnight basketball, indigent wildlife, blah, blah, blah – and the things they’re not enthused about but are afraid to oppose, military spending and deficit reduction. They could get hold of more money if they lowered the $200,000 threshold for tax increases, but that moves the friends/enemies ratio in a politically dangerous direction.
The world has changed a lot since Bertrand de Jouvenel wrote The Ethics of Redistribution in 1952. Its central contention remains valid, however: the prosperity of modern societies is widely dispersed rather than narrowly concentrated. Soaking the rich doesn’t work because there aren’t enough really rich people to soak. Something must be curtailed – either the agenda of the left or the after-tax incomes of the middle class.