Sunday, May 29, 2011

Americans get what they don't pay for

Uwe E. Reinhardt: The Case for Higher Taxes - "We are now seeing this adolescent posture on fiscal policy playing out once again, as voters angrily react to the recently passed House of Representatives budget plan. And it explains why my friend and fellow economist Eugene Steuerle of the Urban Institute, who served at the Treasury under President Reagan, has aptly and with exasperation named his periodic column on United States fiscal policy: The Government We Deserve.”"

This is a must-read. The Republicans, Ronald Reagan and company, started us down the road of "the politics of joy," cutting taxes without cutting spending. Today, they will blame Congress, saying Congress didn't cut spending, but back then, they sold the country a bill of goods with a completely unsupported "theory" called "supply side economics," sold by one of the great charlatans of modern economics, Arthur Laffer. Laffer said that increased economic growth would pay for the spending. Didn't happen. Instead, as the federal deficit skyrocketed, the President and Congress were forced to do a 180 and enact the biggest tax increase in American history as the economy was staggering out of recession.

And as I have written and the article documents, Georgy-Porgy put the nail in the coffin with his tax cuts.

Note that Reinhardt ignores the contractionary effect of higher taxes. The distribution is in effect the only issue in macroeconomics today.

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