Orszag on the Budget: More Taxes, No Fat to Cut

Where's the Fat?

Peter Orszag, Obama’s director of the White House Office of Management and Budget, wrote in the NY Times that the government needs money to bring down the deficit–tax money. John Hayward want to know “why can’t Orszag put spending cuts on the table?” in his his latest edition of Impertinent Questions.

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Where’s The Fat?
By John Hayward
September 8, 2010

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Peter Orszag, former director of the White House Office of Management and Budget, used a column in the New York Times on Monday to open some distance between himself and his former boss on the topic of tax cuts:

The nation faces a nasty dual deficit problem: a painful jobs deficit in the near term and an unsustainable budget deficit over the medium and long term. This month, the Senate will be debating an issue with significant implications for both — what to do about the Bush-era tax cuts scheduled to expire at the end of the year.

In the face of the dueling deficits, the best approach is a compromise: extend the tax cuts for two years and then end them altogether. Ideally only the middle-class tax cuts would be continued for now. Getting a deal in Congress, though, may require keeping the high-income tax cuts, too. And that would still be worth it.

Why does this combination make sense? The answer is that over the medium term, the tax cuts are simply not affordable. Yet no one wants to make an already stagnating jobs market worse over the next year or two, which is exactly what would happen if the cuts expire as planned.

Let’s run through the Orszag analysis carefully. We’ve got unsustainable budget deficits. Tax cuts would reduce the government’s income, making the deficit worse, so they are unaffordable. On the other hand, we can’t raise taxes right now, because that would make our feeble job market even worse. We’ll have to look at more taxes down the road to close those budget deficits, of course. Later in his column, Orszag floats the idea of “a modest Value Added Tax.”

How wonderful! Another modest tax, to pile atop our existing mixture of modest and punitive taxes! This one would be like a computer virus, disappearing into the complex data stream of the economy, increasing the cost of virtually everything at multiple stages of production. Everything would become gradually more expensive, slowly degrading our standard of living, until rotted industries began crumbling into dust.

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ALSO at DBKP – More Impertinent Questions by John Hayward:
* Small Country vs Large Country Marxism: Small Socialism
* The Church of the State
* Dollars for Dumps: Apply Obama Economic Magic to Housing Market?

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Isn’t there another option to balance the budget? Like, say, cuts in spending? Orszag sniffs this possibility, makes a face, and signals the waiter to take it back to the kitchen:

How much savings is plausible on the spending side? Medicare, Medicaid and Social Security will account for almost half of spending by 2015. Even if we reform Social Security, which we should, any plausible plan would phase in benefit changes to avoid harming current beneficiaries — and so would generate little savings over the next five years. The health reform act included substantial savings in Medicare and Medicaid, so there aren’t further big reductions available there in our time frame.

The other half of the budget is mostly net interest (which is not negotiable unless we renege on our debt) and discretionary spending. Discretionary spending is split roughly equally between defense and non-defense spending. The defense component already assumes a phase-down in both Iraq and Afghanistan; saving an additional 5 percent of the Pentagon’s base budget would be a substantial accomplishment and would yield about 0.2 percent of G.D.P. Cutting 5 percent out of non-defense discretionary spending, a stretch politically, would save about as much.

“The health reform act included substantial savings in Medicare and Medicaid?” Oh, that’s a knee-slapper! There’s absolutely no fat in a budget that saddled us with historic trillion-dollar deficits? It’s a shame the only guy in the Obama Administration with a sense of humor has moved on. Of course, once the Democrats cook up a bailout bill for the failing newspaper industry, he’ll become a government employee again.

Since the Democrats gained control of Congress in fiscal year 2007, they’ve added nearly a trillion dollars to a federal budget that was already morbidly obese at $2.7 trillion. A sizable amount of Obama’s $800 billion “stimulus” plan is still tucked away in slush funds maintained by various state capitols. We’re expected to believe that every last nickel of that wild spending spree is absolutely necessary? Making the Bush tax cuts permanent is supposed to “cost” the government $400 billion. We could “pay” for double those tax cuts by rolling the federal budget back to where Bush left it.

“Respectable” leftists and Keynesians are testing a new narrative. The public hates deficits? Well, so do the Democrats! Let’s sit down like adults and discuss the modest new taxes it will take to balance that budget. Only deranged extremists would suggest a single dollar of spending could be cut. You’re not a deranged extremist, are you? Of course not. Now, lie back and relax while we tap a vein, and slip this new VAT into place. You’ll hardly feel a thing.

Thus do the most irresponsible, power-hungry spenders in the history of the United States bludgeon a protesting electorate with their own sense of fiscal responsibility. Americans should reject this new narrative with contempt. Every politician should be given thirty seconds to begin listing the fat he plans to cut from the federal budget, and buzzed off the stage if he mentions new spending or tax increases. During one of the 2008 presidential debates, Obama responded to a question about spending cuts by rattling off a few hundred billion dollars worth of spending increases. Buzzing him off the stage would have saved America a great deal of grief, and a staggering amount of money.

by John Hayward
image: dbkp file; People’s Cube

John Hayward writes under the name of Doctor Zero, where his pieces are a staple of Hot Air’s Green Room and a favorite of readers. John also maintains Doctor Zero.org where readers can find his superb collection of essays, Doctor Zero: Year One, available on Amazon.

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