Monday, November 21, 2011

Sacrifice Without Balance

In today's post, I'd like to highlight an excerpt from Joseph Thorndike's article, "What the Civil War Can Teach Us About Tax Reform." See Tax Notes, Nov. 21, 2011, p. 944. Thorndike hits a couple points that are consistent themes on this blog. The emphasis is mine.
What can the Civil War tell us about today's debate over deficit and debt reduction? It's the notion of sacrifice that links the two eras. Then, as now, the nation faced a serious fiscal crisis. And then, as now, lawmakers struggled over how to allocate the pain incurred while solving it.

Differences abound, of course. An entitlement-driven fiscal crunch is not the same thing as a war, no matter how severe it might become. Mortal sacrifice on the battlefield is not the same as economic sacrifice from a paycheck.

Still, the notion of shared sacrifice unites those episodes. Clearly, solving today's fiscal problems will be painful, requiring higher taxes and lower spending. The necessary changes won't be pleasant for anyone -- and they will be deeply painful for some, especially those who depend on key social programs.

But today's lawmakers have failed to acknowledge that broad-based sacrifice will be necessary to solve the nation's fiscal problems. No one in either party is willing to talk about meaningful entitlement reform.

Lawmakers are also not being honest about taxes. If higher revenues are going to be part of the solution, then the extra burden will almost certainly fall on everyone. But so far, the champions of higher revenues have been unwilling to acknowledge that everyone will end up paying more. Instead, they have focused narrowly on raising taxes on those with high incomes.

I've said it before and I'll say it again. Democrats and Republicans have been complicit in deficit-spending for decades. They created entitlement programs that are structurally imbalanced and unsustainable. They designed tax expenditures that distort markets, stoking health care inflation and contributing to the real estate bubble. They manufacture drama to score points with political supporters who cannot or choose not to keep track of the bigger picture.

We cannot address these structural and tax policy challenges by increasing taxes on "millionaires and billionaires." There is no "class war" between the 1% and the 99%. If we want a bigger government and if we want to maintain federal spending on entitlements, we'll need to raise taxes on the top, middle, and bottom of the income spectrum. We may need to eliminate "sacred" tax expenditures. We may need a VAT or carbon tax. The status quo is a path towards extreme hardship for millions of Americans when the bottom falls out from under the political class.


  1. Here's a bit of confirmation bias...a progressive Ph.D advocating adding choice to sacrifice...Your Choice, Your Money. It's really surprising to see this coming from the liberal camp.

  2. Xero,

    I'm with you, interesting concept. But it just doesn't work for various practical, political and constitutional reasons. Again, kudos to you for staying on message. But maybe you should consider other more practical ideas to address whatever budgetary shortcomings are bothering you.


  3. Practical reasons? What would be practical about all of America having to elect 538 personal shoppers to purchase all our Christmas gifts for us? What would be practical about donors to PETA and donors to the NRA being forced to pool their donations and elect representatives to split the pool between the two organizations?

    If the personal shopper method of allocating resources is truly efficient and effective then let's implement it in the non-profit sector and in the for-profit sector.

    The budgetary shortcoming that bothers me is that it's a simple economic fact that 538 congresspeople cannot determine the best possible use of public funds as efficiently or effectively as millions and millions of taxpayers could. Why is that? Because everybody has some information but nobody has all the information. This is Hayek's concept of partial knowledge.

    Have you read his essay...The Use of Knowledge in Society? The "Fatal Conceit" idea is not a new ties into Bastiat's opportunity cost which ties into Smith's invisible hand which ties into Buddha's idea that we are all just blind men touching different parts of an elephant.

    If you allocated your taxes to try and address shortages of the public goods that you value...and Pappas allocated his taxes to try and address shortages of the public goods that he values...and Beale allocated her taxes to try and address the shortages of the public goods that she values...and on and on and on...then we end up with an efficient allocation of public goods.

    If you truly want balance then you can't ignore choice. This budgetary gridlock is not necessary. It should never be about cutting things that other people should be about contributing to the things that you value. It should be about encouraging others to contribute to the things you value.

    Why doesn't it bother you that there is no logical or rational basis for believing that a small group of planners can have access to enough information to make informed economic decisions for the entire country? Help me understand your confidence. Why do you feel so confident in a system based on some Barons who took the power of the purse from a king...who only had control of taxes in the first place because people believed he had "divine authority"?

    When the "car" continually ends up in the you honestly believe it's just a matter of which party was driving the car? How many times will the keys have to change hands before you recognize the irrationality of the entire system? If I'm missing some economic premise please enlighten me because it's disconcerting that so few people recognize that congress is naked.