Free Markets, Free People

balanced budget

Disaster relief and budget offsets

I guess I just don’t get this, given our fiscal shape.  Yesterday the GOP House passed a continuing resolution to fund the government until November (since we haven’t had a budget passed in the House for almost 3 years).  In it is a provision that pays for disaster relief by cutting spending elsewhere.   In other words, it tries to balance new spending on one side, even if the spending is on disaster relief, by cutting planned spending on the other side.   It is called prioritizing.   We all do it.  If the car breaks and it is going to cost $1,500 we may shave $1,500 dollars worth of vacation off of the planed vacation.  Household economics.  The car is a greater priority than a full 2 weeks of vacation.

However, when it comes to the government it seems that normal everyday concepts like living within your means somehow becomes a “dangerous precedent”.  Really?   Here’s TPM’s take:

But the bill received almost no Democratic support and faces an uncertain future in the U.S. Senate because Republicans have used the funding bill as a vehicle for disaster relief money, and insisted it be paid for by slashing funds for jobs programs Democrats support. Dems say the GOP legislation provides insufficient aid, and sets a dangerous precedent by requiring those funds to be offset with partisan budget cuts.

Yes indeed … removing the lefty modifiers to get to the real heart of the point, you are left wondering “why is this a bad thing”

“Dems say the GOP legislation provides … aid, and sets a … precedent by requiring those funds to be offset with … budget cuts”.

Uh, yes, yes, a thousand times yes.  Please, set the precedent, by all means.   That’s how all the rest of us do our business daily for heaven sake. 

Oh, and it is precisely the message the GOP candidates who won in the 2010 landslide were charged with doing.  Never mind the partisan nonsense from the Dems – insufficient aid is a matter of opinion obviously, the precedent is dangerous only because it requires disciplined spending offset by like cuts elsewhere and “partisan” budget cuts are only partisan to the side who’s ox is being gored.

The fact remains that this is how the House needs to routinely do business.  When something comes along that takes priority over something else for which spending was planned, the plan is changed.   The answer is rarely “go borrow money and do both”.

When it is, you end up in $14 trillion dollar debt.   I still don’t understand what it is about that concept that Democrats just can’t seem to grasp.

"It would be my hope that there would be some split the difference, the Republicans would come out and say we’re not going to go as high as you wanted…and we will have no offset. That I think would be a reasonable place to be," Pelosi said.

Yeah, that’s business as usual.  That’s why we’re in debt up to our necks.  No.  No thank you, Ms. Pelosi.  From a thousand little compromises like that grows economy crushing debt.  We’re there.  We’ve proven that.   No more.  That is no longer (not that it ever was) a “reasonable place to be”.  And it isn’t “radical” or “extreme” to point it out or ask that offsets be a part of any spending plan.

It’s sane.


Twitter: @McQandO

Mortgages, “tax expenditures” and jujutsu

I disagree with one point in Michael’s otherwise fine post about the mortgage interest deduction.  It’s something I hear frequently from fiscal conservatives, and it’s a nice sentiment, but we need a better argument.

Michael writes,

…we cannot accept the equivalence drawn between wealth transfers like Medicare, Social Security and Medicaid, and tax breaks like the mortgage interest deduction (MID). In one case, the government is taking money from someone else (despite how it has been characterized) and giving it to another, while in the other situation the government is simply deciding how much of one’s hide it will charge for its oh-so-wonderful services (a.k.a. taxes). It’s the difference between transferring money from one to another, and refraining from taking the money in the first place.

But targeted tax breaks aren’t really different, in practice, from subsidies.  The numbers would work out the same if the feds cut checks each year to people who hold mortgages, but we think of the tax break as allowing people to preserve their status quo, while we think of the subsidy as an intervention.

Somebody always has to pay for government spending.  A targeted tax break just means the government is going to force other taxpayers to pay for the spending, and when we’re running a deficit, that means future taxpayers.

I anticipate the counter-argument that if we send Congress more money to cover deficits, they’ll just ramp up their spending until they have equally large deficits again, so we won’t “save” future taxpayers a dime.  I have two responses:

  1. That sounds like a fine argument for requiring balanced budgets.
  2. It appears that nothing short of catastrophic deficits motivates politicians to cut back on spending, and even that is an iffy proposition, so if fiscal conservatives are serious about governing, we  need a better strategy than holding the Alamo on taxes.

What’s important for small-government tax policy is that taxes should (1) make people sensitive to increases in government spending (requiring balanced budgets helps), and (2) be simple and broad-based, not a tool for tinkering with social policy.

On the latter point, maybe I should give credit to Democrats for trying to undermine some of the biggest obstacles to the flat tax: the employer health benefits exemption and mortgage interest deduction.  I see potential for some political jujutsu: Republicans can let the Democrats take the heat for killing the deduction, and just push for other flat-tax provisions that tend to compensate the losers.  Lose the battle, win the war.