Tuesday, July 19, 2011

Fool me once, shame on you. But fool me thrice?

Fool me once, shame on you.  Fool me twice shame on me.  Fool me thrice? Say it isn't so!

The current promises from President Obama to give future spending cuts in return for raising revenue now [read that as taxes] and the debt ceiling have been twice heard before.  So my skepticism is based on the fact that the Democrats have historically not been particularly good at dealing in good faith when it comes to following through on their promises of spending cuts.

The first promised deal was a $3 for $1
Following the Carter era of massive recession and taxation, President Regan sought and signed the largest tax reduction in history.  Thus beginning the turn around in the economy.  Then came the Tax Equity and Fiscal Responsibility Act of 1982, which agreed to tax hikes on the promise from Congress of a $3 reduction in spending for every $1 increase in taxes.  TEFRA was created in order to reduce the budget gap, from a short term fall in tax revenue, by generating revenue through closure of tax loopholes and introduction of tougher enforcement of tax rules, rather than changing marginal income tax rates. Does that sound familiar to our current discussion?  The tax increases were real and immediate. The "future" spending cuts never really materialized, especially since the house came under full Democrat control a couple of months later. 

The second promised deal was a $2 for $1
Then as a reprise of the "grand deal", an offer was made to George H. W. Bush in 1990 by House speaker Tom Foley (D., Wash.) and Senate majority leader George Mitchell (D., Me.) promising to cut spending by $274 billion in exchange for a $137 billion tax increase.  As before the tax increases were real, the spending cuts? Not so much.

The CBO analysis produced an analysis shown here.
"Not only did the $274 billion in promised baseline spending cuts never materialize--baseline spending was actually $22 billion higher than what CBO projected it would be before the deal."

So with a track record like this, a "bird in the bush" spending deal lacks a lot of appeal.

No comments:

Post a Comment