The Innumeracy of the Republican Party

Even if we adopt the "Cut, Cap and Balance" plan, tax hikes are a necessity.

As Doug reported, John Boehner’s walked away from debt deal talks. In his letter to the GOP caucus, Boehner highlights the complete, innumerate nonsense that is the position of the Republican Party. Let me highlight two pieces.

The House this week passed such a plan…the Cut, Cap & Balance Act, which passed the House with bipartisan support.

[…]

The President is emphatic that taxes have to be raised.

I won’t get into the merits of the Cut, Cap & Balance Act — that’s been ably handled by my colleagues. I will simply point out this:

The Cut, Cap & Balance Act cuts spending to 18% of GDP and caps it there. It also demands that the budget be balanced.

But here’s the thing – Federal revenues are less than 15% of GDP thanks to Obama’s overzealous slashing of taxes. So even under the “Cut, Cap and Balance” plan, taxes need to be raised to match spending or else you’re looking at an over half-trillion dollar deficit.

The Republican position on taxes relative to the deficit simply makes no sense, either economically or mathematically.

FILED UNDER: Deficit and Debt, Taxes, US Politics
Alex Knapp
About Alex Knapp
Alex Knapp is Associate Editor at Forbes for science and games. He was a longtime blogger elsewhere before joining the OTB team in June 2005 and contributed some 700 posts through January 2013. Follow him on Twitter @TheAlexKnapp.

Comments

  1. Joe R. says:

    The Cut, Cap & Balance Act cuts spending to 18% of GDP and caps it there. It also demands that the budget be balanced.

    But here’s the thing – Federal revenues are less than 15% of GDP thanks to Obama’s overzealous slashing of taxes.

    Where does spending 24% of GDP fall on the innumeracy scale in this scenario?

  2. Winghunter says:

    What exactly does the term ‘colleague’ mean to The Party of Parasites??

    For a country based upon the liberty of free men’s labor and the fruits acquired by it, what psychosis can define “overzealous slashing of taxes”?? I can think of but one, Comrade.

  3. Ben Wolf says:

    @Winghunter: You’re going to compare tax rates to communism? Seriously?

  4. Ben Wolf says:

    i’d like the right extremists in the audience to answer a question: What is the ideal tax rate, and what percentage of GDP should the best possible government consume?

    And no, “as little as possible” will not be accepted. Be specific or get lost.

  5. Hey Norm says:

    Check me on this but I think the Cut Slash and Burn plan cuts spending to 19.9%…if I’m wrong…then I’m wrong.
    But here’s the thing…none of the republican arguments or positions make sense. Even Ryan, who is supposed to be the guru, is talking idiocy.
    I was for the 14th resolution…then I began to see it as a bad choice…now I wonder if it’s the only way out.
    What are the republicans thinking? We know they are hearing from Wall Street and Governors. Are they having cocktails right now telling themselves: ” We got this?”
    Reports say Obama was holding out for a few billion in loopholes. Are we really tempting fate fir that?

  6. anjin-san says:

    The noted communist, George Washington, had this to say about taxes:

    you should practically bear in mind that towards the payment of debts there must be revenue; that to have revenue there must be taxes; that no taxes can be devised which are not more or less inconvenient and unpleasant

  7. ponce says:

    Math skills aren’t a requirement to lead a (cargo)cult like the Republican Party.

  8. superdestroyer says:

    What the Republicans should offer is a 3 to 1 budget proposal. For every 3 dollars of budget cuts that the Democrats support in a budget years, the get 1 dollar of tax increases in the next year. Such a deal means that Democrats get the tax increases they want but it only comes after real budget cuts. If the Democrats and Republicans screw around that make no budget cuts, then no tax increases. It also avoid the problem of Democrats getting tax increases now with a promise of spending cuts in the future.

  9. Liberty60 says:

    @superdestroyer:

    I can see that it is necessary- yet again!- for me to whip out my tired old figures:

    The federal budget can be reduced to a simple back-of-the-envelope calculation of 5 main categories*:
    Defense/ Homeland Security- $1.0 Trillion
    Social Security- $1.0 Trillion
    Medicare- $0.6 Trillion
    Debt Service- $0.4 Trillion
    Every Other Damn Thing- $0.5 Trillion
    Total Expenses- $3.5 Trillion

    Revenue
    Social Security Payroll Tax- $1.0 Trillion
    Other Taxes- $1.1 Trillion
    Total Revenue- $2.1 Trillion

    Deficit- $1.4 Trillion

    So yeah, lets see the “conservative” alternative. I first posted this to alleged conservatives at Redstate since 2010, and to date, not one- not a single one, even on this very blog- has dared to post their version of what they think these numbers should be.

    Despite their fevered faith in “balanced Budget”, no conservative that I know of really is willing to look honestly at the budget and say openly what it would take to reach such a thing.

    Because they are not serious, and never have been.

    Instead they just shout louder, hoping that somehow magic will happen.

    *These numbers are from 2010, when I first started having this argument- FY 2011 numbers are a bit higher, but I am tired and will leave it to others to adjust them

  10. Liberty60 says:

    To follow up on the above post-
    There are a few reasons why conservatives never want to actually list their cuts: one is cynicism-
    Its a guaranteed applause line at a Chamber of Commerce luncheon to stand up and say “I want to cut 1/3 of the federal budget!”

    But see, It doesn’t matter if you are talking about the budget for a building construction project, a car purchase, or the federal budget- cutting a full third means a fundamental change of the scope and core mission.

    Once the appluase dies down, how would Boeing, or McConnell Douglas react once they realized that cutting the Air Force budget by 1/3 means that entire bomber wings and fighter groups would be mothballed;
    How would Archer Daniels Midland react to know that cutting the Dept of Agriculture budget would mean that almost all crop price supports would vanish?

    How would Pfizer react when they realize that cutting Medicare by 1/3 means that seniors would spend 1/3 less on prescription drugs?

    The fact is, almost every penny of the federal budget finds its way into the pockets of , corporations, via government contracting and procurement or subsidies, directly or indirectly.

    I am not saying we can’t or shouldn’t cut the federal budget- what I am saying is we need to accept that it would cause a profound and painful round of mass layoffs and bankrupties, even if we decided that the end result was a good thing in the long run.

    The players in Washington know this, and are just cynical enough to know that vague talk of massive cuts is a sure winner politically, until someone actually puts them into place.

    The ones who don’t understand that are the rubes who voted for them.

  11. Anonne says:

    @Liberty60: That is true of the establishment players, but we also have a large class of freshmen who apparently are math-impaired and many are political naifs. They don’t have a vision for governance, all they see is the red rage of people who don’t understand the value of the services provided and some greedy people who don’t want to pay more taxes.

  12. superdestroyer says:

    Liberty60,

    so what is you plan for raising an additional 1.5 trillion dollars a year in additional revenue. That would require a doubling of income taxeds, an increase in social security taxes. Image what would happen to the economy if income taxes were doubled. The top five percent of the earners do not make $1 trillion a year in total income.

    So where is the money going to come from. All I ever hear from progressives is letting all of the Bush tax cuts expire. That is just not going to do it.

    Every part of the budget listed can be cut including defense. The U.S is broke and cannot afford a national empire. The U.S is broke and cannot afford a gold plated welfare system that gives disability to every sad story. The U.S. is broke and cannot afford every set aside, subsidy, and diversity coordinator in existence.

    Allowing tax increases without spending cuts just means that the U.S. would be spending $4.5 trillion while collecting $3 trillion in taxes. If high taxes meant a balanced budget then California, Illinois, and New York would not be having budget problems.

  13. Dave Schuler says:

    @Liberty60:

    One minor amendment to your formula above: Social Security will raise in revenues about $100 billion dollars less this year than it will pay out in outlays.

    Please recall that I opposed the “Bush tax cuts” in the early Aughts, I opposed their extension, and I continue to believe that they should be allowed to lapse. And that I opposed both the invasions of Afghanistan and Iraq.

    Given that introduction I think we all need to recognize that much as increased revenues are needed increased revenues are insufficient to solve our fiscal problems. Removing the “Bush tax cuts” won’t produce $1.4 trillion a year.

    The elephant in the room is healthcare expenses. They account for most of the increase in government spending over the last 35 years and the rate of increase in Medicare costs is too large for any foreseeable tax increases to deal with.

  14. Dave Schuler says:

    I also wanted to mention that I think that both parties are making bad assumptions about the deadweight loss of government spending. Republicans appear to assume that it’s 100% and Democrats zero. Both are wrong.

    I’ve seen estimates of deadweight loss varying from 15% to 65%. How high the marginal rate of deadweight loss is is vitally important. IMO if it’s anywhere north of 40%, it points to the practical necessity of larger cuts than revenue enhancements. Our economy is growing too slowly as it is.

  15. Ben Wolf says:

    @Dave Schuler: There’s also considerable evidence of deadweight loss from too little taxation, when capital accruing in the hands of a tiny elite begins to crowd out the economic success if the middle class. I wish more conservatives would realize that at a certain point economic inequality retards real growth and destabilizes the country politically. Rapid transfer of wealth to a very small number of people and exploding debt among a middle class trying to stay afloat was the basis for the 2008 crash.

  16. Robert in SF says:

    Please, someone explain why SS is included in these figures? Isn’t SS dself-funded, and in fact has a huge amount in “savings” to account for the lack of year-to-year income less than that same year’s outlay?

    I have seen the phrase “SS is bankrupt” or similar, based on that fact (income<outlay), but if someone takes a job that earns less for now than their current spending, but they have tons of money in the bank to spend, then how are they bankrupt? If that's the principle, then the US has been "bankrupt" since we started spending more than revenue a long time ago…

    I think that SS money is "invested" in US Gov Bonds, and as such the government borrowed the money and has to pay it back with interest. So is that why we should stop that practice, since it does represent spending borrowed money, and not actual income? So it should come off the revenue side, and only stay on the outlay side, representing the principal/interest we owe until it's paid off?

  17. Liberty60 says:

    @superdestroyer:

    so what is you plan

    I’m glad you asked!

    I don’t think it is possible to balance the budget within the next year or so- turning so large a deficit around will take time, and most importantly, a rising economy to boost revenue.
    But to take up my own challenge:

    Defense/ Homeland Security- $0.75 Trillion
    Social Security- $1.0 Trillion
    Medicare- $0.6 Trillion
    Debt Service- $0.4 Trillion
    Every Other Damn Thing- $0.4 Trillion
    Total Expenses- $3.15 Trillion

    Revenue
    Social Security Payroll Tax- $1.0 Trillion
    Other Taxes- $1.6 Trillion
    Total Revenue- $2.6 Trillion

    Deficit- $0.55 Trillion

    Notice I whacked the most from Defense/ Homeland Security; for two reasons, one we really need to scale back our global military footprint, and two, thats where the money is. I also cut general govt’ spending bythe same percentage, and got 0.1 trillion.
    I boosted revenue by 0.5 Trillion, by letting the Bush tax cuts expire and closing loopholes.

    We would still have a deficit, but much smaller. And unlike the Republicans, my plan doesn’t involve emptying nursing homes onto ice floes.

    Your turn.

  18. superdestroyer says:

    @Liberty60:

    This sounds like the Clinton budgets, cut defense, maintain all of the other programs, and hope for an economic bubble to make up the sort term deficit.

    Of course how do you plan on having an economic boom by increasing income taxes by 50%.

    My guess is that a $500 billion dollar increase in taxes will just end up with a $4 trillion dollar annual budget and the same $1 billion dollar annual budget deficit that the Democrats tolerate now.

    I doubt that a Pelosi lead House would sign off on cutting one dollar from anything other than defense and cutting defense by 50% will lead to about one million people losing their jobs and will turn certain cities in the U.S. into ghost towns.

  19. An Interested Party says:

    Liberty60’s plan is certainly more credible than no plan, which is what we see from most of the those around here who write about “cut, cut, cut!”…so superdestroyer and all the rest of you who want to cut so much…what is your plan?

  20. anjin-san says:

    So lets see, what is the flat earth society saying today? Oh yea. Obama wants to raise taxes 50% and cut defense spending 50%. I see.

    Why don’t we just fully embrace ignorance as a society, start having witch trials again, and get it over with?

  21. liberty60 says:

    @superdestroyer-
    I sound like Clinton?
    Really?

    Well now, flattery will get you nowhere, mister.

  22. mannning says:

    Looks to me like we need a real Austerity Program for possibly as long as 10 years, depending on the economic level we can reach. This means cuts in spending of about 10% per year each year of the program, with every sector taking a real hit, except debt service. If the economy rises substantially in the meanwhile, rescaling some of these reductions could take place, and national debt reductions could be significant.

    It should also mean rooting out fraud and abuse across the board, eliminating a number of expensive but “nice to have” government services, such as a Federal Education Department, eliminating many donations to foreign nations, and reducing our overseas forces to a minimum. Many advanced weapons systems would have to be put on a “go slow” or even canceled outright until our economy recovers sufficiently to afford them. This could mean a very serious reduction in our military spread over the ten years, again, unless economic activity heats up substantially much sooner. A serious effort should be made to eliminate Government Unions as well, and to allow a phased equalization of private and government pay scales.

    The Solomon’s choices residing in Medicare, Medicaid, Obamacare and Social Security will have to be made in order to reduce both their outlays and their entitlements very substantially. This will be the most probable area of failure of our system to cope. I am not sure what means testing would do for Medicare, but it should be explored. Raising the elegibility level for SS to 68 or 69 may help, but other reductions will be needed. We need to return to the idea of personal responsibility instead of womb to tomb government support.

    I am sure that eliminating or reducing costly restrictions on exploration, production, and use of our oil, coal, and natural gas would have a strong economic benefit too. Perhaps the EPA needs to be scaled back substantially in its efforts to strangle our economy for the benefit of desert bugs and forest beetles while loading our energy sector with massive costs we now cannot afford.

    The only tax I think should be considered is some form of flat tax or Fair Tax on consumption, together with full and complete elimination of the graduated income tax and most all other forms of taxation. The 40-to-50% of citizens that pay no tax at all should be required to contribute something to the pot since they are stakeholders in this society. This would require amending the Constitution, so it is not an immediate revenue solution.

  23. ratufa says:

    @mannning:

    The 40-to-50% of citizens that pay no tax at all should be required to contribute something to the pot since they are stakeholders in this society.

    Payroll taxes make up a good chunk of Federal revenue.

  24. superdestroyer says:

    @ratufa:

    Payroll taxes are all earmarked to support certain programs. 50% of Americans have contributing zero to discretionary spending, defense, spending, or debt service. That is why that group wants to cuts and wants more entitlements.

  25. Dave Schuler says:

    @Liberty60:

    According to models by Yale’s Ray Fair, the amount by which revenue will need to be increased to stabilize our fiscal situation is about $650 billion per year. That will decrease output by about 2%.

  26. ratufa says:

    @superdestroyer:

    People paying payroll taxes are funding a huge chunk of government entitlement spending. They are, to use mannning’s phrasing, “contributing something to the pot”. In the past, when Social Security and other payroll tax funded programs ran a surplus, they contributed to funding non-entitlement expenditures (though, one could object and say they were just loans).

    Also, concentrating on the Federal income tax overlooks all the other taxes that people pay: unemployment taxes, state and local taxes, property, taxes, gas taxes, etc.

    But, yes, the government will increasingly rely on non-payroll taxes for paying entitlements, and this is going to put a lot of stress on the budget, mainly due to medical-related costs.

  27. anjin-san says:

    We need to return to the idea of personal responsibility instead of womb to tomb government support.

    So Manning, lets say that tomorrow, God forbid, you are driving along, minding your own business, and a drunk runs a red light and totals your car. You wake up in the hospital, a quadraplegic. You now need almost constant medical care. You can’t work. Your house needs to be retrofitted. You need nursing care. You need help to eat. Huge bills are piling up with amazing speed. “Personal responsibility” will not do you a damn bit of good. Do you think that you and the people you love are immune from catastrophic illness or accidents?

    You are now a pauper, a charity case – and you will be for the rest for your life.

    Happens every day. It’s happened to people I know. Are you going to be the one to push them out on the ice floe?

  28. WR says:

    @mannning: Why don’t we just pass a law declaring that all assets in the country now belong to the top one percent?

  29. An Interested Party says:

    Mannning perfectly illustrates how some conservatives want to use the debt ceiling vote as a form of extortion to force their policy choices on the country as a whole because, of course, there is no way that a majority of Americans would ever willingly agree to what Mannning and his fellow travelers want to do…

  30. Liberty60 says:

    @anjin-san:
    The law in its majesty allows both rich and poor alike to be dumped onto Skid Row after their funds are exhausted.

  31. mannning says:

    I love distortions of what I said. Especially the catastrophic ones, where it is so easy to refute them. If you read my post closely, you would not find any words at all that lead down the path of taking away catastrophic illness coverage. Drama aside, there is much room for reducing the medical costs of most people, including reducing excessive testing, unnecessary operations, and the use of generic drugs to the maximum, for instance, along with tort reform.

  32. anjin-san says:

    you would not find any words at all that lead down the path of taking away catastrophic illness coverage

    We need to return to the idea of personal responsibility instead of womb to tomb government support.

    What do you propose for the people who are just not responsible? To someone who is mentally ill and unable to be responsible? It’s fine to sing hosannas about responsibility, but human nature is a tricky thing.

    How about people who work hard, but are just barely making it? No savings – what happens to them when something goes wrong?

    Slogans are fine for bumper stickers. Real life is more complex.

  33. Ben Wolf says:

    @mannning: Yes, let’s do everything but what is empirically the most efficient method of delivering healthcare: single-payer. Then when tort reform saves us less than one percent you can post another comment insisting we didn’t try hard enough the first time and demand we do it again, with feeling.

  34. An Interested Party says:

    @mannning: It certainly isn’t a distortion to point out that many of the things that you advocate are neither wanted nor would be approved of by a majority of Americans or their elected representatives…

    Yes, let’s do everything but what is empirically the most efficient method of delivering healthcare: single-payer.

    Tsk, tsk, you know we can’t do anything that even has a slight tinge of socialism to it…that would be just so un-American…

  35. @superdestroyer:

    What the Republicans should offer is a 3 to 1 budget proposal.

    They did. And when the Democrats accepted the offer the Republicans moved the goal posts.

  36. @superdestroyer:

    This sounds like the Clinton budgets, cut defense, maintain all of the other programs, and hope for an economic bubble to make up the sort term deficit.

    Yeah, let’s not try a plan that actually worked!

  37. mannning says:

    Unfortunately, as I read the tealeaves, any rationally-sized tax hike will be gobbled up by the medical programs inside of a year or two from now, leaving us poorer in pocket right now and still needing an Austerity Program of biting depth, such as the plus or minus10% per year or so suggested earlier. Continue this tax hiking act each year and you simply dig us a far deeper hole. Let the debt spiral upwards to boot and the debt service will likewise spiral, perhaps even faster because of drastic hiking of interest rates for our borrowing. Job production would continue to go negative with a vengence.

    The way out must be deep spending cuts by the government.

    It is apparent that the financial world is watching, and may well lower our credit rating despite a healthy rise in the spending cap, which will raise interest rates on us all very rapidly, and could well lead to the formal shift by the world community from the dollar base to some currency mix. If that happens, we are in for superinflation soon thereafter to go with the interest hikes. We could no longer print funnymoney to pay our bills. All of which would be disastrous for everyone but the very rich. All because some of us want to preserve our lush spending ways in the face of impending financial doom.

    Obviously, we need to be sensitive to real needs of the disadvantaged, but we do have to achieve savings in the medical arena, which means a major rework of Obamacare, Medicare and Medicaid. The continuation of the defacto policy of raising the limit and raising taxes while promising spending cuts downstream that never happen must stop real soon now, or we will be in a heap of trouble we just might not be able to work our way out of in a pleasant manner. Whoever thought that SS funds were banked for use is wrong. They were diverted to the general fund, with a piece of paper IOU replacing them. They have been spent.

    Whether most Americans or their representatives want to avoid these almost draconian cuts is absolutely immaterial and disingenuous because they will be forced on us from without if we don’t act ourselves while we can still set and pay for our own spending, import and export priorities.