On tax increases versus budget cuts.

Economics Economics Questions
1

First, a confession: I enjoy elections, and watch political debates. I don’t vote, so the entire thing holds no importance to me. I enjoy it in the “pantemine” sense, I like the colours, the gaffes, and, occassionally, the jokes.

That said, I noticed in the first Presidential debates Obama made some kind of claim about “increasing taxes by 1 dollar, for every ten dollars in spending cuts, which the Republicans rejected”. Now, at first, I was like “good on those Republicans”, but now I’m thinking…

All of the money being spent today will be paid for in the future. Whether through taxes or inflation, if the country defaults on some or all of its debt, it will be paid for through higher interest rates, etc…

So the argument isn’t really about raising taxes or not raising taxes. It’s about paying today, or paying tomorrow. Except, by paying tomorrow, you’re inflicting the tyranny on those who may not even be born yet.

In this sense, it’s not really a tax increase, merely a tax bring-forward, and will mean a lower cost in the future. So, the argument is not between a $1 dollar tax for $10 dollar cuts… it’s between (if my math is right) a $1 tax today, versus a $10 tax tomorrow… which is worse?

Am I right here, or there something I’m missing?

My only real counter to this is that the reality will never work out like this. They’d agree to the $1-$10 deal, but later the cuts will all be voted away, but the new tax would stay. Meaning we’re now stuck with a $11 tax.

2

Also, one more point (slightly related):

How can Dems call their policy 'tax and spend"… surely, when running a deficit, it’s “spend at tax”. That is, they pay off their friends today, and send you the bill later.

3

Tim value of money? $11 tax in the future is less harmful than an $11 tax today in terms of real money, right? I donno…

Anyway, I have always thought about taxes vs inflation and which is worst over-all. I could be convinced otherwise if presented with a better argument (probably not that hard), but I think I have come to the opinion that, in theory, inflation is worst than taxes, but I guess that in practice that all depends on if you are the guy being taxed or the guy feeling inflation hardest. Certainly, inflation is worst for poor than taxes, not only because in this environment the wealthy are more likely to be taxed, but also because the poor are the last to use the new money, and their wage has not risen but prices have. Prices that, relative to their income, hurt more than for the middle and upper class.

But, more generally, the reason I think Inflation is more insidious is because (1) you never actually know how much inflation there is at a given moment. Sure we have estimates but they are, at best, vague approximations. Add to this that the CPI is how most people plan to account for inflation, but this number is drastically under-estimated by those who perform the “official” calculation. (2) At least with a tax, you know to some degree on whom the tax is charged and for how much. There are also loopholes occasionally. With inflation, not only does everyone get bitten by it, but it’s hard to tell who got bit to what degree. I guess in some ways, financing state projects through money printing is more fair in that it bites everybody, unlike a tax which is pinpointed biting, but that would be similar to saying that if your mother gets raped s should your sister…that’s only fair.

Anyway, I guess it is kind of like when people argue about the best way to tax; some people want income tax, others favor strictly a consumption tax, or perhaps a single head tax. But, really, at the end of the day, we are still arguing over how we prefer to get mugged. How about ending the mugging?

4

“How about ending the mugging”.

Well, obviously, but I’m talking within the confines of the establishment here. You have this proposal of $1 tax increase for $10 cuts from Obama, with Romney rejecting it.

Both are incidious proposals (and, only fluff, as I doubt they’d only cover a very small percentage of the overal budget), but, effectively, they are our only /real/ choices, at this moment in time.

It’s like one of those “would you rather” games… “would you rather be kicked in the balls, or punched in the mouth”.

5

This is the fundamental mistake in your reasoning. All the money being spent today is paid for now by people living today. People who do not exist cannot foot the bill for today’s expenses, no matter what anybody told you.

6

There is no good way to steal $4trillion from the populace even if you can punt the bill down the road to have future people default through monetary devaluation. No, future generations will not pay the debts of these welfare/warfare generations and will either default directly by refusing to pay money that they did not contract to pay back, or the default will be worse as the government will just create enough money to make the future money worth only a fraction of what it is today.

As to the $1 for $10 that is an outright fantasy, as is Romney’s budget plans. The algebra is just too simple. There are not enough rich people to stiff with the bill for current government. Even if you take ALL of the wealth of the wealthiest 1% of people, you will not buy a years worth of government and will at the same time turn upwards of 40% of private savings over to the government. There is simply no way to deal with this mess except to radically scale back the spending and the entire democratic process is custom designed to not allow this to happen.

Look at Venezuela, they re-elected Hugo, he completely destroyed the economy of the country and turned a semi-wealthy oil economy into an impoverished workers paradise. It is all people trying to vote themselves something for nothing.