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"'The lunatics are now in charge of the asylum.' So wrote the normally staid Financial Times, traditionally the voice of solid British business opinion, when surveying last week's tax bill. Indeed, the legislation is doubly absurd: the gimmicks used to make an $800-billion-plus tax cut carry an official price tag of only $320 billion are a joke, yet the cost without the gimmicks is so large that the nation can't possibly afford it while keeping its other promises.
"But then maybe that's the point. The Financial Times suggests that 'more extreme Republicans' actually want a fiscal train wreck: 'Proposing to slash federal spending, particularly on social programs, is a tricky electoral proposition, but a fiscal crisis offers the
tantalizing prospect of forcing such cuts through the back door.'
"Good for The Financial Times. It seems that stating the obvious has now, finally, become respectable.
"Yet by pushing through another huge tax cut in the face of record deficits, the administration clearly demonstrates either that it is completely feckless, or that it actually wants a fiscal crisis. (Or maybe both.)
"Here's one way to look at the situation: Although you wouldn't know it from the rhetoric, federal taxes are already historically low as a share of G.D.P. Once the new round of cuts takes effect, federal taxes will be lower than their average during the Eisenhower administration. How, then, can the government pay for Medicare and Medicaid — which didn't exist in the 1950's — and Social Security, which will become far more expensive as the population ages? (Defense spending has fallen compared with the economy, but not that much, and it's on the rise again.)
"The answer is that it can't. The government can borrow to make up the difference as long as investors remain in denial, unable to believe that the world's only superpower is turning into a banana republic. But at some point bond markets will balk — they won't lend money to a government, even that of the United States, if that government's debt is growing faster than its revenues and there is no plausible story about how the budget will eventually come under control."
More here:
The deal with this is, the $350 billion was based on the expiration dates on the provisions, but nobody believes that repealing it will be politically possible, unless more tax cuts are enacted in its stead. This is not a happy situation. Likely the only way to remove Social Security, Medicare, Medicaid, etc. is to crash them in a period of financial ruin; if a political group wants to get rid of those programs, these economic moves (an avowed weak-dollar policy, massive tax cuts in time of debt, etc.) make more sense. Both the weak-dollar policy and the tax cuts in deep debt, of course, have never happened before in the US.
"But then maybe that's the point. The Financial Times suggests that 'more extreme Republicans' actually want a fiscal train wreck: 'Proposing to slash federal spending, particularly on social programs, is a tricky electoral proposition, but a fiscal crisis offers the
tantalizing prospect of forcing such cuts through the back door.'
"Good for The Financial Times. It seems that stating the obvious has now, finally, become respectable.
"Yet by pushing through another huge tax cut in the face of record deficits, the administration clearly demonstrates either that it is completely feckless, or that it actually wants a fiscal crisis. (Or maybe both.)
"Here's one way to look at the situation: Although you wouldn't know it from the rhetoric, federal taxes are already historically low as a share of G.D.P. Once the new round of cuts takes effect, federal taxes will be lower than their average during the Eisenhower administration. How, then, can the government pay for Medicare and Medicaid — which didn't exist in the 1950's — and Social Security, which will become far more expensive as the population ages? (Defense spending has fallen compared with the economy, but not that much, and it's on the rise again.)
"The answer is that it can't. The government can borrow to make up the difference as long as investors remain in denial, unable to believe that the world's only superpower is turning into a banana republic. But at some point bond markets will balk — they won't lend money to a government, even that of the United States, if that government's debt is growing faster than its revenues and there is no plausible story about how the budget will eventually come under control."
More here:
The deal with this is, the $350 billion was based on the expiration dates on the provisions, but nobody believes that repealing it will be politically possible, unless more tax cuts are enacted in its stead. This is not a happy situation. Likely the only way to remove Social Security, Medicare, Medicaid, etc. is to crash them in a period of financial ruin; if a political group wants to get rid of those programs, these economic moves (an avowed weak-dollar policy, massive tax cuts in time of debt, etc.) make more sense. Both the weak-dollar policy and the tax cuts in deep debt, of course, have never happened before in the US.
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