A Dessert-First Tax Bill

By Kevin D. Williamson

Thursday, December 21, 2017

Republicans have had their spoonful of sugar. Time for the medicine.

Taking the ever-popular dessert-first approach to fiscal policy, Republicans have delivered a very large tax cut. It has some good features: It lowers the U.S. statutory corporate-tax rate, formerly one of the highest in the world, to 21 percent, more in keeping with other advanced economies; it expands the standard deduction; it raises the threshold for the estate tax, which will be of great interest to those of you with parents worth more than the previous limit of $11.2 million; it caps, though it fails to eliminate, the deduction for state and local taxes, which is both good policy and SALT in the wounds of Democrats from high-tax states such as California and New Jersey.

It will also add about $1.5 trillion to the national debt.

The Republicans are trying their best to ignore that. They claim, contrary to historical evidence and the views of most professional economists, that these tax cuts will pay for themselves. This is the right-wing version of the magical Keynesian stimulus multiplier — a free-lunch fantasy that we can pay for our bloated and expensive federal government by cutting taxes.

Speaker of the House Paul Ryan has said that Republicans have every intention of making permanent the individual tax cuts, which currently are scheduled to expire in ten years. The Republicans had to make those “temporary” on paper in order to comply with budget rules. Which is to say, the speaker has acknowledged that the accounting shenanigans used to get this bill passed in the teeth of statutory spending constraints are basically bullsh**. But there’s a lot of bullsh** going around Washington just now.

I am reminded of two pieces of ancient history here. One is that the main problem with the Gramm-Rudman-Hollings Balanced Budget Act, passed a generation ago, was that it worked; Congress gutted it as soon as it started preventing congressmen from doing what they like to do best, which is spend money like rappers with 24 hours to live. The second is that heroin once was used as a treatment for morphine addiction. If the connection between those two pieces of trivia eludes you, then you haven’t seen the junkies in Washington when they’re desperate for a fix. When sequestration was really going, there were tough-guy military contractors in Virginia wailing like children who’d been told that they cannot have dessert.

Time to eat your spinach, Washington.

The United States is on an unsustainable fiscal trajectory. That does not mean that there is an economic crisis right around the corner, today, tomorrow, or in six months. But if nothing is done, entitlement spending will grow beyond our ability to pay for it, even with substantial future tax increases. Military spending is a heavy contributor to our fiscal burden, too, and it could and should be reduced, but that will first require rethinking our national-security posture and our worldwide military capabilities. For the military, the mission determines the budget, but much of federal spending would be more properly organized the other way around. And as much fun as it is to mock Harry Reid’s federally subsidized cowboy-poetry festivals and the critical national effort to get monkeys high on cocaine, basically all of federal spending goes to a handful of programs: Social Security, Medicare, Medicaid, national defense, and interest on the debt. Everything else — from the federal highways to staffing the embassies to the FBI — adds up to about 20 cents on the federal spending dollar. If interest rates go up, then debt service could become a radically larger expense — think about an outlay roughly the size of the Department of Defense budget — very quickly.

Which is to say, there’s no way to fix our finances without doing the things that nobody — especially Republicans — wants to do, meaning some combination of cuts to military spending, reform of Social Security and Medicare, and tax increases. The less you want of one, the more you’re going to need of the others.

The Growth Fairy is not going to save us. There’s a lot of loose talk just now about sustained economic growth of 4 percent or more. This is unlikely to come to pass. If I am wrong about that, nobody will be better pleased than I. My friend Larry Kudlow is one of the great tax-cut optimists, and if we see real GDP growth of 4 percent or more for four quarters running after these tax cuts are implemented, I’ll shine his shoes.

Here’s a thought experiment for you. Imagine you have a ne’er-do-well cousin who never saves a penny for his retirement. You advise him that he needs to save, to be responsible for himself, and he says: “I’ve got it covered. I’m going to win the lottery.” You see him when he’s 30 years old, and he’s planning to win the lottery. You see him at 40 and 50 and 60, and he’s still never saved a penny, but still buying those Powerball tickets every week. And then, at 65, the dumb son-of-a-bitch wins the lottery, and takes home $300 million. Question: Was counting on winning the lottery a good retirement plan?

Of course not. Idiots get lucky from time to time, and Bismarck is supposed to have remarked that there exists a special Providence for fools, drunks, and the United States of America. But we should not tempt Providence. It’s time to get sober.