Thursday, October 16, 2008

Presidents and taxes

The parts of the presidential debates I find the most disheartening occur when the candidates try to out-do each other on who will cut taxes the most. These promises can get the candidates in trouble later (as most famously happened to the first president Bush) if they have to reverse themselves and support tax increases. They also ignore some obvious limitations on the President's power to cut taxes. The first is that the Constitution places the responsibility for raising taxes on the House of Representatives, not the President. The president can submit a budget to Congress, but the President's budget is just a suggestion, and can be completely ignored. So for a presidential candidate to say that he will cut taxes is like saying that he will ask the House Ways and Means Committee to disregard its own Constitutional responsibilities and submit to the President's will. If this kind of formulation is just shorthand for saying that the President will propose tax cuts to the Congress, or will threaten to veto tax increases by Congress, it is still a dangerous kind of shorthand, as it perpetuates the idea that governmental power is all concentrated in the President's office, and that the President is some kind of ruler over Congress.

The power to cut taxes is also constrained by external forces. The only way the government can continue to cut taxes is if it retains the ability to borrow the necessary sums of money to maintain the level of government spending that we all seem to want. If the investors who buy Treasury bills find a better investment, or become worried by the dangerous levels of borrowing that the government is engaged in, then we will find ourselves maxed out on the national credit card. We seem to be headed for that kind of limitation. When the government is no longer able to borrow the sums needed for these approved levels of spending, as happened to New York City in the 1970's, it has only two choices: raise taxes or reduce services. More likely it will have to do both.

It would be preferable for the candidates to focus more on the costs and benefits of the programs they support, and when they do address taxes, to focus more on the fairness issues in the various kinds of taxes (progressivity, income vs. sales tax, corporate and capital gains taxes, payroll taxes, etc.) Whether we overall cut or raise taxes only becomes a concern after we have addressed both these issues first, and should be addressed only as a question of the desirability as a matter of fiscal policy of maintaining deficit or surplus to whatever extent. Talking about cutting taxes, before addressing what programs should be eliminated or reduced to make up for those tax cuts, or before talking responsibly about how large a deficit we should run, is putting the cart before the horse.

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