I swear it isn’t “pick on Ezra Klein day” here at Modeled Behavior, but he has been covering fairly thoroughly the proposal in the Senate (?), signed by every GOP member, for a balanced budget amendment to the Constitution. Unfortunately, it is not just a balanced budget amendment — and end in and of itself, and one that I would consider if done properly — but an amendment to a) limit Federal spending to 18% of GDP and b) make raising future revenue extremely difficult.

I think “stupid” is the wrong word. “Dangerous” is more like it. And maybe “radical.” This isn’t just a Balanced Budget Amendment. It also includes a provision saying that tax increases would require a two-thirds majority in both houses of Congress — so, it includes a provision making it harder to balance the budget — and another saying that total spending couldn’t exceed 18 percent of GDP. No allowances are made for recessions, though allowances are made for wars. Not a single year of the Bush administration would qualify as constitutional under this amendment. Nor would a single year of the Reagan administration. The Clinton administration would’ve had exactly two years in which it wasn’t in violation.

I agree with most of what Ezra (and Bruce Bartlett) say about the proposal. I’m not a fan of large government, but I’m also not a fan of creating problems. This proposal seems to be all about creating problems under the auspice of “starve the beast”. Or rather, creating a big enough problem, and engineering your preferred solution from the front end, which is cuts (ostensibly to Medicare and discretionary spending). This is a poor way to govern, whether you like or dislike the welfare/warfare state.

However! Ezra has a follow-up post in which he ties California, taxation in the south, and the likely effects of the GOP’s amendment together, noting that by blocking the ability to directly raise revenue, the government would be forced into regulatory and budgetary tricks to fund itself. Tricks that would likely be more inefficient and economically damaging than simple direct taxation itself.

It’s fairly obvious why rules making it hard to pass new taxes would lead to more regressive taxation: If passing taxes is extremely difficult, then passing taxes plus overcoming the opposition of powerful interests becomes almost impossible. And so you focus on passing taxes that don’t arouse powerful interests. In practice, that means passing more regressive taxes, as the poor have less political power than the rich. It’s an amplified version of the reason it’s easier to cut spending on programs that benefit the poor, like Medicaid, than on programs that benefit the rich, like Social Security — which is, incidentally, exactly what Republicans appear to be proposing in their 2012 budget.

All of which is to say, the Republican Balanced Budget Amendment, which requires a two-thirds majority in both houses of Congress to raise taxes, would probably lead to much more regressive taxation. Our budget process would look like California’s and our tax code would look like the South’s. That’s winning the future!

Here is Ezra’s graph of the composition of revenue generation in four regions:

Low and behold, taxes in the south are much closer to my own vision for taxation! No, the taxes are not exactly the same, but I would welcome a shift toward consupmtion taxes and away from (capital/labor) income taxation. You can design a VAT or carbon tax to be as progressive as you would like. I also prefer a tax on the value of land, and not on the “improved value” of building (which, along with eliminating land use regulations would incentivize dense construction). The final piece of the puzzle is a progressive payroll tax. I think you could copy this model on both the state and Federal levels. It is almost the exact opposite of the “Northeastern” model of high income and property taxation. I think it’s a better model.

If we shifted our taxation toward consumption it would, in fact, be wining the future.

About these ads