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Wednesday, 01 June 2016

Paradox of politics

Liberal economists aid Tea Party in cliff debate

If everyone agreed that outsized fiscal deficits present a clear and present danger, the American politicians who object to tax increases would be in serious trouble. But the anti-tax zealots are given intellectual cover by their ideological enemies, the deficit-loving liberals.

The anti-tax forces in the United States have just lost one battle. The budget law signed by President Barack Obama contained more tax increases than spending cuts. However, the agreement to make previously temporary tax cuts permanent is a concession to their thinking, and the Republicans who voted against the bill have lost none of their fervour.

In theory, their fervour is for less government, not simply for lower taxes. In practice, Tea Party-style politicians are either unrealistic or vague on just what spending should be reduced. They struggle to find programmes which are both unpopular and significant. There is a contradiction here, which enthusiasts for big government could exploit to discredit their opponents - if they were not themselves compromised by their own tolerance of large deficits.

Of course, anti-tax people are also anti-deficit, in principle. But when distinguished economists are calling for higher federal deficits for many years, sometimes adding extensive money-printing to their lists of recommendations, it looks positively conservative to say that money should not be printed and that lower taxes will eventually force down government spending.

In effect, deficit-tolerance has become common ground in U.S. politics. In a global context, that is reasonable. Even proponents of austerity usually expect deficits to fall only gradually; they recognise that unnecessary recessions follow sharp fiscal adjustments. In the United States, the consensus of ideological opposites may allow temporary budget fixes, but it also nurtures unrealistic expectations.

The Tea Party case against taxes looks much more attractive when it comes without harsh cuts in government services and entitlements. And the liberal case for big government looks more attractive when it comes without any promises of tax increases in the foreseeable future. It would be better for both sides to admit that citizens always have to pay for their governments.

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U.S. lawmakers agreed a deal which increased some taxes and deferred previously mandated spending cuts. The bill was passed by the House of Representatives on the day the previous legislation, which also increased taxes significantly, went into effect. Most economists believed this “fiscal cliff” would have led to a recession in the United States.

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