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Is this storm season a policy tipping point?


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9/22/2005 7:45 AM
Mark Hammer Is this storm season a policy tipping point?
This morning's anxious anticipation of Hurricane Rita's arrival on the Texas coast got me thinking.  
 
Although obviously founded on a great many things, certainly one of the notable platforms of the U.S. founding fathers was that of taxation. I recall a Tea Party. For as long as I can remember growing up, the consistent difference between the U.S. and Canada was the taxes, with American taxes generally being lower. Over and above any discussion (which I'd prefer to avoid here) about how wisely and efficiently such tax money is spent by each government, the general difference was that Washington tried to be as hands off as possible when it came to directly federal revenues towards "the social safety net".  
 
Thankfully, the U.S. has generally been in a position where any federal expenditures could go towards foreign aid, NASA, the military (well, maybe NOT so thankfully on that last one), etc., anmd not towards coping with famine or internal malaria epidemics and other curses. Although the debt has kept being racked up by one thing or another, there has never been a time where the U.S. was smacked so hard upside the head by tragedy that it needed to start treating taxes as fundraising to alleviate its own misery.  
 
This summer and autumn might conceivably change all of that. The damage from Katrina, and the anticipated damage from Rita, and who knows what other letters of the alphabet after that, is so extensive that: a) rebuilding is not just a mission of mercy but essential for continuing economic viability of the nation, and b) this ain't just something you can fix by drawing from petty cash like the WTC tragedy or the Chicago Fire or San Francisco earthquake or any of the regular brush fires or floods that destroy communities. Maybe my sense of scale is wrong, but I have the sense that these recent and ongoing events are big enough that a rethink of taxation is going to be prompted in both houses of government.  
 
Certainly one of the prominent questions is whether there is anything that can be cut so as to avoid cranking up the national debt a significant amount while still being able to defray post-hurricane costs without raising taxes. There is foreign aid, there is the U.N., there is Iraq and Afghanistan, there is Medicaid, there is NASA, and likely some other things of equal importance I've forgotten. How much of that can go or be significantly reduced? I don't know. Certainly the rebuilding costs cannot be shouldered by those states affected since a great deal of their respective economic engines have been shut down in the process.  
 
Please note that I am NOT sitting here rubbing my hands with glee, grinning, and thinking "So NOW the shoe is on the other foot". I think it is important and useful for the rest of the world tohave the U.S. as almost a kind of experiment in federal taxation and federal/state relations, just to keep one option alive and visible for others. The shift I'm curious about is NOT just from the White House either, but from Congress and the Senate. And I don't expect the U.S. to be magically transformed into Canada or Sweden. Rather, I'm just wondering if this summer's many fiscal commitments will push government to think differently, and do so in any lasting way. Certainly the events that forged Washington's mindset about the role of taxes in the nation took place over a brief time frame. Perhaps a few months of unanticipated tragedy may have a similar catalytic effect.  
 
Winds of change? I'm curious. Meantime, I hope all are safe, and find welcoming shelter soon.
 
9/22/2005 8:19 AM
Earl

Don't bet on it.
 
9/22/2005 10:24 AM
jaysg
I agree with Earl. The system is entrenched. The oblivoids are in charge.
 
9/22/2005 8:27 PM
Enzo

We would like to avoid higher taxes. The REpublicans are all about lowering taxes. Unfortunately, those Republicans of the Bush stripe want to cut taxes no matter what, even if it is not the appropriate thing to do. I don't appreciate blind adherence to the form on either side of the aisle. And we have it here.  
 
Further, the current administration has clearly shown that deficits are of no concern to them nor is the national debt. SO handling costs without raising taxes is as far as they think it. They don't worry about the debt.  
 
Sadly it will be politicized. We will send out the tax cuts to larger tax bill payers. Then we will turn around and cut funding to PBS or lay off VA hospital staff saying money is tight. They want to get rid of PBS anyway, so by using the Katrina issue, they achieve that goal.  
 
it is our national problem, it is not just New Orleans problem. NO is our port shipping all our products into and out of the center of America, a source of food and energy products we all use.  
 
It would not be their approach to reduce spending, but even if it were, it is a tough call. Looking at the budget, the largest part of it is entitlements - social security, medicare, and the like. NASA is a drop in the bucket, same with the UN. We need 100 billion, so what would 20 million from NASA accomplish?  
 
Those doves among us want to point out the military budget, but in terms of the overall budget, it is not as large as we might like to think. When we declared war on terror and attacked Afghanistan loking for Bin Laden, we could get behind that. But then they went and invaded Iraq instead of finding Bin Laden and that commited overnight hundreds of billions of our dolars.  
 
The problem is, they will chip away at small things and things like PBS or AMtrak that can't defend themselves and pat themselves on the back for having taken care of 1/10% of the problem as if it were a major action. Then they will go off to other things.  
 
What do you want to bet that a cost cutting bill will pass through the congress that shaves a few billions off things to help pay for the disaster, but in the process there wil be a few hundred million added to the bill for oh farming subsidies here, and a major new facility built in another red state for something there, and some tourism development funds for another state over here. And pretty soon the billion dollar cost cutting bill winds up with a billion and a half of pork barrel spending added on. And the president will sign it.  
 
The Iraq war would have about paid for Katrina, but that is overly simplistic and hindsight to boot. Too late now. There is no easy way to pay for this. There isn't even a hard way to pay for this.  
 
Will this push the government to think differently? No, not at any fundamental level. Specific thoughts on specific things? MAybe. Problem is that the government - or the congress only if you prefer - is not a contemplative academic body formulating plans then studying them to measure their effectiveness, then reformulating the plans in light of new evidence. The congress is an accumulation of agendas and will remain so until there is a fundamental shift in society.
 
9/23/2005 8:52 AM
Mark Hammer
"The Iraq war would have about paid for Katrina, but that is overly simplistic and hindsight to boot. Too late now. There is no easy way to pay for this. There isn't even a hard way to pay for this.  
 
Will this push the government to think differently? No, not at any fundamental level. Specific thoughts on specific things? MAybe. Problem is that the government - or the congress only if you prefer - is not a contemplative academic body formulating plans then studying them to measure their effectiveness, then reformulating the plans in light of new evidence. The congress is an accumulation of agendas and will remain so until there is a fundamental shift in society
"  
 
Thanks for your cogent comments. I think what prompted my question was exactly the concerns/points listed above. There IS no "easy" way to pay for it, and with the multitude of agendas associated with every region and congressman, could *anything* be significantly cut while that congressman stands silent? I don't know. I just think that the potential impact of the rebuilding costs is so large that its policy implications will spill over out of the White House and into the upper and lower house. Maybe this IS the series of events that starts a fundamental shift in society. Maybe Congress is going to have to start putting tough choices on the table for constituents, one of which could involve gathering more tax moneys and using them to provide a safety net. The U.S. is chock full of kindness and compassion, and as much of a B to B+ level president as Bush is, I think he also strives to be compassionate in his own muddled way. But once in a while, you get tragedies where a few more pants left at the Salvation Army used clothing box, and leaving a few more cans for the food bank (i.e., the everyday kindness of regular folks, and even all that faith-based social support) isn't enough. Sometimes, the nation has to take its money, decide its going to act as a nation, and change its way of doing things.
 
9/25/2005 9:19 AM
MBSetzer

Well, it looks like now that the middle class has been fully tapped, they are getting the upper middle class into the cross-hairs:  
 
*GAO Says Tax Cuts Aren't Economically Viable  
 
By David Lawder, Reuters  
 
WASHINGTON (Sept. 22) - Tax breaks such as deductions for home mortgage interest and state and local taxes cost the federal government $728 billion last year and need to be reexamined, the Government Accountability Office said in a new report on Friday.  
 
Comptroller General David Walker, who heads the agency, said the government must look at ways to rein in the growth of so-called tax expenditures if it is to avoid huge fiscal deficit problems in future years.  
 
"We're on an imprudent, unsustainable fiscal path," Walker told a news conference. "The status quo is not an option and we're not going to grow our way out of this problem and the sooner we get started the better."  
 
 
"We're on an imprudent, unsustainable fiscal path."  
-David Walker  
 
GAO launched the study to help contribute to federal tax reform debate in Washington that was expected to heat up this autumn. A Bush administration tax panel was scheduled to deliver its recommendations by September 30, but a spokeswoman said that will likely be delayed by at least a month due to Hurricane Katrina.  
 
The GAO study said annual federal revenue losses tripled in real terms from $243 billion in 1974 to $728 billion in 2004. Tax expenditures peaked in 2002 at $783 billion before the full effects of the last recession cycled through the Internal Revenue Service.  
 
For most of the last decade, revenue losses from tax expenditures were greater than the federal government's discretionary spending, the GAO said.  
 
The biggest growth in recent years is the exclusion from income tax of employer-paid health insurance benefits, contributing $102.3 billion or 14 percent of the 2004 lost revenues. Deductability of home mortgage interest -- including second homes -- was the second biggest portion at $61.5 billion or 8.4 percent of the total.  
 
Net exclusion of 401(k) contributions and employer-paid defined pension benefits and earnings together were $94.7 billion while deductability of non-business state and local taxes came to $45.3 billion or 6.1 percent of the total.  
 
Exclusion of interest on state and local tax-exempt bonds cost $26.2 billion in 2004, the ninth largest category at 3.6 percent of the total.  
 
Walker said the retirement of the baby boom generation required huge spending growth and massive structural federal deficits. If nothing is done about the problem, balancing the budget by 2040 would require actions as large as cutting total federal spending by 60 percent or raising federal taxes 2.5 times today's level.  
 
"The time has come to reexamine the base of all major federal spending and tax programs, policies functions and activities. We were already deeply in the hole before Katrina hit and now Rita is off the coast," he said.  
 
The agency, however, is not recommending which areas should be targeted for cuts. Walker said that's for politicians to decide, and it will likely take 20 years to accomplish.  
 
"We're in the fact business, not the policy business, but you need facts to make good policy and quite frankly that doesn't happen enough in this town," Walker said.  
 
A spokesman for the Office of Management and Budget dismissed the report, saying it prescribes de-facto tax increases.  
 
"We do not intend to implement the report. The administration rejects any attempts to address the long term fiscal imbalances with tax increases," said OMB spokesman Alex Conant, spokesman for OMB.  
 
 
09/23/05 16:18 ET*  
 
Mike
 
9/26/2005 9:58 AM
Mark Hammer
Thanks, Mike. Interesting aticle.  
 
I guess what is different about the present climate (no pun intended) is that where expenditures on programs are things where people can debate, or say "Nah, can't afford it", the two successive hurricanes are something the entire nation (hell, even folks outside the U.S.) can agree needs to be addressed. They may not agree about the manner in which it will be addressed, but for sure there is concensus that all those folks need a roof over their heads, all those kids need to go to school, and all those areas need electricity and pottable water.  
 
The sheer magnitude of the anticipated costs is something that places it in serious competition with other ongoing expenditures that seriously challenge deficit-control.  
 
Wouldn't it be ironic if the *real* enemy of this government is not the left, or Michael Moore, or Hollywood do-gooders, or Al-Qaeda, or "those snooty French", or those damn Canadians that won't cooperate, but the GAO?
 

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