David R. Henderson  

My Review of Bruce Bartlett

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Planning for the Unpleasant Fu... Free for Now...

My review of Bruce Bartlett's latest book, The Benefit and the Burden: Tax Reform -- Why We Need It and What It Will Take is on-line. Two paragraphs from early in my review:

Bartlett's bitterness about his firing has turned into contempt for Republicans and conservatives. For that reason, I wondered how well he would, in his newest book, separate his own upset from his subject matter of taxation. He mainly succeeds. It's true that in the book he disdainfully identifies certain arguments as conservative; I, a libertarian, found some of those arguments compelling. But when he puts his contempt aside, Bartlett's analysis is usually first-rate.

Bartlett is a largely self-taught economist -- and not in the superficial "Ben Stein" sense of someone who knows a little about economics and calls himself an economist. On taxation, especially, Bartlett truly has mastered both the big picture and the intricate details of each topic he addresses. In the 24 chapters, which average only about ten pages each and contain extensive bibliographies, Bartlett usually hits the nail on the head. On the history of U.S. federal taxation; the relationship between tax rates and tax revenues; the comparison of U.S. taxation with European taxation; tax-reform proposals such as the FairTax and the flat-rate tax; the effects of federal taxation on health care, housing, and state and local government; and the value-added tax, Bartlett's analysis is illuminating. However, there are two huge problems with the book. First, despite the book's title, Bartlett only tersely discusses taxation's benefits. Second, and closely related to the first, Bartlett's argument for higher taxes comes down to the need for revenue to keep government spending up: He doesn't really try to justify that spending.


On the Fair Tax:
On the so-called FairTax, Bartlett is brutal, and rightly so. He points out that the 23 percent retail sales tax rate that its advocates envision as a replacement for all current federal taxes is really a 30 percent rate. He also notes that when the Treasury Department, Congress's Joint Committee on Taxation, and the Brookings Institution have tried to estimate the revenues from such a tax, they find that an even higher tax rate would be needed.

On "starve the beast."
One common conservative argument that Bartlett does refute effectively is the idea that we should cut taxes to "starve the beast" -- that is, constrain the federal government's ability to spend. He points out that in 1993, President Bill Clinton and a Democratic Congress "raised taxes by about 0.6 percent of GDP." If the starve-the-beast theory were correct, he notes, government spending would have then risen as a percent of GDP. What actually happened? It fell from 22.1 percent of GDP in 1992 to 18.2 percent in 2000.

And my biggest problem with the book. For a book with "The Benefit" in the title, he doesn't really make the case that there are big benefits from tax-funded government spending:
Bartlett is justifiably pessimistic about the chances of cutting spending much, and so he wants substantially higher taxes. But he never argues that this higher spending on Social Security and Medicare is justified. Instead, he argues that the political power of seniors will prevent such cuts. In short, his argument for taxing people more is that it's easier to bully unorganized taxpayers than to cut benefits for seniors, who vote at a higher percentage than any other age group.

But what about default on the debt? San Jose State University economist Jeff Hummel has written that government default would be "a balanced budget amendment with teeth" because it would be hard for the feds to borrow after stiffing their creditors. Bartlett argues that default "would constitute a grossly immoral theft of trillions of dollars from those who loaned money to the federal government in good faith." Really? It's worse to default on creditors who took a risk than to forcibly take money from taxpayers who have no choice?

Bartlett predicts that "the debt will be paid." I think his prediction is wrong. I think that the government will default before 2025 and that we should prepare for it. Meanwhile, let's not make the spenders' job easier by passing a vat, which, as Bruce Bartlett himself noted, would be a "revenue machine" for the federal government.


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CATEGORIES: Tax Reform , Taxation



COMMENTS (15 to date)
Mark Brady writes:

"Bartlett's bitterness about his firing has turned into contempt for Republicans and conservatives."

Two thoughts.

1. Wasn't Bruce Bartlett already pretty disenchanted with Republicans when he was fired?

2. Don't you (and I and every other libertarian) have "contempt" for Republicans - and deservedly so?

Ryan P writes:
It's worse to default on creditors who took a risk than to forcibly take money from taxpayers who have no choice?

With all due respect, this strikes me as quite strained. On the one hand, if someone lends you money, the decent thing to do is pay it back, even if you think you shouldn't have borrowed the money. And on the other side, taxpayers do have some choice -- they could vote for lower spending. Obviously this is an imperfect mechanism for all kinds of reasons that don't need to be rehashed, but it's strange to take from that that borrowing doesn't imply a duty to repay. Even a strong "taxation is theft!" claim doesn't mean you should steal from others.

Ted Levy writes:

Ryan P: "With all due respect, this strikes me as quite strained. On the one hand, if someone lends you money, the decent thing to do is pay it back, even if you think you shouldn't have borrowed the money."

With all due respect, this response strikes me as quite strained. If someone lends you money, and the only way you can pay it back is to coerce it from others, the decent thing to do is NOT pay it back.

That's ESPECIALLY true if the person who made you the loan did so KNOWING that you tend to get your revenue to repay loans by coercing others. If I make a loan to the Godfather, I don't think the Godfather's goons are taking the moral high road when they say, "Hey, it's just business. We got loans to pay..."

Jeremy, Alabama writes:

I suppose you might hear from a squadron of Fair Tax fans (such as me).

Income tax percentage is calculated from the top line number. You do not calculate tax rate as a fraction of 'what you are left with'. Perhaps we should. In an attempt to compare apples to apples, the 23% rate mentioned is the percentage of the top-line sales price, so (just like income tax percentage) it is then a % of the full gross.

An economist surely knows that a sales-tax scheme would raise revenue off imported goods just the same as US-made, and US-made goods would be exported without the 'embedded tax' making them uncompetitive.

David R. Henderson writes:

@Mark Brady,
1. Wasn't Bruce Bartlett already pretty disenchanted with Republicans when he was fired?
Yes, but the contempt is much more extreme now.
2. Don't you (and I and every other libertarian) have "contempt" for Republicans - and deservedly so?
Not I. I have mainly admiration for Ron Paul and some admiration for Rand Paul, Paul Ryan, and a handful of others in Congress. Bruce has none of that any more.
@Ryan P,
What Ted Levy said plus this: I’m a taxpayer and, except for local and state initiatives in California, I’ve never had a chance to vote for lower spending. I think it’s your argument that’s strained, Ryan P. No taxpayer, except the ones in Congress and in the White House, gets a chance to say no to higher spending at the federal level but every bondholder (of whom, by the way, I am one) gets to say no to holding bonds.

Lord writes:

The debt won't be paid, but neither will we default. We might reach the point where the dollar slides creating more inflation and so much debt the Fed is forced to buy it, but while the fantasy of default is popular with the rabble as the solution to the insoluble, it is in fact no solution at all and fantasies will be crushed by realities as bitter as that may be.

Ryan P writes:

So the argument is that voters have absolutely nothing to do with what policymakers do? I'm sorry, but that's almost exactly the opposite: policymakers have a bit of slack, but they're basically doing what the median voter wants on the big picture issues. I can see one particular voter who is consistently in the minority arguing he or she doesn't control the outcome, but as a whole?

The reason you didn't run into a lot of politicians promising to cut spending a lot should be pretty obvious to anyone with a connection (even once removed) to George Mason -- because there's not much of a political market for that. Most voters are not coerced into the higher spending; they'd just rather have someone else pay the bill, whether that be bondholders or future generations.

Mark Brady writes:

@David R. Henderson
Not I. I have mainly admiration for Ron Paul and some admiration for Rand Paul, Paul Ryan, and a handful of others in Congress. Bruce has none of that any more.

I was meaning contempt for the Republican establishment, at least most of the time. Like you, I greatly admire Ron Paul, and I respect anyone - including members of Congress (Republicans and Democrats) - when they take a principled stand for liberty - a rare occurrence, I regret to say.

Joe Kristan writes:

Shorter Bartlett: You may triumph on the field of battle for a day, but against the welfare state that has risen in the East, there is no victory. So pay up.

The thing that the tax boost fans like Mr. Bartlett usually don't mention: a tax increase will have to fall on the "middle class." You can't support a mass welfare state with a class tax, and right now, the "rich" are footing more of the bill than in other developed countries; they don't have enough money to cover the rest.

Patrick R. Sullivan writes:
If the starve-the-beast theory were correct, he notes, government spending would have then risen as a percent of GDP. What actually happened? It fell from 22.1 percent of GDP in 1992 to 18.2 percent in 2000.

Please. The percentage drop was due to a huge increase in GDP thanks to the dot.com boom/bubble. We can thank Phil Gramm for putting effective spending caps into the 1990 Budget Act for retarding spending.

Bob Murphy writes:

Good review, David. You are characteristically generous in your discussion of Bartlett's transformation. I personally can't take him seriously since in 2006 he put out a book titled, Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy and then in 2009 put out a book titled, The New American Economy: The Failure of Reaganomics and a New Way Forward.

(Full disclosure: On Facebook Bartlett wondered aloud why Krugman should give a punk like me the time of day on macroeconomics, and so he and I aren't pen pals right now.)

Floccina writes:

I have begun to think that for countries with falling populations debt does not make much sense and so maybe default is the least bad option.

Floccina writes:
The thing that the tax boost fans like Mr. Bartlett usually don't mention: a tax increase will have to fall on the "middle class." You can't support a mass welfare state with a class tax, and right now, the "rich" are footing more of the bill than in other developed countries; they don't have enough money to cover the rest.

The thing that gets me is that much of it goes to the middle class and rich. It is designed to hide the tax and display the benefit. So people vote to subside themselves but do not see that it is with their own money.

You cannot subsidize the middle class.

Jim Glass writes:

Bartlett does refute effectively is the idea that we should cut taxes to "starve the beast" ..... He points out that in 1993, President Bill Clinton and a Democratic Congress "raised taxes by about 0.6 percent of GDP." If the starve-the-beast theory were correct, he notes, government spending would have then risen as a percent of GDP. What actually happened? It fell from 22.1 percent of GDP in 1992 to 18.2 percent in 2000.

To the contrary, this is one of Bartlett's *weakest* points and a serious misrepresentation of history.

Serious PAYGO budget rules that restrained spending were in place during 1993-on -- causing spending as a % of GDP to fall -- specifically because deficits were large and projected to *increase forever* even after the Clinton tax increase.

Then in 1998 the surplus arrived to the great surprise of everybody, due to the unexpected economic boom. And spending exploded right then, *because* the deficit had disappeared. As then-CBO head Rudy Penner told Brad DeLong, quote:

~~~~~
Rudy: ... One substantive point: You rightly praised how the BEA [Budget Enforcement Act and its Pay-As-You-Go restrictions] worked from 1990 thru 1997. But then it broke down completely...

Brad: So what happened at the beginning of 1998 to change things so completely? That's still not clear to me...

Rudy: I believe it was the surplus. PAYGO was originally designed to stop tax and entitlement policy from increasing the deficit. (Really, to preserve the gains from the 1990 budget agreement.) After 1997, it had the effect of preventing any reduction of the surplus and that didn't make much sense...
~~~

If that isn't Penner describing "starve the beast" as working -- deficits constrained spending, until the arrival of a surplus caused restraint to be abandoned and spending to explode, because restraining spending when there was no deficit "didn't make much sense" -- then what is it?

Spending as a % of GDP fell from 1992 to 1997 because of deficit-driven PAYGO rules. It fell during 1998-2000 because the denominator, GDP, rocketed up, and it takes a couple years to legislate big new spending.

Bartlett ends the story there. What happened to spending as a % of GDP post-2000 with PAYGO rules gone due to the surplus?

Jim Glass writes:

BTW, logic says that if one believes "starve the beast" doesn't work then one must also believe that "feeding the beast" doesn't matter either. As they are the two sides of the same coin.

How many of the readers -- and hosts -- of this blog will agree to that? "Giving the govt a lot more money it can spend isn't a bad idea to us libertarians, since it *won't* result in the politicians spending it, because govt spending *isn't* constrained by revenue."

Who believes that? Show of hands, please.

Fortunately we have one of the world's great natural experiments on this subject, the Social Security surplus, which arrived as unexpectedly in the late 1980s as the fiscal surplus did in 1998. What did that "feeding" produce?

Kent Smetters tells us:

"... each dollar of Social Security surplus appears to have actually increased the debt held by the public in the past by $1.76."
... Congress not only spent the entire surplus, it enabled them to spend a good deal more than its full amount.

I suspect many libertarian-leaning, small-government types versed in Public Choice will *not* be very surprised by this. And that even most average citizens would say, "If you give politicians more money, of course they'll spend it. Give me more money and I'll spend it!"

But how does one square "giving politicians more revenue to spend obviously increases their spending" with "*not* giving politicians more revenue to spend has *no effect* on their spending"??

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