Tuesday, April 15, 2008

McCain and Budget Deficits

I'm going to do something interesting in this post which will piss off some of my fellow libertarians. So please hear me out.

The always-outstanding Cernig at the always-phenomenal Newshoggers site has a post that attack John McCain's economic proposal, which amounts to a plan to implement additional tax cuts and cut government spending. However, Cernig points out that McCain's spending cuts would only reduce pork barrel spending along with Medicaid and Social Security spending.

Like Cernig, I have no idea how he could cut Medicaid and Social Security, which are both non-discretionary spending. Meanwhile, despite all the (justifiable) outrage over earmarks, they make up only a minuscule fraction of the federal budget. Of course, if McCain was really serious about cutting spending, he would dramatically reduce spending on the oversold War on Terror (especially the Iraq War). As Cernig points out, we spent more on supplemental spending alone for the War on Terror last year - to little demonstrable effect - than we did on education (which is amazing in the NCLB era). The size of our defense spending is made even clearer by this graph at TaxProf Blog.

But I noticed something else in both Cernig's post and TaxProf Blog's post: one of the government's largest annual expenses is interest on the national debt. Depending on whose statistics you use, interest on the national debt is either 9% or 13.4% of federal spending. That means that about 10% of the federal budget is spent on literally nothing before another penny is spent on any program (no matter how ineffectual). Sigh. I remember the days when Republicans were deficit hawks and it was the Democrats who said that "deficits don't matter."

The thing is: that 10% of the federal budget amounts to an annual tax of its own on the American people - no one in this country gets anything out of those interest payments. Worse, of course, is the fact that it contributes to inflation, making it effectively a double tax.

My point is this: unless you believe we are currently on the left side of the Laffer Curve (which even I think is extremely doubtful), cutting taxes without unconscionable cuts in nondiscretionary spending will likely only increase our deficit. This is particularly true as we head into a clear recession.

I would argue that the best thing our next President could do to help us have lower taxes in the future is to pay down the national debt. I do not think that warrants a tax increase, by the way. It just means that we need to cut back significantly on defense spending and keep taxes at current levels. But currently, our national debt is more than our annual budget. That is not a good thing.

***UPDATE***Jay McDonough (who was the original source for a lot of these numbers) points out that the national debt is actually triple the annual budget. That is staggering on any number of levels. What makes it worse is its juxtaposition against this article from the current issue of Reason, which shows how the Bush Administration has managed to massively increase defense spending through the shady supplemental appropriations process. This process guarantees a lack of fiscal discipline while at the same time permitting the Bushies to semi-accurately make the claim that they are reducing spending (even though they're not).