Paul Krugman: The New Voodoo

December 31, 2010

Republicans used to claim that tax cuts paid for themselves so that they could rail against the deficit and cut taxes at the same time. Though some in the GOP still resort to this defense of tax cuts, now that the "tax cuts pay for themselves" myth has been exposed, Republicans are turning to a new defense of simultaneously cutting taxes and giving "impassioned speeches denouncing federal red ink" that is every bit as flimsy as the old one:

The New Voodoo, by Paul Krugman, Commentary, NY Times: Hypocrisy never goes out of style, but, even so, 2010 was something special. For it was the year of budget doubletalk — the year of ... railing against deficits while doing everything they could to make those deficits bigger. ...

In the first half of 2010, impassioned speeches denouncing federal red ink were the G.O.P. norm. And concerns about the deficit were the stated reason for Republican opposition to extension of unemployment benefits, or for that matter any proposal to help Americans cope with economic hardship.

But the tone changed during the summer, as B-day — the day when the Bush tax breaks for the wealthy were scheduled to expire — began to approach. My nomination for headline of the year comes from the newspaper Roll Call, on July 18: “McConnell Blasts Deficit Spending, Urges Extension of Tax Cuts.”

How did Republican leaders reconcile their purported deep concern about budget deficits with their advocacy of large tax cuts? Was it that old voodoo economics — the belief, refuted by study after study, that tax cuts pay for themselves — making a comeback? No, it was something new and worse. ...

2010 marked the emergence of a new, even more profound level of magical thinking: the belief that deficits created by tax cuts just don’t matter. For example, Senator Jon Kyl of Arizona — who had denounced President Obama for running deficits — declared that “you should never have to offset the cost of a deliberate decision to reduce tax rates on Americans.”

It’s an easy position to ridicule. After all, if you never have to offset the cost of tax cuts, why not just eliminate taxes altogether? But the joke’s on us because ... the incoming House majority plans to make changes in the “pay-as-you-go” rules ... that effectively implement Mr. Kyl’s principle. Spending increases will have to be offset, but revenue losses from tax cuts won’t. Oh, and ... any spending increase must be offset by spending cuts elsewhere; it can’t be paid for with additional taxes.

So if taxes don’t matter, does the incoming majority have a realistic plan to cut spending? Of course not. Republicans say that ... defense, Medicare and Social Security — all the big-ticket items — are off the table. So they’re talking about a 20 percent cut in what’s left, which includes things like running the judicial system and operating the Centers for Disease Control and Prevention; they have offered no specifics about where the cuts will fall.

How will this all end? I have seen the future, and it’s on Long Island, where I grew up.

Nassau County — the part of Long Island that directly abuts New York City — is one of the wealthiest counties in America and has an unemployment rate well below the national average. So it should be weathering the economic storm better than most places.

But a year ago, in one of the first major Tea Party victories, the county elected a new executive who railed against budget deficits and promised both to cut taxes and to balance the budget. The tax cuts happened; the promised spending cuts didn’t. And now the county is in fiscal crisis. ...

Nassau County shows how easily responsible government can collapse in this country, now that one of our major parties believes in budget magic. All it takes is disgruntled voters who don’t know what’s at stake — and we have plenty of those. Banana republic, here we come.

Mark Thoma is Professor of Economics at University of Oregon, and is author of the highly regarded and widely followed economics blog, Economist'sView.