Is Fiscal Responsibility Returning?

[jyl]

According to this article, the traditional fiscal conservative Republican is starting to flex his muscles on Capitol Hill.

http://www.washingtonpost.com/wp-dyn/content/article/2005/10/16/AR2005101601055.html

House Republican leaders have moved from balking at big cuts in Medicaid and other programs to embracing them, driven by pent-up anger from fiscal conservatives concerned about runaway spending and the leadership's own weakening hold on power.

Beginning this week, the House GOP lawmakers will take steps to cut as much as $50 billion from the fiscal 2006 budget for health care for the poor, food stamps and farm supports, as well as considering across-the-board cuts in other programs. Only last month, then-House Majority Leader Tom DeLay (Tex.) and other GOP leaders quashed demands within their party for budget cuts to pay for the soaring cost of hurricane relief.

DeLay told a packed room of reporters on Sept. 13 that 11 years of Republican rule had already pared down the federal budget "pretty good." [rest snipped]

I'm glad to see this first step to fiscal responsibility. In my opinion, a real cure will ultimately have to include allowing some of the Bush tax cuts to expire and/or additional tax increases, either on individuals or on corporations.

Many (here on OT and elsewhere) believe that cutting tax rates produces enough economic growth to more than restore the lost tax revenue. We've debated this ad nauseum. But consider that we've likely seen the peak of the "recovery from the post-2001 recession" economic growth, and GDP growth is likely to slow from here. Yet even that that peak growth, plus one-time tax revenues (e.g. taxes on corporate repatriation of overseas cash) proved insufficient to reduce the federal budget deficit to a responsible level.

Many also believe that by simply "eliminating waste" from the federal government, the budget deficit can be largely eliminated without raising taxes. Again, something we've argued about. But consider that the vast majority of the federal budget is for non-discretionary spending, that simply cannot be cut in the short term. For example, interest on the federal debt, military spending, Social Security, etc. The discretionary spending that is available to cut is quite small. Even cutting, say, $100BN from that discretionary spending won't be sufficient.

Hence my belief that, like it or not, tax rates must be raised in order to sustainably bring the budget deficit to a responsible and tolerable level. Whether the politicians have the will to do this remains to be seen. Hard to blame them, really, since the voters appear addicted to the idea that we can have everything we want (Iraq war, hurricane reconstruction, etc) without paying for it.

There will be some interesting years ahead.

[Superman]

Yeah, that's a brilliant strategy by Republicans Under Fire. This way, they'll get famous for cutting aid to needy families as tax breaks for millionaires are implemented.