Tuesday, July 19, 2011

Taxes and Mythology

I rather like David Leonhardt's NY Times article on the inevitability of rising taxes.  What I want to take out of it is this:

How could this be? Above all, I think it reflects a desire to return to the good old days. Not so long ago, nobody was talking about tax increases or Medicare cuts, and the federal budget seemed to be in fine shape. If only we could get back to the past — get spending under control, as the clich√© goes — we’d be O.K. The debt ceiling, with its harsh finality, offers the chance.

The fascinating thing about this is that while I think this is very accurate, it is also completely mythological, like Hellenistic nostalgia for the golden age.  Our taxes are the lowest they've been in the better part of a century.  This is a pretty large part of the problem, if we had the taxes of the good old days we wouldn't be having the problems we have now.  If we had never lowered them, we wouldn't have as high of debt payments as we do today and would have lower overall debt.*  This is symptomatic of a kind of malaise that frequently seems to overtake societies, they resist needed changes by instead appealing to a mythology about what worked in the past and try to locate their success in some kind of mythological adherence to virtue rather than the simple pragmatism that generally characterized the mythologized era.  Now, as ever, policies need to match circumstances, there is no golden age ideal that translates across eras.  If there were, every golden age wouldn't be so different.

It's funny, and kinda scary, how recurrent these themes are as well as how events in living memory can be so quickly mythologized.

*While debt rising out of control is of course a problem, I do remain somewhat baffled as to what the threat is as long as interest rates remain low.  The problem of high debt is largely that interest rates begin to rise along with it and debt service payments begin to bite sharply into current revenue, making it hard to deal with unexpected shocks.  We are far away from this point yet.  Rising taxes to levels that most of us have experienced within our lifetimes would do a great deal to close the deficit (projected increases due to an aging population aside, but this is largely temporary as our demographics turn favorable again, and could be completely erased by a changed policy stance towards immigration to balance out our demographic profile, our problems are ultimately entirely political and social, I see little in the way of real economic problems in the US).  Like many people, I'd like to shrink the debt, the burden of interest payments is a drag on more worthy investments, but I fail to see the urgency.  What foreseeable crisis is worse than the one we're in right now?

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