Comments on: How to Be Fiscally Responsible

By: Der Steuerzahler als Geldautomat «

Der Steuerzahler als Geldautomat « — Sat, 13 Mar 2010 11:29:29 +0000

[...] Der US-Ökonom Steven Landsburg stellt seinen Bloglesern die Frage nach der adäquaten Reaktion auf ein Leben über die Verhältnisse und nimmt plausibler Weise an, dass wohl nahezu jeder darauf antworten würde, man müsse entweder sparen oder mehr verdienen. Wohl kaum jemand würde auf die Idee kommen das Problem mit häufigeren Stopps am Geldautomaten zu lösen. Wie kommt es dann, dass viele Leute der Meinung sind, dass der Staat trotz hoher Verschuldung ruhig mehr Geld ausgeben könne, wenn er nur in der Lage wäre das notwendige Geld irgendwann vom Steuerzahler einzutreiben? Schließlich sind wir Bürger für den Staat nichts anderes als Geldautomaten… [...]

By: EricK

EricK — Fri, 12 Mar 2010 12:30:32 +0000

Isn’t part of the reason there is so much “left in the ATM” that taxes have been too low in the past? The taxes haven’t been collected in the past – which is why spending has been greater than tax revenue – so it IS there to collect now.

If a government spending more than it claims in taxes is what it means to be fiscally irresponsible, then either decreasing spending or increasing taxes will be more fiscally responsible. If the relative sizes of spending and taxes are not what makes a government fiscally responsible, then the whole basis of the analogy at the start of the blog post falls apart.

By: Steve Landsburg

Steve Landsburg — Fri, 12 Mar 2010 11:57:59 +0000

Neil:

I lose that tax revenue forever–the present value of future taxes doesn’t change, so the total falls.

Anything you fail to tax is either saved or spent. If it’s saved, then it’s not lost because it’s still there to tax tomorrow. If it’s spent, then it’s not lost because people got something they valued for it—and the goal, here, of course, is to provide people with things they value.

In the same way, if you don’t get that $500 haircut, then the $500 either stays in the bank or is available to spend on, say, home repairs. Either way, pulling the $500 out of the bank to finance the haircut can’t make the haircut more responsible.

By: Bennett Haselton

Bennett Haselton — Fri, 12 Mar 2010 06:16:13 +0000

I think that raising taxes today is somewhat more responsible than adding to the debt, because it forces people to pay for things that they want *now*, which makes them think harder about whether they really want them. (I’m hand-waving over how the tax system makes some people pay for things that benefit other people, but that’s entirely separate from the “pay now” vs. “pay later” issue.)

You said that a $500 haircut doesn’t become “responsible” just because you pay for it out of your bank account. No, but it’s slightly *more* responsible than paying for it with a credit card.

Yes, logically speaking, if you put a purchase on your credit card, you’ll have to pay for that purchase eventually, so you should weigh the costs and benefits the same as for a cash purchase. But we know that many people *do* make more irresponsible purchases with credit cards than with their checking accounts.

And that’s not even taking into account that buy-now-pay-later enables some people to get out of paying entirely, if they die before the later taxes are assessed, or if they earn all their income now and them stop earning and start living off their savings before the future tax hikes come. That’s like putting a $500 haircut on a credit card that *might* come due while you’re still working, but once you retire, has to be paid by someone else.

Of course you’re right that the important thing is to stop getting $500 haircuts in the first place.

By: Neil

Neil — Fri, 12 Mar 2010 04:57:23 +0000

Okay, I’ve thought about this, and I think the argument is wrong. Taxing power is not like money in the bank–i.e., if I don’t take it out today, it is there for me tomorrow. Taxes are on economic activity–if I fail to tax economic activity today, I miss that chance and reduce the total amount of tax I can collect overall.

The total tax that can be collected is the discounted value of the maximum possible tax rate (say the revenue maximizing rate) times the flow of economic activity in each period. If, for example, I set the current tax rate equal to zero today, I lose that tax revenue forever–the present value of future taxes doesn’t change, so the total falls.

By: EricK

EricK — Thu, 11 Mar 2010 21:38:53 +0000

Instead of (or, perhaps, as well as) eliminating those departments which largely just move money around, why not just slash military spending? The US military takes over a million potentially productive people and employs them to destroy wealth (both their own and that of other countries).

By: Steve Landsburg

Steve Landsburg — Thu, 11 Mar 2010 21:18:36 +0000

DividedLine: I agree that fiscal responsibility can, in principle, require spending either more or less. The key point, though, is that any given expenditure either is or is not responsible, and raising taxes can’t move an expenditure from one category to the other.

By: Neil

Neil — Thu, 11 Mar 2010 21:04:53 +0000

If the mismatch of government spending and taxes has nothing to do with fiscal responsibility or irresponsibility, why do so many states have balanced budget requirements?

By: DividedLine

DividedLine — Thu, 11 Mar 2010 20:38:34 +0000

As per usual, I’m about a day behind Harold. Kind of lost in the discussion about $500 haircuts (wasn’t there a candidate who got one on the tarmac of LAX and tied up all air traffic for a half hour while he did? Edwards?) and farm subsidies is the leap of faith that “fiscal responsibility means spending less.” Not necessarily.

As Harold points out, at certain times such as a recession like this one where the interest rate is near the 0 bound and the multiplier is greater than one, it’s fiscally irresponsible for the government not to spend money in ways that will both stimulate demand and/or invest in the future.

http://www.princeton.edu/economics/seminar-schedule-by-prog/macro-s09/monetary-fiscal-policy-co/schedule/pdfs/multiplier-version9.pdf

By: Dave

Dave — Thu, 11 Mar 2010 19:48:41 +0000

Dullgeek – I like it. I would just say that the perverse incentives inherent in the system might make the answer YES.

eg: Given your neighbour just withdrew $500 from your bank account to pay for his haircut, is it responsible for you to increase your spending by $500 to feed your family by withdrawing $500 from HIS bank account?

I would argue that it would be irresponsible not to do that (as much as I abhor the idea)