Apr 262011

The U.S. is in such dire financial shape that it must raise taxes on the middle class as well as the rich AND curtail, via means-testing, giant entitlement programs, including Social Security and Medicare. That’s the Easter Sunday sermon from supply-side guru and former OMB director David A. Stockman via a New York Times op-ed.

Stockman, famous (or infamous) for saying that the 1981 Reagan tax cut “was always a Trojan horse to bring down the top rate” because “[i]t’s kind of hard to sell ‘trickle down [economics],” takes on both President Obama and House Budget Committee Chair Paul Ryan.

Of the President and his revised 2012 budget, Stockman writes:

In attacking the Bush tax cuts for the top 2 percent of taxpayers, the president is only incidentally addressing the deficit. The larger purpose is to assure the vast bulk of Americans left behind that they will be spared higher taxes — even though entitlements make a tax increase unavoidable. Mr. Obama is thus playing the class-war card more aggressively than any Democrat since Franklin D. Roosevelt — surpassing Harry S. Truman or John F. Kennedy when they attacked big business or Lyndon B. Johnson or Jimmy Carter when they posed as champions of the little guy.

Of the budget proposed by Rep. Ryan, he writes:

On the other side, Representative Ryan fails to recognize that we are not in an era of old-time enterprise capitalism in which the gospel of low tax rates and incentives to create wealth might have had relevance. A quasi-bankrupt nation saddled with rampant casino capitalism on Wall Street and a disemboweled, offshored economy on Main Street requires practical and equitable ways to pay its bills.

Stockman observes that the Ryan plan puts the defense budget off limits and leaves the giant Social Security and Medicare entitlements untouched for 10 years. “What is left, then, is $7 trillion in baseline spending for Medicaid and the social safety net — to which Mr. Ryan applies a meat cleaver, reducing outlays by $1.5 trillion, or 20 percent.” Then comes Stockman’s coup de grace on Ryan’s plan:

Trapped between the religion of low taxes and the reality of huge deficits, the Ryan plan appears to be an attack on the poor in order to coddle the rich. To the Democrats’ invitation to class war, the Republicans have seemingly sent an R.S.V.P.

Stockman sides with Pimco’s Bill Gross, arguing that bond prices are higher and interest rates lower than they would be absent money-printing by central banks, which function like “roach motels,” where Treasury bonds go in but never come out. He see Japan and China both buying less U.S. debt in the future, and interest rates going up. He concludes that the “the global bond market is already rumbling — and around the corner, a fiscal conflagration surely lies.” No wonder your dollar buys less than it used to at the gas pump and grocery store.

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