i’m not sure, man. tax cuts can be just as much stimulus as infrastructure projects.  as you know, the primary cause of our deficits are because of unpaid for tax cuts, which were supposed to stimulate the economy back in 2000.  but in a very real way, tax cuts are even more fiscally irresponsible as stimulus as spending programs – bc while spending programs are temporary in nature (obama’s stimulus is almost all paid out already), politicians always say refusing to extend a tax cut = raising taxes.  that is why the fiscal picture is so bleak.

as a more general matter, my general criticism of your approach is that while you say as “a general proposition, letting people keep more of their money is a more sustainable longterm economic catalyst,” there is almost no history of that actually being true.  i know it may feel intuitive, but if that were true, you would be able to quantify it.  cutting taxes just does very little to help the economy – probably because rates, as you know, are at historically low levels.  and the worst thing you can do in a recession/weak economy is to cut short-term spending, because that just further shrinks demand (see, 1937).

The primary cause of our current deficit is tax cuts coupled with massive spending on wars, prescription drugs, bailouts, stimulus, etc.  Tax cuts with appropriate cuts in spending (or simply a lack of increased spending) would not create unsustainable deficits if implemented properly. I think this is what Dave meant by “unpaid for tax cuts,” but I just thought I’d emphasize the fact that tax-cuts themselves are not the culprit.

Do we have examples of spending stimulus generating long term growth?  I’m not saying tax cuts automatically lead to increased prosperity — the market is extraordinarily complex and, without a doubt, imperfect.  To me, with something as complicated as economic exchange on a macro level, do we take affirmative steps and do things that, at the least, equally don’t have much historical support, or take the more hands-off approach of letting people keep more of the money they earn to buy things, invest, and start businesses?  Isn’t the latter option what the economy is in the first place?

Most would agree that people prosper in our economic system because they work and earn a living, and are equipped with the necessary incentives to take risks because of the prospect of economic gain.  This is why we have the products and services that we have.  Why does this basic principle suddenly need additional justification when we talk about “reducing taxes” and giving people more money to do everything we’re already convinced works? Isn’t our entire history one massive example of this?  It’s certainly not a magical cure to, or a safeguard against, a recession/depression — the march out of inevitable economic downturns takes time.  But incentivizing an organic form of demand from the bottom-up is more durable and more real.

Taxes levied by the state are necessary to fund certain public operations, whatever they may be.  They should not be used as a form of economic central planning.  Spend money on a bridge when we actually need a bridge, not from the mindset of creating jobs.  That’s how resources are wasted and inefficient economic decisions are made.  In such situations, I would much rather have that stimulus money remain in people’s pockets to book travel, buy clothes, and drink beer.

I think if you’re taking the affirmative steps of taking money from people and spending it on projects for the purpose of creating jobs, then that’s the position that has to be proven to work.

Even before the president had been inaugurated, Geithner had been urging him to set a target for the budget deficit that would require shrinking its size to 3 percent of the U.S. economy. At that level, the national debt would eventually become manageable.

“From the earliest moments of the administration and even before, he clearly had a big focus on long-term deficit reduction and making clear, not just to the markets but for the entire economy, that the government is living within its means,” Goolsbee said in an interview.

The economic team went round and round. Geithner would hold his views close, but occasionally he would get frustrated. Once, as Romer pressed for more stimulus spending, Geithner snapped. Stimulus, he told Romer, was “sugar,” and its effect was fleeting. The administration, he urged, needed to focus on long-term economic growth, and the first step was reining in the debt.

Wrong, Romer snapped back. Stimulus is an “antibiotic” for a sick economy, she told Geithner. “It’s not giving a child a lollipop.”

In the end, Obama signed into law only a relatively modest $13 billion jobs program, much less than what was favored by Romer and many other economists in the administration.

“There was this move to exit fiscal stimulus a lot sooner than we should have, and we’ve been playing catch-up ever since,” Romer said in an interview.

I’ve always had trouble wrapping my head around how economic stimulus in the form of public works projects creates long term economic growth.  We can build all the dams, roads, and bridges we want, but after those things are built, how does that translate into broad based economic recovery?  The money is spent, the infrastructure is built, then what?  True, the companies that build these things receive a financial jolt, and funnel that jolt through the economy.  But once that primary stimulus faucet is turned off, I don’t see how there is some metaphorical engine that has somehow been started — which, I think, is why we constantly hear cries that “the stimulus was not enough.”  But this type of logic transforms the idea of limited stimulus into a permanent form of economic propping-up.  So it seems Geithner’s sugar metaphor is compelling.  To me, at least.

To be clear, I’m not attacking the idea of making necessary improvements in infrastructure.  And I concede that stimulus saves and/or creates jobs in the short term.  I’m just questioning the utility of this type of spending for spurring long-term economic growth.  I think, as a general proposition, letting people keep more of their money is a more sustainable longterm economic catalyst — lest we want permanent government stimulus.

That being said, here’s a paragraph from a recent post of his:

Listen, everyone knows that we have an entitlement spending problem, but that’s not what’s driving our national debt.  The #1 driver of the debt is that people (i.e., Republicans) keep cutting taxes and INCREASING spending. Taxes are now too low, so the debt is too high.  I mean…can someone explain the competing narrative to me? Entitlements haven’t caused our current national debt $14 trillion national debt – these failed policies have.  The numbers don’t lie.  Why the heck would we not be open to raising some taxes as part of a deal to also reduce spending?

Dave touches on a couple of things here.  First, let me say that I completely agree that Republicans have cut taxes and increased spending.  This is not up for debate — it’s true and it has cost us tremendously.  But let’s put the partisan stuff aside.  Balancing the budget and reducing our national debt certainly involves bringing taxes in line with spending.  We generally should spend what we bring in, although small deficits/debts are arguably okay.  But this doesn’t mean that taxes should necessarily be adjusted to match our spending; spending could be adjusted to match our taxes.  You can even balance the budget by increasing spending, and increasing taxes to even higher rates. Or you can do it by lowering taxes and really slashing spending, a la Paul Ryan.  But at the core, the debate is over what level and type of spending we want.  Once that is figured out, the math of tailoring tax rates to our spending is indeed as simple as Dave makes it sound.

So my point is that there are value judgments beneath the numbers.  And that’s really the debate the country is currently having.  We’re wrestling with what kind of country we want, and how much we’re willing to pay for it.

But Ezra Klein seems far too eager to conclude that the notion that the pledge — i.e., refusing to raise taxes — has anything to do with limiting the size of government is a “fantasy.”  Quoting a 2004 report written by William Gale — which he calls a “thorough demolition” of the aforementioned notion — Klein writes:

“Since 1981, periods when tax revenues fall (relative to GDP) have been periods when federal outlays rise.” In other words, tax cuts and spending increases tend to happen simultaneously. Fiscal irresponsibility begets fiscal irresponsibility, which is much as you’d expect: if you sever the connection between taxes and spending, you make spending appear free.

But perhaps the pledge signers are being fiscally responsible while the rest of Congress is foiling their efforts to cut spending? Nope. “Six out of every seven signers voted in favor of the Medicare prescription drug bill last fall, the largest entitlement increase in decades. About 80 percent of pledge signers who voted on all of the bills supported all of the recent tax cuts, two proposals to make them permanent, and the medicare bill. Most of these bills were strongly opposed by non-signers. Besides supporting the medicare bill, pledge signers also favored the farm bill in 2001 by a margin of 3:1. Even after three years of falling revenues and increasing spending, three quarters of the signers who voted supported the recent, pork-laden highway bill in the House.”

It’s definitely true that the tax cuts Republicans have been historically behind has not lead to smaller government.  But Klein is essentially belaboring a point that most intelligent people on the fiscal right are quite willing to concede: Republicans have been just as fiscally irresponsible, if not more so, than the Democrats.  I’m not sure what this proves, other than that Republicans blow a lot of hot air when it comes to fiscal prudence.  Yes, they’ve cut taxes and spent lots.  But had they not spent on prescription drugs and costly wars, we’d have a different fiscal picture. They’ve only shown real commitment to one half of the small government formula, but it’s not like there’s some sort of natural correlation between tax cuts and spending increases, other than the fact that Republicans have apparently demonstrated a love for this combo.

The fact is that cuts in both taxes and spending would reduce the size of government.  And this combo is what hasn’t been taken for a real spin in the modern social-safety-net-state, for better or worse.  Historically, Klein’s point might be true.  For foolish, political reasons, less taxes have coincided with increased spending.  But this has been a choice made by policymakers, not some rule of thumb.

For example, Ezra Klein says the number is $20-25 billion, adopting that version of a CBO report that calculates the amount of savings over the next few years.  But wasn’t this billed as the largest annual spending cut in U.S. history?  I’m no budget expert, but spreading the savings over X number of years into the future seems a bit disingenuous.

Now, the National Journal reports the numbers as follows:

A Congressional Budget Office analysis of the fiscal 2011 spending deal that Congress will vote on Thursday concludes that it would cut spending this year by less than one-one hundredth of what both Republicans or Democrats have claimed.

A comparison prepared by the CBO shows that the omnibus spending bill, advertised as containing some $38.5 billion in cuts, will only reduce federal outlays by $352 million below 2010 spending rates. The nonpartisan budget agency also projects that total outlays are actually some $3.3 billion more than in 2010, if emergency spending is included in the total.

Ezra Klein thinks this is a better result than the initial $38.5 billion.  Russ Roberts writes “to say that Congress spends money like a drunken sailor is to insult inebriated seamen.” And I’m just too hungover to think about this anymore.