The Kroog Versus Voodoo Economics

Paul Krugman wonders why the Village idea of deficit austerity vanished when the Obama-McConnell tax deal came along.

How did Republican leaders reconcile their purported deep concern about budget deficits with their advocacy of large tax cuts? Was it that old voodoo economics — the belief, refuted by study after study, that tax cuts pay for themselves — making a comeback? No, it was something new and worse.

To be sure, there were renewed claims that tax cuts lead to higher revenue. But 2010 marked the emergence of a new, even more profound level of magical thinking: the belief that deficits created by tax cuts just don’t matter. For example, Senator Jon Kyl of Arizona — who had denounced President Obama for running deficits — declared that “you should never have to offset the cost of a deliberate decision to reduce tax rates on Americans.”

It’s an easy position to ridicule. After all, if you never have to offset the cost of tax cuts, why not just eliminate taxes altogether? But the joke’s on us because while this kind of magical thinking may not yet be the law of the land, it’s about to become part of the rules governing legislation in the House of Representatives.

As the Center on Budget and Policy Priorities points out, the incoming House majority plans to make changes in the “pay-as-you-go” rules — rules that are supposed to enforce responsible budgeting — that effectively implement Mr. Kyl’s principle. Spending increases will have to be offset, but revenue losses from tax cuts won’t. Oh, and revenue increases, even if they come from the elimination of tax loopholes, won’t count either: any spending increase must be offset by spending cuts elsewhere; it can’t be paid for with additional taxes.

So if taxes don’t matter, does the incoming majority have a realistic plan to cut spending? Of course not. Republicans say that they want to cut $100 billion in spending, which is itself small change in a $3.6 trillion federal budget. But they also say that defense, Medicare and Social Security — all the big-ticket items — are off the table. So they’re talking about a 20 percent cut in what’s left, which includes things like running the judicial system and operating the Centers for Disease Control and Prevention; they have offered no specifics about where the cuts will fall. 

There's an even larger plan here.  Republicans figure if they cut taxes enough, social programs that are "off the table" will have to take a hit...or be privatized or eliminated completely.   The goal of Republicans in 2011 is to take the country back to the Gilded Age of the 20's, before Social Security, before Medicare, before the New Deal.  They especially want to eliminate social programs for the poor and for minorities, but keep them for traditional Republican voters.

Pretty good plan if they can pull it off.  And that's what 2012 will be all about.