Fixing the Budget

| Fri Oct. 22, 2010 12:39 PM EDT

Reihan Salam is unmoved by Michael Kinsley's argument that the country is broke and we need to modestly raise taxes on high earners to fix things:

Before asking taxpayers — any taxpayers — to dig deeper, I’d gently suggest that we look at public bureaucracies. If the Milwaukee Public Schools spend twice as much as choice schools to deliver the same results in terms of reading and math scores, I'd say MPS can dig deeper, ideally by restructuring compensation and giving workers more autonomy. If one-fifth of public dollars spent on infrastructure are essentially wasted, as Barry LePatner argues in his brilliant new book Too Big To Fall, which I'll discuss in greater detail soon, I'd say the bureaucracies we've placed in charge of public construction projects can dig deeper, ideally by doing a better job of sharing data and using life cycle assessments. If we could reduce Medicare expenditures by 8% per year by creating a competitive pricing system, I'd say the federal government can dig deeper by making a commonsense reform that will leave the quality of Medicare unchanged if not markedly improved.

I'm fine with this as a general idea. But let's look at these three examples. (1) There's no magic to cutting school spending. We can do it by paying teachers a lot less and wiping out programs for disabled kids. That might not be as good an idea as it sounds like — and in any case has very little to do with the federal budget. (2) Focusing more on infrastructure maintenance is probably a good idea. But it's hardly a panacea. (3) Competitive pricing reduces Medicare expenditures 8%, not 8% a year. And that's only assuming that the AEI study that produced this number is right.

My point here isn't that Reihan is wrong about making government more efficient. Of course he's not. It's that whenever you dig into this stuff, there's always less than meets the eye. My guess, for example, is that our infrastructure spending ought to go up, not down. We probably need to spend more on maintenance and more on new projects. And reducing Medicare expenditures is a huge problem, not a quick efficiency fix. Efficiency is a legitimate issue, but Medicare's problem is mainly that we pay people too much and demand too much medicine. What's more, proposals like AEI's for increasing Medicare efficiency are all frankly speculative. We should give them a try, but we should also treat them with the same skepticism that we'd treat any untested new idea.

The plain fact is that budget numbers simply never add up without tax increases. Not even close. We took a nice holiday from history for eight years under George Bush, cutting taxes and increasing spending and figuring that everything would come out fine in the end. But it didn't, and the bill is coming due.

How should we pay it? Well, the income of the rich has doubled or more over the past 20 years and their tax rates have gone down. Restoring their old tax rates, which quite plainly didn't produce economic stagnation, is part of the answer. Making government more efficient is a good idea too, though actual ideas for doing this usually stumble pretty badly when anyone tries to put them into practice. And getting Medicare under control is Job 1. But that's sure not going to happen any time soon after the Republican demagoging of Medicare cuts that's marked the current election season.

Tax increases are coming eventually for both the rich and the middle class. It's the only way to make the sums work. And since the rich have seen their incomes rise so much and have benefited the most from tax cuts in the past, their taxes are going to go up more. Nothing else really makes sense.