A thought on the policy consequences of fiscal talk

We talk about taxes in terms of rates. We talk about spending in terms of levels.

There's good reason for that of course, since those are the units of the policy decisions.

But what are the implications of this way of talking about fiscal policy? It's going to bias people into thinking "spending is out of control". As a result of inflation, population growth, and economic growth, the levels of both revenue and outlays are going to be continually increasing, even if the role of government in the economy stays exactly the same. The same is true of revenues, of course. But that's the point - nobody talks about tax policy in terms of revenue levels (unless they want to just flash big numbers). They talk about it in terms of tax rates. When tax rates have stayed steady but spending levels have increased, it's very hard to make the argument that we need to raise taxes.

There's also a credibility argument to it. Spending is going to keep increasing no matter what. Any effort to balance budgets by pulling back on spending - even if it helps to reduce deficits - will always look like it has failed, since all the opposition has to do is wait a little while and let it keep creeping up.

Tax cuts have no such (apparent) credibility problem. When Congress cuts tax rates they're cut. Tax cutters look like they keep their promises, even if the government actually collects more revenue over time (for the same reasons they spend more money over time).