That Which We Call a Rose

In a TCS Daily article, Jeff Miron proposes a set of budget cuts that “every economist should endorse, regardless of party affiliation…Democratic economists, and all other economists, should use their blogs, and their op-eds to highlight the enormous scope for welfare-enhancing cuts in government expenditure.” As a Democratic economist (albeit not an influential one), I hereby do use my blog to endorse Jeff Miron’s proposals. (I’m not so sure about some of the stuff he identifies as “pork”, but I’d go along with those cuts if his proposed farm subsidy cuts were also part of the package.) I make this endorsement specifically as an economist with the “Democratic” tendency to be skeptical about the importance of the disincentive effects associated with high marginal tax rates.

What puzzles me, though, is why Republican economists – who typically argue against high marginal tax rates – would support Miron’s proposals (except perhaps because they are sensible deficit hawks and would support any reasonable proposal to reduce the deficit). The heavy lifting in his list of cuts is done through means testing of government benefit programs – Social Security, Medicare, and higher education subsidies. Economically, this is precisely equivalent to increasing marginal tax rates. Think about it: if richer people were to get the same benefits as they get now but pay those benefits back to the government in the form of higher taxes, wouldn’t that be just like not getting the benefits in the first place? If higher marginal taxes discourage people from saving and investing, won’t they also be discouraged by the prospect that their future income will reduce their Social Security benefits?

Politically, “getting the rich off welfare” may be an easier sell with both parties than “raising taxes.” And there may be some substantive sense in which decreasing the amount of money that passes through government programs constitutes “reducing the size of government.” But as far as economics goes, this proposal looks like a tax increase, walks like a tax increase, and quacks like a tax increase. As I said, I support it.