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Reminder: Austerity means tax hikes

The Wall Street Journal reports:

BRASÍLIA—President Dilma Rousseff’s administration, fearful of a potential loss of Brazil’s investment-grade debt rating, is stepping up austerity measures, angering supporters and exacerbating an already painful economic slowdown.

The government on Thursday announced a cap on government spending and investment, as well as additional tax increases for businesses, moves aimed at shoring up Brasília’s deteriorating finances. [. . .]

Many analysts have praised Brazil’s newfound fiscal discipline as essential to its long-term prosperity. Still, higher taxes and less government spending mean less money in the economy to spur growth and job creation in the short run. Brazil’s official jobless rate climbed to 5.3% in January from 4.3% in December. Official data due late in March are likely to show the country GDP contracted in 2014.

A curious feature of current debates in political economy is that leftists who declaim against austerity very frequently desire a key aspect of it, while right-wingers who defend austerity want no part of the same: namely, tax increases. The infamous “sequestration” budget deal, stumbled into by the White House and Congress, was an austerity measure. It raised taxes (on income, capital gains and dividends) and cut spending. European austerity programs have routinely hiked business, income and consumption taxes. Greek Socialists, having won a recent election, exasperated Eurozone bailout negotiators, and earned a brief reprieve on their debt payments, continue to promise constituents in Greece that they will relieve their austerity burden — in part by lowering business and value-added taxes.

As a check on public sophistry, it is vital to keep these details in mind. Democrats in the US Congress, along with the White House, are constantly angling for new forms of taxation, either for openly punitive purposes (carbon taxes) or out of a yearning for more revenue. This is their austerity policy, whether they realize it or not.

Meanwhile, unless they are prepared to compromise on raising taxes, Republicans should eschew defending austerity. It is perfectly plausible to favor a policy of spending cuts without tax increases, or even alongside tax reductions. But this is not, strictly speaking, austerity.

Comments (9)


We've had this discussion before and while I don't like abandoning a perfectly good word to the Left, I think that as a practical matter you are correct -- conservatives (and Republicans) should be more specific and focus their rhetoric on spending cuts. Even better we should talk about reducing the size and scope of the federal government -- both because it is necessary and good public policy and because I think voters instinctively understand the principle of subsidiarity.

Here is the wonderful Theodore Dalrymple lamenting the abuse of the word austerity:


Could we use "fiscal responsibility" instead of "austerity"?

How about using "limited government" instead of "austerity"?

I would not consent to either Lydia or TUAD's equivalence. Consider: The US Congress could levy small fractional taxes on both carbon energy consumption and in the manner of a VAT -- at every point in production and exchange. By these measures the US budget would likely shift closer to technical balance, at least temporarily. But ultimately these would be foolish and destructive policies, and I would reject them even if some spending cuts were part of the package.

New and intrusive taxes, no less than increases in existing taxes, could be proposed as part of an austerity package. Who knows, maybe the IMF and the Greek Socialists will cook up some new methods of taxation which, ten years from now, Americans Democrats will come around to see the usefulness of?

I'm not sure I follow, Paul. Are you interpreting me to be saying that "fiscal responsibility" should be applied to any and every policy proposal package for which the term "austerity" is presently used? If so, I am sorry for being unclear. That was not my intention. What precisely is the best approach to balancing the budget is a contentious issue, as you know. I'm certainly not prepared to say that raising taxes should always and everywhere be anathema. But I tend to agree that it is very often better to promote spending cuts without tax hikes, if for no other reason than that there are obvious places where spending can be cut. Oh, and I mean _real_ spending cuts, not just slow-downs in the rate of increase and other silly dodges which the Democrats deceptively call "spending cuts."

In any event, the point of my first comment was to say that if we use the term "fiscal responsibility" we are free to define what we propose to fulfill that description, whereas you seem to be saying (and Jeff reluctantly agreeing) that by now the term "austerity" does not give us that flexibility to define our own meaning--that it always includes tax hikes. Very well then, let's get a new term.

Gotcha. I like fiscal responsibility. It's contrary on our prosperity, enterprise, and flourishing to endure the king of extraordinary profligacy in our public finances that we've seen of late. But taxes are already plenty high enough to support the proper functions of government, plus a safety net of not inconsiderable generosity.

New and intrusive taxes, no less than increases in existing taxes, could be proposed as part of an austerity package.

Yes, but neither of them is a NECESSARY aspect of austerity. The word is not a parallel to "more tax paid" nor is it parallel to "less government spending". Here's a definition:

conditions characterized by severity, sternness, or asceticism

From its basic original meaning, you could have austerity without higher taxes. Or without lower spending. It is just due to a mistaken recent conscription of the word to mean something narrower than it's source meaning that it is taken as implying both increased taxation and decreased government spending. While initially we might be misunderstood if we used "austerity" to mean, well, austerity, that initial misunderstanding need not continue if we insist on using the word to mean what it ACTUALLY means.

Absent that rather difficult approach of trying to force pundits to accept a proper use of the word rather than a mistaken narrowing of it, we could employ other terms to mean other things than the recent, fashionable coining of "austerity" to mean a special version of austerity. We could insist, for example, that we don't really require lower spending in all cases and sub-cases of government spending: there might be individual cases where government should be spending more money - like border security. We could also insist that we might allow some individual tax rate to rise, and not that the government _never_ raise a new form of tax or fee for its services, and we might not require that all tax rates forever decrease as a permanent mode of governing. We could point out, as Lydia suggests, that the best government we can achieve _right now_ might involve many tax reductions and in a few instances tax hikes. It might involve many spending cuts and a few spending increases, working out overall to a net decrease. But at some future date after government has been at the RIGHT SIZE for several years and spending the RIGHT AMOUNT, there could be a perfectly legitimate need to increase the size of government and spend more than the immediately predecessor years. Responsible government is not per se committed to decreasing the size of government or its budget, it is per se committed to getting government and spending to the right amount - so that it carries out the right activities and does so the right way. (Just as responsible parenthood is not per se oriented toward having as many children as you physically can, it is oriented toward having children that you can raise well to maturity.)

It is clearly irresponsible government to pretend to budget by saying things like "we are putting Social Security surpluses into a "lock box", when the actual amounts are being used for current general spending and the only thing placed in the lock box is a Treasury IOU (which will have to be paid for by future NEW taxes). Or that we fail to even attempt to distinguish necessary government activities from optional ones.

Looking at American and European capitals as they are, by far the most likely policies, all packaged up and delivered as austerity, will be these grand bargain s--t sandwiches where the Establishment parties feebly compromise with elaborate fanfare. The result? A few billion shaved off a few welfare budgets, moderate slowing of the delta, various unwise tax increases; and reckless cuts on Defense. (Recent budgets have left us with a Navy on that will be very strained to fully secure Mediterranean shipping, should Islamic State gain control of Libyan ports for renewed corsair razzias.)

I certainly agree that the word austerity suggests far deeper government spending cuts, and more determinedly constrained social spending. Such is the dumbing-down of perfectly serviceable words, under pressure from our degraded democratic plitics. There is little hollow mirth even left in the absurdity of 2% budget reductions as the very crack of doom for employment and public prosperity.

We will have to wait and see what sort of picture the 2016 election gives us. Has Scott Walker pursued an austerity agenda in Wisconsin? Will he so name it, and propose to replicate it at the national level? That would be an interesting shift in the word's connotation.

But for the next couple years, and very likely onward past that, when American politicians and journalists and economists talk about austerity, I'm going to react with by picturing John Boehner and Harry Reid standing next to President Clinton as she prepares to sign the new 2017 budget act.

We will have to wait and see what sort of picture the 2016 election gives us.

Sadly, the smart money is bet on the ascension of Queen Jadis and her hundred years of winter.

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