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The Two Santa Claus Theory
by: David Dayen
Thu Apr 30, 2009
http://www.calitics.com/diary/8718/the-two-santa-claus-theory
Riffing off of Brian's post,(1) referencing the horror show of a Field
Poll,(2) where Californians polled apparently think we can balance the
budget through spending cuts but don't want to cut anything (a sort-of
companion PPIC poll,(3) basically shows the same thing, with respect
to nobody wanting education cuts but nobody wanting to pay for
increases)(4), this should be a very familiar outlook to people. It's
at the heart of the two Santa Claus theory,(5) proposed by Jude
Wanniski, a Republican economist, during the time of Ronald Reagan.
By 1974, Jude Wanniski had had enough. The Democrats got to play Santa
Claus when they passed out Social Security and Unemployment checks –
both programs of the New Deal – as well as when their "big government"
projects like roads, bridges, and highways were built giving a healthy
union paycheck to construction workers. They kept raising taxes on
businesses and rich people to pay for things, which didn't seem to
have much effect at all on working people (wages were steadily going
up, in fact), and that made them seem like a party of Robin Hoods,
taking from the rich to fund programs for the poor and the working
class. Americans loved it. And every time Republicans railed against
these programs, they lost elections [...]
Wanniski decided to turn the classical world of economics – which had
operated on this simple demand-driven equation for seven thousand
years – on its head. In 1974 he invented a new phrase – "supply side
economics" – and suggested that the reason economies grew wasn't
because people had money and wanted to buy things with it but,
instead, because things were available for sale, thus tantalizing
people to part with their money. The more things there were, the
faster the economy would grow.
At the same time, Arthur Laffer was taking that equation a step
further. Not only was supply-side a rational concept, Laffer
suggested, but as taxes went down, revenue to the government would go
up!
Neither concept made any sense – and time has proven both to be
colossal idiocies – but together they offered the Republican Party a
way out of the wilderness [...]
Democrats, (Wanniski) said, had been able to be "Santa Clauses" by
giving people things from the largesse of the federal government.
Republicans could do that, too – spending could actually increase.
Plus, Republicans could be double Santa Clauses by cutting people's
taxes! For working people it would only be a small token – a few
hundred dollars a year on average – but would be heavily marketed. And
for the rich it would amount to hundreds of billions of dollars in tax
cuts. The rich, in turn, would use that money to import or build more
stuff to market, thus increasing supply and stimulating the economy.
And that growth in the economy would mean that the people still paying
taxes would pay more because they were earning more.
There was no way, Wanniski said, that the Democrats could ever win
again. They'd have to be anti-Santas by raising taxes, or anti-Santas
by cutting spending. Either one would lose them elections.
In the intervening 35 years, we have had no progressive leader in
California, no Democratic leader, challenge that ridiculous theory in
any meaningful way. Instead, over and over again, Democrats must lead
the charge killing off the two Santa Clauses, filling budget deficits
by raising taxes or cutting spending, frequently the latter. And
while other factors have contributed to Democratic dominance in recent
years, the ideological theories of Santa Claus conservatism remain.
And Democrats and Republicans alike have ingrained them into their
lizard brains, either by believing in them, or believing that everyone
else believes in them and there's no way to change that.
In truth, public opinion, particularly in such a low-information state
like California, is quite malleable. But nobody has bothered to
discredit the Two Santa Claus theory, the idea that we can have all
the services we need and the lowest taxes possible. Of course, the
insidious dynamic of the two-thirds rule, putting Democrats both
nominally in power but subject to a conservative veto, has made a
Democratic message impossible, so constrained it is by the
straitjacket of an ungovernable system,(6).
Now, the out for the believers in two Santa Clauses is that government
can just do more with the money they have, through better efficiency.
Nobody would argue that government is perfectly efficient – I don't
see anyone leaping to defend spending $580,000 on unused office space,
(7) – but the savings from that efficiency exist on the margins, and
would do little to really impact our woefully low per capita state
spending on areas like K-12 education. So we get bullshitty ideas
like cutting lawmaker pay,(8) (the Governor jumped all over that one),
(9) or trashing the state's Waste Management Board,(10) which has
become a waystation for termed-out legislators to pull in a nice
salary. These "efficiency" maneuvers would do absolutely nothing
relative to the budget deficit. And the areas that would make a dent,
like a broader-based sales tax,(11) that catches everything we
consume, if off-limits because of special interest lobbying:
The declining "yield" of the state's sales tax is one cause of
California's ongoing budget deficits. Since 1960, the revenue raised
by each one percent state sales tax rate has fallen by about one-
third. The reasons for the decline are two-fold. First, consumers now
spend a larger share of their incomes on services, which are largely
untaxed, rather than goods, which are subject to the state's sales
tax. The second reason is the rise of internet sales, including
purchases from out-of-state retailers, that don't collect the tax on
sales made to California consumers. Estimates suggest that California
loses $2 billion to $5 billion per year from untaxed internet sales –
enough to make a significant and lasting dent in the state's chronic
budget woes.
In light of this fact, one might think that a bill that attempts to
narrow a loophole that provides preferential treatment for businesses
located entirely outside of California would be a "no brainer."
Unfortunately, this appears not to be the case. Assemblymember Nancy
Skinner's AB 178,(12) is similar to a recently enacted New York law,
would require businesses such as Amazon.com that enter into
"affiliate" relationships with California-based entities to collect
California sales tax.
At a time when California faces significant budget shortfalls and
California retailers face declining sales, you'd think a bill that
makes it possible for the state to actually collect taxes that are
legally owed and that limits an incentive for Californians to buy from
businesses that don't employ a single Californian would be greeted
with open arms. Unfortunately, opposition from tech industry lobbyists
has left the measure's future in question.
Ultimately, we have a serious problem. Our citizens get almost no
public policy information from media, our state capitol is too often
run by corporate interests, our Democratic leadership cowers from
advocacy to disabuse citizens of false notions, and our Yacht Party is
completely crazy. This is not insurmountable but requires
leadership. We elected a President by 61% of the vote in California
who was derided as a socialist. Attitudes can be changed. But
someone has to stand up and speak.
NOTES:
1. http://www.calitics.com/diary/8716/progressives-struggling-with-the-propositions
2. http://www.sacbee.com/806/story/1821072.html
3. http://www.ppic.org/main/pressrelease.asp?p=941
4. http://articles.latimes.com/2009/apr/30/local/me-schools30
5. http://www.commondreams.org/view/2009/01/26-0
6. http://articles.latimes.com/2009/apr/30/local/me-cap30
7. http://articles.latimes.com/2009/apr/29/local/me-audit29
8. http://blogs.kqed.org/capitalnotes/2009/04/29/cut-politician-pay-oh-wait-we-cant/
9. http://www.sacbee.com/politics/story/1821865.html
10. http://www.sacbee.com/politics/story/1815114.html
11. http://californiabudgetbites.org/2009/04/24/this-ought-to-be-a-no-brainer%e2%80%a6/
12. http://www.leginfo.ca.gov/pub/09-10/bill/asm/ab_0151-0200/ab_178_bill_20090202_introduced.pdf
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