Andrew Samwick is not a happy fiscal camper:
Vox Baby: A Katrina Tax Surcharge: Discouraging news from the President's remarks today:
WASHINGTON (AP) - President Bush on Friday ruled out raising taxes to pay for Gulf Coast reconstruction, saying other government spending must be cut. "You bet it will cost money, but I'm confident we can handle it," he said.
Bush spoke after his advisers warned that Hurricane Katrina relief and reconstruction costs will swell the national debt by $200 billion or beyond. "It's going to cost whatever it costs," he said. "We're going to be wise about the money we spend." Bush did not put a price tag on the costs or say what government programs will be cut.
Where to begin?
I'll start by noting for the benefit of the folks working on the President's speeches that the sentence, "It's going to cost whatever it costs," gives the audience no confidence in the next statement, "We're going to be wise about the money we spend."
I was a fan of cutting other government spending before Katrina, and I am a fan of it now. I hope that the President is right that "we can handle it." The President will have to sort that out with the Republican leadership on the Hill, who seem to believe (quite counterfactually) that there is no more fat to trim. Leave that aside for the moment, and let's ask the following question:
If we can handle it now, why weren't we handling it before?
Why does rebuilding New Orleans compete favorably with this unspecified set of least useful programs, but not funding Social Security personal retirement accounts? Or the new Medicare prescription drug benefit? Or simply lowering the debt burden on future generations?
But I digress. If we have decided that rebuilding New Orleans to the tune of $200 billion is a national objective (and I haven't seen nearly enough debate on that subject in the Capitol), then we ought to fund it by reducing our consumption of everything else. The simplest way to do that would be to impose an income tax surcharge that funds the rebuilding over a given period. Over the next three years, for example, individual income tax receipts are projected to average about $1 trillion per year. So everyone has to pay a 6.7% surcharge over those years, maybe a bit more, since Katrina's economic impact should lower the projections for taxable income and the surcharge itself will discourage economic activity. Over a four year horizon, the surcharge would be 5%, before those adjustments. These are percentages of the taxpayers' tax bill, not of their taxable incomes.
Taxes may be bad, but deficits are surely worse. What's the explanation for why future generations should have to pay for this one, too?
One--very partial--explanation would be that neither of the Bush Treasury Secretaries and neither of the Bush OMB Directors have done their institutional jobs as guardians of long-run fiscal stability. Bush's refusal to finance the costs of rebuilding from Katrina provided a very good opportunity for Snow and Bolton to resign--if they cared about their reputations outside the administration, that is.