by Jeff Madrick, SCEPA Senior Fellow

The current public discourse over cutting the federal budget is not about economics, but politics. Nothing is so striking as the fact that those seriously disturbed by a rising budget deficit and a growing debt-to-GDP level have so little to say about raising taxes—or if they do, it is with little conviction.

To the contrary, most of the officially sanctioned plans include tax cuts as a major component. How can this be? Surely, the great advocates of reducing budget deficits, such as the Committee for a Responsible Federal Budget, should be highly visible advocates of tax increases. If they are not—and they are not—they should justify their position.

The main exception is the refreshing budget recently released by the Congressional Progressive Caucus, a truly enlightened effort to raise taxes judiciously, reform healthcare, and increase public investment.

More economists should be up in arms about the budget balancing proposals, not merely of Paul Ryan - whose plan is both ridiculous and an outrage - but of Simpson-Bowles, Rivlin-Domenici, and the Obama plan. All demand more cuts in government spending than they do increases in taxes—though Rivlin-Domenici only slightly more. Some suggest that federal spending should be capped at a specific level of GDP. Bowles-Simpson argues it should be 21 percent. Ryan wants to reduce it to 19 percent, and going down.

The latter two offer no evidence that such reductions will raise the rate of economic growth. One possible explanation is they are trying to avoid opening an argument for which they can make no claims, because there is no serious evidence to support their views. Ryan of course is all about ideology—so evidence be damned.

Obama and Rivlin-Domenici are not so strict about government spending levels. Rivlin's main argument is that government spending is going to grow more rapidly than the economy indefinitely, and this simply cannot go on. Of course, she sometimes fails to mention that the reason it would grow more rapidly is the growing costs of health care. This likelihood, based on a long-term projection of past rates of healthcare inflation, is what largely raise the Medicare and Medicaid outlays as a proportion of GDP down the road.

The Rivlin-Domenici plan for reform involves tax hikes, but not more than its suggestions for spending cuts. Why isn't there an official plan that raises tax more than cuts expenditures?

Here are the two issues economists should be discussing publicly much more than they now do. Is federal spending of 23 or 24 percent of GDP, or even higher, going to seriously undermine economic growth—not to mention any more than 19 percent? Will tax cuts for higher income Americans spur economic growth?

Remarkably, the main defense for restraint on government expenditures as a percent of GDP is to keep it at historical levels. But why? Peter Lindert's book Growing Public: Social Spending and Economic Growth Since the Eighteenth Century, provides the most definitive analysis showing that the size of government has no impact on economic growth. I summarize some of it in my book, The Case for Big Government.

As for the growth enhancing effects of lower tax rates, just look to the 2000s for the latest persuasive evidence to the contrary. After the Bush tax cuts on the progressive rates paid by the wealthy, GDP between 2001 and 2007 grew more slowly than over any other trough-to-peak economic period in post-World War II history. Job growth was worse. The table below was provided by the Economic Cycle Research Institute.

Capital investment, I should note, also fared poorly.

Where does the audacity come from on the Right to ignore this poor post-tax cut record? Partly it is because the media are so negligent or ignorant. But economists are not doing an adequate job of rebutting the claims.

All but the Obama program would cut rates on high income earners. Bowles-Simpson, which to repeat offers no serious economic analysis to justify lower rates, would reduce the blow to revenues by cutting tax expenditures and some loopholes. Rivlin-Domenici, which less aggressively cuts rates, would adopt a VAT tax and raise Medicare and Social Security taxes—regressive, of course.

The main issue here is the disingenuousness of the budget-balancing proposals. From an economics point of view, no serious economic arguments—forgive me for repeating this message--are made to justify the approaches. We can only take heart that defense spending cuts are at least now on the table.

For all these failures, arguably the main one made by the budget cutters is to ignore utterly the contribution to aggregate demand of government spending and social programs. Mild attention is paid to the need for cyclical stimulus right now, little to the historical value of government spending as a foundation of aggregate demand since World War II. To the contrary, the harshest critics of government spending were almost nowhere to be found when consumption was raised so rapidly based on private debt.

Warnings from Standard & Poor's that the U.S. will not pay its debt off can be mistakenly taken seriously. Dangerous debt-to-GDP levels will not be reached for many years. The main causes of the current deficit are the recession itself and the Bush tax cuts. The right solutions in the near term are to grow rapidly again and reverse tax cuts when the economy is strong enough to do so—and then to raises taxes accordingly if necessary to invest adequately in the economy again.

This does not preclude some spending cuts, and, as always, more government efficiency.

But the idea that no major plan has come forward from official Washington (as noted, progressive groups have publshed better ones) that proposes more flexibility on debt-to-GDP ratios along with more tax hikes than spending cuts is further evidence that the nation remains in the grip of the Friedman revolution. That is to say, lower taxes and small government are the answers.

Tragically, history suggests just the opposite - as does good economics.