Bruce Bartlett -- American Hero

Bartlett, as I've noted before, is the author of The Supply-Side Solution and was one of the architects of Reaganomics. He also predicted that Bush and the GOP would ruin the American economy in his book Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy and the most recent book, The New American Economy: The Failure of Reaganomics and a New Way Forward.

In his latest column, which has inspired me to add him to Uh, Yeah Right's Link Love section, Bartlett argues that the current deficit issues we are suffering through are, first of all, not Obama's doing. The FY 2009 deficit projection from the Congressional Budget Office -- before Obama took office and excluding anything Obama might have implemented after taking office -- was $1.19 trillion. After the fiscal year ended on Sept. 30, the actual deficit was $1.41 trillion. The data indicated that the additional $200 billion in the deficit was attributed to $251 billion lower revenues, not added spending. The revenue was lower to a large extent because of the tax cuts in the February fiscal stimulus. This sure makes Republicans look like idiots, doesn't it? Aren't tax cuts their one and only solution for economic stimulus (in particular, tax cuts for corporations and the wealthy)?

Secondly, Bartlett proposes more spending, including government spending, to get us out of this mess. Huh? A supply-sider advocating Keynesian economic solutions? What he says is that the problem is that the supply of money in the economy isn't turning over as fast as it has in the past, a concept known as velocity. With higher velocity, you get more revenue because everyone -- consumers, investors, exporters and the government -- is spending more. He concludes:

I think there are grounds on which to criticize the Obama administration's anti-recession actions. But spending too much is not one of them. Indeed, based on this analysis, it is pretty obvious that spending - real spending on things like public works - has been grossly inadequate. The idea that Reagan-style tax cuts would have done anything is just nuts.

Blogger Derek Thompson at The Atlantic correctly notes, however, that Bartlett's solution to increase spending will increase the deficit and add to our long-term debt. These are both negatives that make Bartlett's solution a big, jagged pill to swallow. Bartlett's solution to that idea is something that he advocated in another column: namely, a Value Added Tax (VAT). This tax hits consumption rather than income. Announcing a VAT that would take place in the future would stimulate spending and generate tons of revenue without ever implementing the tax because people would stock up on good and services ahead of the VAT implementation.

I think that it's time to start looking at the VAT as a money-making machine. It's regressive, I know, because it hits poorer people, who spend a higher percentage of their incomes for daily living, harder. But the VAT might just get enough low/moderate income Americans to start saving more. And savings is where Americans are most sorely lacking.

In May 2008 I wrote about the strength of the economy as an illustration of how we were living beyond our means, and how saving just a little of our incomes could, over the years, be highly rewarding in the long run. A VAT, by taxing consumption rather than income, could get people to spend more wisely and save more. More savings means bigger bank balances. Bigger bank balances means more low-interest capital that banks and financial institutions can use to invest in business, mortgages, etc. More business revenues, more taxes. More taxes, more government revenues. More government revenues, lower deficits, more debt reduction.