WASHINGTON, October 17, 2017 ⏤ It is difficult for economic policymakers to set policy that can be supported by a majority. That has never been truer than it is today. Any policy proposed by President Trump or the Republican Congress is perceived by Democrats as unfair and unjust.
Democrats just want to resist.
The overall goal of economic policy, especially concerning tax cuts, is to take actions that benefit the country. While there are often gray areas, a reasonable compromise can usually be reached. Today, that may not be the case.
No matter which policy is selected, Democrats cry foul. If we decide to cut taxes, those who will be receiving smaller tax cuts are quick to say that their group is overtaxed and should get a larger reduction. If taxes must be raised, then virtually every group wants to raise taxes on someone else, but not on themselves.
This problem is the “chocolate milk syndrome.”
When my three children were very young, they would often come home on a hot summer afternoon thirsty. “We want chocolate milk,” they would scream. So, I sat them down at the table and put three identical-size glasses in front of them. I then filled each glass with about the same amount of chocolate milk.
Surprisingly, their primary concern was not the absolute amount of chocolate milk in their glass. Rather, they first looked at the amount of chocolate milk in their siblings’ glasses. As long as no sibling had more than they had, they were happy.
If one sibling did get slightly more, the others complained wildly until the glasses were even. It didn’t seem to matter to them how much they got; the amount in their glasses mattered only relative to the others’ amount.
“What’s the difference how much she got as long as you are content with how much chocolate milk is in your glass?” I would ask. But they just wanted to make sure no one got more chocolate milk than they had. As long as no one got more, each was happy.
The chocolate milk syndrome is affecting economic policy. In December 2011, for instance, Congress and President Obama debated the merits of extending the George W. Bush tax cuts of 2001.
Almost everyone agreed that extending the tax cuts was the proper thing to do. But some groups complained that the wealthy had “more chocolate milk in their glass,” so the cuts should not be given to them. The result was that the highest income earners saw a 10 percent tax increase.
Although not recently discussed, most Americans seem to agree that the federal government cannot continue to incur huge annual budget deficits. Our leaders often debate which actions to take to reduce the deficit. The majority view seems to be that spending will have to be cut significantly.
The debate centers on where to cut spending. When suggestions are made, the group that would lose funding cries about all of the “chocolate milk in the other’s glass,” so they argue that the cuts should be taken elsewhere.
President Trump has proposed a tax cut that would reduce taxes for all Americans, including the highest income earners. His plan is similar to the one President Reagan introduced in 1981.
The plan is also similar to the Kennedy/Johnson tax cut passed in 1964. Yet Democrats say that the wealthy already have enough chocolate milk so their taxes should not be cut. Rather the tax rates for the highest income earners should increase further, even though there is clear evidence that over-taxing them reduces capital formation and slows economic growth.
That at least partially explains why the economy has not seen annual growth exceeding 3 percent since 2005.
Even when most of us negotiate with our employer for wages and benefit increases, our first defense for the position we take is that the employees down the street get a lot more chocolate milk in their glass. And since we are as good or better than they are, we deserve more chocolate milk in our glass.
If we are to eventually solve the economic problems by instituting policy that benefits the majority and grows the economy, then we must stop looking at the other guy’s glass and instead concentrate on what’s in our own glass. If we can do that, we will likely find the problems may be easier to solve.
After all, with higher rates of growth, there will be enough chocolate milk for everyone.