The huge tax cuts passed under Presidents Reagan and Bush II (surrounding smaller tax increases under Bush I and Clinton), in the short term, contributed to the largest budget deficits in peacetime U.S. history. In the long term, they undermined the federal government's ability to pay for the social insurance programs that make up the largest part of the federal budget: Social Security, Medicare, and Medicaid. But the most remarkable victory of the conservative revolution has been taking tax increases off the policy table, to the point where even letting tax cuts for the very rich expire as scheduled is a non-starter in Washington. Instead, Mitt Romney and Paul Ryan can claim with a straight face that the solution to our long-term national debt problem is to lower taxes.

While next month's presidential election will have a major impact on the lives of hundreds of millions of Americans, it is unlikely to change our long-term political direction. Mitt Romney does not represent anything particularly new -- just another step down in tax rates and another reduction in government programs for the poor and the middle class. Barack Obama represents a pause in the long march, not a reversal of direction; he has largely bought into where we are today. His proposed tax increases would leave the vast majority of the Bush II tax cuts in place, he agrees with the idea that entitlement programs need structural change to reduce spending, and, despite his inaugural address, he cannot bring himself to say much that is good about government.

It doesn't have to be this way. We can continue to pay for our modest social insurance programs, so people who are laid off have time to look for good jobs, poor people can get health care, and the elderly can retire with a minimum of security. It's just a matter of choice.

But, the Serious People and the self-appointed centrists say, that would require raising taxes to unprecedented levels (as a share of the economy), which is Bad Bad Bad, because then people wouldn't work as hard.

There are at least two major problems with this argument. One is the principle of Baumol's cost disease. As technology increases productivity in some industries (manufacturing, telecommunications, etc.), relative prices must go up in industries that are less amenable to automation (health care, education). As a result, the latter get shifted to the public sector (because it's harder to make a profit), and government spending necessarily goes up. If you want health care and education, that's the way it has to be.

The other is that the argument about the incentive effects of tax increases is wrong. The usual argument is that if you raise taxes from 35% to 39.6%, that reduces after-tax wages, so people will work fewer hours and consume more leisure instead, since the value of leisure remains constant. (This is the substitution effect; the income effect actually says that some people, particularly low-income workers, will work more because they need the money.)