Free Markets, Free People
Common sense reasons why GOP should stand firm on tax increases
James Pethokoukis provides the reasons. As you’ll note, economically, they’re not rocket science, but they certainly are something that the left seems to want to ignore in focusing its solutions to the debt problem on getting tax increases included.
One – the economy will not tolerate a tax increase at this time. It is simply not in the shape in which it can shrug a tax increase off. And it certainly won’t matter if the tax is only on “the rich”. As someone once asked, “ever get a job from a poor man?” The increase in revenues generated by taxing the rich (or anyone for that matter) will not offset the loss it will generate in hiring or expansion of business. Pethokoukis points out that the economy is in incredibly fragile shape at the moment. Thus:
…[T]he economic recovery is sputtering with stall speed fast approaching. Now would be a terrible time to penalize investors and business, both big and small, with new taxes.
Common sense 101.
Two – Tax revenue isn’t our problem when it comes to debt. Spending is the problem. Yet as I pointed out Saturday, the solution the left seems to prefer involves nothing but tax revenue increases or tax increases. What they’re less inclined to do is focus on the spending problem and make appropriate spending cuts. “Greek heroin” is the reason. Take a look at this:
By 2021, the the CBO says, the annual budget deficit would be 7.5 percent of GDP and by 2035 a truly monstrous 15.5 percent. Throughout this period, tax revenue would be 18.4 percent, right around the historical average. But spending would be 25.9 percent in 2021, 33.9 percent in 2035 vs. an average of roughly 21 percent. It’s spending that’s way out of whack, not revenue.
That means that if the so-called “Bush tax cuts” (they’re just the current tax rates) are left in place, that’s where we find ourselves in 2035. As Pethokoukis proves, it isn’t tax revenue that’s the problem. Unless you believe that it’s the government’s money in the first place and they have every right to determine how much you get to keep.
Let’s go with that. Let’s see what happens if the left gets its way:
But let’s say all the Bush tax cuts were left to expire, as was AMT relief. Assuming no economic fallout, according to the CBO, revenue would be 23.2 percent of GDP by 2035. Three problems here: a) even with all those tax increases, the annual budget deficit would still be nearly an unsustainable 10.7 percent of GDP in 2035; b) the U.S. tax code has never generated that level of revenue and almost certainly can’t without a value-added tax; and c) there would be tremendous economic fallout. Axing all the Bush tax cuts would chop three percentage points off GDP growth, according to Goldman Sachs, certainly sending America back into recession. Tax revenue would again plummet.
Spending, not tax revenue, is the obvious problem.
Common sense 101.
Three – boosting economic growth is the fastest way to increasing tax revenues. However there’s one problem to that as far as an intrusive government is concerned. It has to get out of the way.
Pethokoukis and I part ways a bit here as he endorses a consumption tax vs. an income tax and further endorses raising the revenue percentage of government’s part of the GDP to 19%. Can’t go there with him even if Rep. Paul Ryan’s plan is similar. I’m not so much against a consumption tax (it at least taxes what you consume thereby not penalizing you for what you save, nor do you get double taxed assuming the income tax goes away) but I am against such an increase in the tax percentage. I think very aggressive cuts in government spending plus fairly massive deregulation (and the obvious cuts in compliance spending by businesses that would save) would yield a fast recovering and growing economy. Granting an increase in the historic percentage of GDP that government has taken opens a door of precedence I don’t want opened. It is time government lived within its means and understood that that economic growth takes precedence over government growth – every time.
It is spending – uncontrolled and wasteful spending – that is our problem. Not tax revenue. Government must be cut and cut fairly severely. That’s something the heroin addicts don’t want to hear. So they spin out solutions which always end up in one place – “the problem is revenue, we need more revenue”.
No. They don’t.
And the GOP, if it is to have any credibility with voters come 2012, had best not cave on this point.
Again, Common Sense 101.