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Bipartisan Policy Center's "SAVEGO" Is a Free Pass to Tax Hikes

Posted By Curtis Dubay On April 22, 2011 @ 11:37 am In Economics | Comments Disabled

It seems everyone except President Obama is presenting a detailed plan for dealing with our nation’s rapidly growing debt these days. The latest entry comes from the Bipartisan Policy Council [1].

One feature of their plan, “SAVEGO,” calls for automatic spending cuts and higher taxes should Congress not reduce the debt to a predetermined share of the nation’s economy by 2021.

So, if Congress fails to make necessary spending cuts, or the President vetoes them, the Treasury Secretary would raise tax rates and reduce tax deductions. This is in essence a free pass for the President or Congress to hike taxes without casting a single vote.

SAVEGO would let Congress off the hook, because it allows them to tell voters that the tax hikes were not the result of their decisions.

And, the dirty little secret they do not tell you about SAVEGO is that it already raises taxes from the get-go. You have to read the fine print in the baseline budget numbers to see that it eliminates the tax deal passed last December in its entirety: All the remaining 2001 and 2003 tax relief, the various and sundry tax extenders, and the patch to the insidious Alternative Minimum Tax are goners. So SAVEGO would be a tax hike followed by another tax hike. The total tax increase the plan assumes through these baseline high jinks is close to $5 trillion!

Higher taxes, whether set by the Treasury Secretary or by baseline budgeting shenanigans, would slow economic growth, because they would reduce the incentives for working, saving, and investing. The only way out of our budget problems is to reform entitlements like Social Security, Medicare, and Medicaid and to have a faster-growing economy. SAVEGO’s tax hikes would make stabilizing the debt more difficult and allow Congress to shirk tough choices needed on spending.

Moreover, ceding power over the tax code to the Treasury Secretary would set a dangerous precedent. Congress is responsible for setting tax rates and determining the tax base. This is how the framers of the Constitution wanted it, and this is how it should remain.

Voters elect representatives that they feel best reflect their choice for the size of government they desire. The level of taxation is a direct result of this decision. If Congress cedes its power to determine the level of taxation to the Treasury Secretary, it will be turning over the people’s right to self-determination to an unelected representative of the President.

SAVEGO’s debt “trigger”—with both automatic spending cuts and tax hikes—is far different from having a spending cap enforced by automatic budget cuts should Congress not achieve the required level of cuts. With a spending cap, the specific level of spending for any given year would have been voted on and signed into law, so enforcement would kick in with preset policy choices on spending and taxes debated and established in law. The notion of a 50/50 solution—cut a little spending and raise a little taxes—to solve our spending problem is misguided. And the notion of “capping revenue losses” associated with tax credits or deductions (besides being an Orwellian turn of phrase) is economically flawed, because it ignores the fundamental economics of markets: Changes in tax policy really do cause behavioral changes. If taxes go up, individuals, investors, and businesses adjust their behaviors to avoid taxes. As the old saw goes, if you want less of something, tax it.

Even the President buys into this ill-advised notion with a tax trigger of his own [2] that would also ultimately result in higher taxes if Congress fails to cut spending. The President’s “plan” also says that the deficit can be lowered substantially by taxing the rich. In fact, doing so would cover only a tiny fraction of the deficits the President’s own budget would create over the next 10 years.

Plans to reduce the debt should focus solely on cutting spending anyway, since tax hikes are unnecessary to do the job. Enormous deficits and the impending debt crisis they will create in the near future are the result of Washington spending too much. The crisis is not a result of too little taxation.

SAVEGO unnecessarily calls for the American people to give up too much of their sovereignty and their hard-earned income. The budget created by Paul Ryan [3] and recently passed by the House of Representatives rightly recognizes that giving Washington more of our hard-earned money is not the answer to our budget problems. Instead, it boldly lays out serious solutions to the budget and spending crisis, rather than budget gimmicks and free passes.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2011/04/22/bipartisan-policy-centers-savego-is-a-free-pass-to-tax-hikes/

URLs in this post:

[1] latest entry comes from the Bipartisan Policy Council: http://bipartisanpolicy.org/sites/default/files/How%20SAVEGO%20Would%20Operate%20(4-15-11).pdf

[2] trigger of his own: http://www.whitehouse.gov/the-press-office/2011/04/13/remarks-president-fiscal-policy

[3] budget created by Paul Ryan: http://www.foundry.org/2011/04/05/morning-bell-chairman-ryans-budget-resolution-changes-americas-course/

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