Tax hikes were the focal point of the contentious, failed supercommittee negotiations designed to reduce the national debt by at least $1.2 trillion. Democrats wanted massive tax hikes. Republicans flirted with a tax reform deal lowering rates and closing loopholes. But the fact that tax hikes were at the center of the debate indicates that the committee – which includes Michigan Reps. Dave Camp and Fred Upton – fails to grasp the true nature of our debt crisis.
Overspending, especially on entitlements such as Social Security, Medicare and Medicaid, is the cause of our debt problem.
Higher taxes are unnecessary because there is enough revenue flowing into Washington as long as Congress holds spending to historical levels. According to the Congressional Budget Office (CBO), with all current tax policies, including the Bush tax cuts, tax revenue will surpass its historical average as a share of the economy in a decade. And should the economy break the shackles of growth-impeding Obama policies faster than CBO anticipates, tax revenues will exceed that mark much sooner.
On the other hand, in 2021 the federal government will spend 26 percent of the economy, well in excess of its historical average of 20 percent. And it will keep growing on this trajectory, primarily because of the growth in entitlements. The data is clear. We have a spending problem – not a taxing problem.
Congress would have to continually raise taxes to keep up with continually increasing costs. The growing tax burden would stifle the economy and threaten the prosperity of future generations.
Advocates of raising taxes often resort to the argument that debt reduction requires spending cuts and tax increases. But they’re merely revealing their preference for bigger government. Higher taxes lead to bigger government because Congress always spends the extra revenue it raises. The new taxes never go to deficit reduction. That’s why any deal that offers spending cuts in exchange for tax hikes is fundamentally unbalanced – despite the president’s claims.
Higher taxes would go to pay for the spending increases that President Obama and his allies foisted upon the country – including stimulus spending, Obamacare, and a host of other big government programs. Unless they’re reformed, entitlement programs would also devour new tax revenue as more baby boomers retire.
Presidents Reagan and George H.W. Bush learned the tax-and-spend lesson the hard way. They agreed to deals that were supposed to cut spending and raise taxes. While the tax hikes became permanent law, succeeding Congresses were under no obligation to abide by the agreed-upon spending levels and quickly undid them. The same would be true today if Congress strikes a similar deal.
Anyone agreeing to hike taxes is surrendering to a permanently bigger government and tax burden that will reverse our relatively low tax burden compared to other developed nations that for the last 65 years has facilitated the growth that made our economy the envy of the world.
There are better alternatives that keep government limited and provide a strong safety net for those that need it most – without raising taxes. For starters, The Heritage Foundation proposed the “Saving the American Dream” plan that balances the budget in 10 years and keeps it balanced in perpetuity by transforming Social Security and Medicare into actual insurance to keep seniors out of poverty and help those most in need.
The strange policy bedfellows of the National Taxpayer’s Union and Public Interest Research Group also put forth a plan that makes 54 specific budget-cutting recommendations that would cut $1 trillion from the federal budget.
With so many ideas for reducing spending in Washington, tax hikes are simply unnecessary. We can tackle the debt problem at its source and turn back the growth of government without raising taxes.
Co-authored by Michael LaFaive, director of the Mackinac Center’s Morey Fiscal Policy Initiative.