The Democratic Pay-go Con
Congressman Eric Cantor wrote a piece today at Redstate.org on the Democrats latest confidence game to raise taxes, this time in the name of “pay-go” and “AMT relief”:
Sadly, this year the majority has done nothing to change its profligate ways. Congress’ spending proposal came out $23 billion over the president’s budget request, an overall increase of over 10 percent from last year’s levels. Instead, Democrats have used pay-go as a pretext for a wave of new tax increases. Their strategy, disguised in the garb of “fiscal responsibility,” threatens to deal a decisive blow to American prosperity at a tense moment for our economy…
House Democrats refuse to accept that reality. The opportunity to sell tax hikes as “offsets” is too tempting. Conveniently characterizing the patch as new spending, the House used a one-year AMT fix to muscle through an antigrowth 133-percent tax hike on investment partnerships. The ill-conceived Democratic legislation, which passed last month, increases taxes ostensibly to cut taxes.
There are several points worth considering here and the bottom line of all of them is this – there’s just no good reason to be raising taxes right now. Granted, there never is, but now is as opportune a moment as any to be cutting taxes. When even Robert Reich says a tax cut is in order, a tax cut is in order. (Full disclosure: Like Milton Friedman, I think any all tax cuts are always in order, but right now even the likes of Reich agree.)
- The AMT should simply be abolished, not patched, and the resulting tax cut should not be offset anywhere. It was a solution in search of a problem in the first place. It was motivated by blind envy over the fact that a literal handful of Americans took advantage of fully legal tax shelters enacted by the Congress. The solutions to that problem, if it even is a problem, are for people to stop coveting their neighbors wealth and produce their own or for Congress to stop making the tax code more complex with ever more loopholes.
- In addition to abolishing the AMT, taxes should be cut elsewhere. I’ll commit supply side heresy here and suggest that a cut in payroll taxes, which would disproportionately help the working poor and small businesses, certainly ought to be considered irrespective of its impact on “marginal rates.” Cutting the top marginal rates would, of course, do more to improve the federal budget, but it really doesn’t need that much improving and sometimes creating a larger constituency in favor of tax cuts is as important politically as the tax cuts themselves are economically. (See above, regarding people producing their own wealth instead of coveting their neighbors.)
- Tax cuts shouldn’t be offset. Especially in the current environment where the federal deficit is at a historic low as a percentage of GDP during wartime. (Yeah, I hate the “wartime” excuse as much as the next guy, but in terms of defense spending and the federal budget, it is wartime.) For that matter, it’s not particularly large as a percentage of GDP for peacetime. And it’s on track to be zero in less than two years. Spending increases should be offset, but tax cuts shouldn’t.
- Forget spending or tax increases – spending should be cut. He Who Shall Not Be Named has noted repeatedly that returning federal spending to 2000 levels would be sufficient to balance the budget AND eliminate the personal income tax entirely. What new vital government program have you benefited from since 2000? Eliminating the two biggest boondoggles of the last 7 years – the Department of Homeland Security and Medicare Part D – would put us well on the road.
- But ultimately the most important point and the elephant in the room is this: The notion that the Democrats could pass a budget that increases federal spending by more than 10% in a single year and exceeds the spendthrift administration’s request by $23 billion and still make any pretense of fiscal responsibility is utterly ridiculous.