NATCHITOCHES, La., June 24, 2011 — House Majority Leader Eric Cantor led a Republican walk-out of debt ceiling negotiations with the Obama Administration Thursday.
A sticking point between Republicans and Democrats was the Democratic insistence on raising tax revenues. “There is not support in the House for a tax increase, and I don’t believe now is the time to raise taxes in light of our current economic situation,” said Cantor (R-Va.).
Senate Minority Leader Mitch McConnell said of President Obama, “He’s requested an increase in the debt ceiling, but hasn’t yet explained to the American people what, other than tax hikes, he’s prepared to do about the massive deficits we’ve seen during his administration. The President needs to decide between his goal of massive tax hikes, and a bipartisan plan to address our deficit. But he can’t have both.”
Speaker of the House John Boehner added today, “The president and his party may want a debt limit increase that includes tax hikes, but such a proposal cannot pass the House.”
The Republicans are correct on one point: A massive tax hike now would stifle economic recovery and leave unemployment at near record levels. They’re mistaken, though, if they believe that the national debt and federal deficits in the near term will be significantly reduced entirely by means of spending cuts.
It would be neither politically nor morally possible to cut deficits over the next ten years without cutting spending. Non-discretionary spending is less than half the total budget, and its share of the budget is shrinking. Military expenditures have to come down, and by more than the cost of wars in Libya and Afghanistan, but even then deficits will be too high.
Entitlements have to be included in the spending cuts. And that’s because, as bank robber Willie Sutton once said, that’s where the money is.
Some Democrats seem resigned to cuts in entitlement spending, but the Obama Administration isn’t ready to cut anyone’s benefits. Democrats are delusional if they believe that the necessary cuts can be made without cutting someone’s benefits. They talk of bending the medical cost-curve downward with ObamaCare, but when they do that it’s with the same naive faith that some Republicans have, that if only you cut corporate tax rates, jobs will pop up all over.
A bipartisan agreement demands mutual give and take. Both sides agree that the other side has to give and their side has to take. It’s the mutuality of the process they don’t seem to understand.
Consider Cantor’s comment, echoed today by Boehner: “There is not support in the House for a tax increase…” That’s not a statement of why taxes shouldn’t be raised. Rather, if Cantor and Boehner can’t get Republicans to compromise on tax increases, not even by closing tax loopholes and simplifying the tax code, it’s a statement of their inability to lead.
Cantor likewise labors under a faulty premise: Tax increases would be a very bad idea today, but the negotiations on the debt ceiling cover taxes and spending over the rest of the decade. A debt limiting plan for the rest of the decade doesn’t have to raise taxes today.
Cantor and McConnell both reject the closure of tax loopholes, calling such closures “tax increases.” They seem to adopt the position that, whatever the effective tax rate you pay today is, it must not rise during the period covered by a debt ceiling agreement.
Government is too big. It has to shrink. Treasury Secretary Timothy Geithner exhibited the bias that’s brought ruin to our economy when he said in Congress that business taxes have to go up, because otherwise “you have to shrink the overall size of government programs.”
Geithner is correct, and we should shrink the size of government programs, but conservatives who jumped on that should remember that it isn’t the high level of business taxes that’s the problem to promoting job creation and economic growth. It’s the uncertainty in the tax climate, the government’s ad hoc approach to finance, and the stifling and arbitrary regulations (national and local) that small businesses have to deal with that are killing job creation.
We don’t need to cut hugely profitable GE’s taxes. It isn’t paying any. We need to raise them. We need to do it not by raising tax rates, which are already too high, but by fixing the tax code so that GE pays at the same rate as Mom and Pop, Inc., a rate that should be lower than it is.
Cutting taxes won’t, but itself, create a single job. What creates jobs is the potential to earn a profit by hiring more workers. What creates that potential is a combination of neutral and predictable taxes, rational fiscal policy, the exit of government from the nation’s credit markets, and a belief that the business environment tomorrow will be better than the business environment today.
A bit of bipartisanship on budgets and the deficit would go a long way to achieving those conditions. Cut entitlements, cut military spending, cut loopholes out of the tax code, and get out of the way of new business formation. That’s not a solution for all our ills, and the devil is always in the details, but it’s a start.
Cantor and McConnell are right about a great deal in this debate, but if they make of tax increases a shibboleth, they’ll drain the spirit and vitality from their position.
James Picht is the Senior Editor for Communities Politics and teaches economics at the Louisiana Scholars’ College in Natchitoches, La., where he went to take a break from working in Moscow and Washington. But he fell in love with the town and with the French professor, so there he stayed. Now he teaches, annoys his children, and makes jalapeno lemonade and chili-chocolate cupcakes. He thinks that his taxes are too high and that yours are too low if the government can’t afford to give him what he wants. He tweets and has a badly neglected blog at pichtblog.blogspot.com.
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