As negotiations on raising the debt limit approach the home stretch, the media are already setting the stage to blame any failure to reach a deal on Republican intransigence. New York Times columnist David Brooks led the way this week with a column that blasted Republicans for rejecting an alleged deal that included a mix of tax increases and spending cuts.
“If the debt ceiling talks fail, independents voters will see that Democrats were willing to compromise but Republicans were not,” Brooks predicted.
In reality, we have no way of knowing what was actually being offered because both parties in the closed-door sessions have provided conflicting accounts. Setting that aside, Brooks’ central premise remains: Democrats are ready to accept less government spending, so Republicans should give way on taxes.
But this premise is deeply flawed. Democrats don’t deserve praise for being gracious enough to cut spending at a time when the nation’s debt has already eclipsed $10 trillion and spending on the major entitlement programs is growing at an unsustainable pace.
To paraphrase the Chris Rock routine in which he mocks those who boast about taking care of their kids, that’s what they’re supposed to do.
From a purely technical standpoint, it’s possible to put the nation on a sustainable fiscal course without raising taxes. But it isn’t possible to increase taxes high enough to balance the long-term budget without cutting spending.
Back in May 2008, none other than Peter Orszag — then the future budget director for President Obama and head of the Congressional Budget Office — wrote a letter to Rep. Paul Ryan, R-Wis., addressing this very issue.
In the letter, the CBO estimated that achieving long-term balance exclusively through tax increases would eventually require the top individual and corporate tax rates to reach a staggering 88 percent.
“Such tax rates would significantly reduce economic activity and would create serious problems with tax avoidance and tax evasion,” read the Orszag letter. “Revenues would probably fall significantly short of the amount needed to finance the growth of spending; therefore, tax rates at such levels would not be feasible.”
The debt outlook deteriorated substantially months after the letter was written, in the wake of the meltdown of financial markets.
We’ve heard a lot from Democrats about how we should return to Clinton-era levels of taxation, under which the economy was booming and the federal government was running surpluses.
In 2000, the last full year of President Clinton’s administration, tax revenues were 20.6 percent of GDP, according to the CBO. That nearly equaled the all-time record of 20.9 percent achieved during World War II.
Yet last month, the CBO projected that total spending as a share of GDP would reach 33.9 percent by 2035. Therefore, even if we were to equal record tax revenue, we’d still be running a deficit of 13 percent of GDP by the time this year’s college graduates reach middle age. That’s the equivalent of $2 trillion in today’s dollars.
The numbers tell us that if we had one-party control of government by Republicans, they would be able to pass legislation to balance the budget exclusively by cutting spending. By contrast, if Democrats were in total control, they could not craft legislation to achieve balance exclusively through tax increases.
Thus, when analysts say that tax increases have to be part of the solution, they’re making an argument about the feasibility of the politics, not of the policy.
From a policy standpoint, unsustainable projected growth in entitlement programs makes spending cuts necessary no matter what. Tax increases aren’t required, but Republicans are being told they must accept them because they’re the price of doing business with Democrats.
Philip Klein is senior editorial writer for The Examiner. He can be reached at [email protected].
