Jeanne Sahadi of CNNMoney.com published a great article on Friday illustrating the fact that “taxes must be part of debt reduction.” To drive this home, she explained that:
“If lawmakers wanted to permanently freeze the debt held by the public at the today’s level — 62% of GDP — they would need to immediately cut spending by 35% or about $1.2 trillion, according to the Government Accountability Office. And those cuts would need to be permanent from hereon out.”
To convey the severity of the spending cuts necessary to reduce debt held by the public to 60 percent of the economy by 2020 without raising any new revenues, just consider the following scenario, which would not even achieve this goal:
• Establish a waiting list for Social Security and Medicare, such that newly eligible beneficiaries could not receive benefits until someone else dies;
• Completely phase out the entire non-defense discretionary budget – everything from law enforcement to education to homeland security to food & drug safety;
• Replace Medicaid with block grants to states (as specified in the Ryan-Rivlin proposal);
• Eliminate all farm subsidies and foreign aid;
• Withdraw from all wars;
• And cut the defense budget in half.
Even after all of these cuts, U.S. debt in 2020 would be far above the post-World War II average of approximately 37 percent of GDP, still hovering above 60 percent.
At the end of the day, we need to address every aspect of the budget, including revenues, if we plan to get our fiscal house in order and avert an impending debt crisis.
In recent years, Grover Norquist, the president of Americans for Tax Reform (ATR), has reigned as an arbiter of what constitutes a tax increase. To his chagrin, however, the “no taxes” armor is starting to show some chinks. Senators Tom Coburn (R-OK), Mike Crapo (R-ID), and Saxby Chambliss (R-GA), as part of the “Gang of Six,” are currently negotiating a deficit reduction package with Democrats, which they admit will have to include at least some new revenue.
John Hart, Senator Coburn’s communications director, highlights that, while “Dr. Coburn has been arguing for many years, in word and deed, that the problem is overspending, not under-taxation, … he strongly disagrees with ATR’s belief that every distortion and corporate welfare subsidy in the tax code, such as that for ethanol, is a ‘tax cut’ that needs to be preserved.”
Senator Chambliss acknowledges that, “there is no silver bullet. Fixing Social Security will not do it. Raising taxes won’t do it. Spending cuts won’t do it. You have to have all of the above. It’s going to take every leg of the stool being on the table for debate.”
The good news is that more revenue can be attained by going after the “distortions and corporate welfare subsidies,” even while simultaneously lowering individual and corporate income tax rates – tax expenditures cost approximately one trillion dollars annually. Both the Domenici-Rivlin Debt Reduction Task Force and the Bowles-Simpson Fiscal Commission achieved bipartisan consensus around fundamental tax reform plans to do just that.
In his Conservative Political Action Committee (CPAC) speech last month, Governor Mitch Daniels (R-IN) made the best case yet for the need to compromise in order to save the nation from a potential debt crisis:
“Purity in martyrdom is for suicide bombers.… I, for one, have no interest in standing in the wreckage of our Republic saying ‘I told you so’ or ‘You should’ve done it my way.’”