James Pethokoukis

Politics and policy from inside Washington

Why the GOP should reject tax increases, in one chart

July 8, 2011

Why are Republicans demanding a debt deal that has big spending cuts but no tax increases? (Besides, of course, the fact that spending is the problem and the last thing this weak economy needs is a tax hike?) Maybe it’s because the last time they agree to one of these “$2 in spending cuts for every $1 in tax hikes” agreements, they got snookered.

An explainer from Americans for Tax Reform (which created the chart):

In 1990, President George H.W. Bush was promised $2 in spending cuts for every $1 in tax hikes by Congressional Democrats. That’s not what happened.

All $137 billion in tax hikes went through. Most notable was raising the top marginal tax rate from 28 percent (the Reagan low) to 31 percent (itself a setup for the 1993 Clinton tax hike of this rate all the way up to 39.6 percent). There were also increases in “sin” taxes and the Medicare payroll tax, as well as the yacht “luxury tax” that President Obama seems so intent on re-visiting on the jet plane manufacturers.

Not only did the $274 billion in promised baseline spending cuts never materialize–baseline spending was actually $22 billion higher than what CBO projected it would be before the deal. This despite another tax hike/baseline spending cut deal in 1993 (the Clinton tax hike) and the GOP takeover of Congress in 1995.

 

Comments

Bad follow through in the 80′s and 90′s doesn’t make the case for not seeking an achieveable deal to stop the bleeding. The major entitlement disease can be treated next year, the spending hemhorrage needs to stop now.

The Republicans may need to settle for $5 in real government spending cuts (please demand they be heavily front loaded with and target date of five years or less) for each $1 in immediate tax preference purging … Accept absolutely no hike in income tax rates, that would be disastrous.

Tax expenditures are a primary tool for micro management of the economy. The government needs to wean itself as much as possible from that culturally corrupting (single moms are heavily subsidized – hence we have more of them than we otherwise would), institutionally disabling (K Street is a cesspool of succesful rent seeking offal), and screwing up efficient market pricing in too many places where the federal government has no overbearing interest in overriding personal choice.

Killing a tax credit is not morally or economically equivalent to the raising of income tax rates.

Posted by johnqpublius1 | Report as abusive
 

Mr Pethokoukis,

I very much enjoy your commentary on CNBC!

Regarding the many problems with government in general – it seems logical
that many of these problems could be solved with two simple ideas:
1) A Balance Budget Amendment
2) A Flat Tax

It seems logical to me that these two ideas would force our government to
operate in the world of scarcity and choice.
Also, it would help put the tax payer back in control as the government
would need to ASK the tax payers for higher taxes… vs creating loopholes
for special interest, issuing debit and printing the difference.

If you think this idea has merit please talk about it on the Kudlow report.

If not, ( if you have the time ), please tell me why… Thanks!

Best regards,

Mr Simple and Effective

Posted by SimpleEffective | Report as abusive
 

We have to make sure the last thing they do is raise the debt ceiling..let the chips fall where they may. these spendthrifts have gotten away with their Monopoly money Ponzi scheme for way too long and it’s time we put them out of business for good!!!!!!!!

Posted by justmyopinion2 | Report as abusive
 

How are the Democrats supposed to pull a fast one on the Republicans this time around when the Republicans control the House? (The Democrats controlled both houses of Congress last time, which makes the current situation pretty different.) Surely the most rabidly anti-government right in decades wouldn’t just roll over or get tricked.

More importantly, this blog post distracts from the fact that the only reasonable path to fiscal responsibility is going to include some tax revenue increases. To quote the recent Economist piece on this issue, excluding tax increases as a path to deficit reduction is “economically illiterate and disgracefully cynical.”

http://www.economist.com/node/18928600

Posted by thefinite | Report as abusive
 

In case anyone does not know, “The Economist” is an über-left-wing publication that parrots the DNC. The ONLY reasonable path to fiscal responsibility is TO CUT TAXES on job-creators (i.e., the “wealthy”, and TO CUT SPENDING. This is the paradoxical truth touted by JFK in 1962, and proved every time it was tried in modern history, from JFK to George W. Bush. Tax cuts increased revenues to the Treasury that Tax-N-Spend liberal politicians eagerly used on new spending programs. The problem is NOT revenues, but SPENDING!

Conservatives may tentatively control the House, but ruling-class RINO’s still hold the Senate and hold some powerful positions in the House. These closet-liberal Republicans are too willing to deal with Harry Reid and Nancy Pelosi clones in Congress.

Posted by barron2lds | Report as abusive
 

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
  •