WASHINGTON — Democrats are unanimous in charging that the debt-reduction supercommittee collapsed because Republicans refused to raise taxes. Apparently, Republicans are in the thrall of one Grover Norquist, the anti-tax campaigner, whom Sen. John Kerry called “the 13th member of this committee without being there.”
Nice theory. Except for the following facts:
Leading, very conservative Republicans proposing tax increases. So why does the myth of the Norquist-controlled anti-tax monolith persist? You might suggest cynicism and perversity. Let me offer a more benign explanation: thickheadedness. Democrats simply can't tell the difference between tax revenues and tax rates.
In deficit reduction, all that matters is tax revenues. The holders of our national debt care not a whit what tax rates yield the money to pay them back. They care about the sum.
The Republican proposals raise revenues, despite lowering rates, by opening a gusher of new income for the Treasury in the form of loophole elimination. The Simpson-Bowles commission's tax reform would lower tax rates at a “cost” of $1 trillion a year while eliminating loopholes that deprive the Treasury of $1.1 trillion a year. This would leave the Treasury with an excess of $100 billion a year, or $1 trillion over a decade.
Raising revenues through tax reform is better than simply raising rates, which Democrats insist upon with near religious fervor. It is more economically efficient because it eliminates credits, carve-outs and deductions that grossly misallocate capital. And it is more fair because it is the rich who can afford not only the sharp lawyers and accountants who exploit loopholes but the lobbyists who create them in the first place.
Yet the Democrats are instead obsessed with raising tax rates on the rich as a sign of civic virtue. This is perverse in three ways:
(1) Raising rates gratuitously slows economic growth, i.e., expansion of the economic pie for everyone, by penalizing work and by retaining inefficiency-inducing loopholes.
(2) We're talking pennies on the dollar. President Obama's coveted Bush tax cut repeal would yield the Treasury, at the very most, $80 billion a year — offsetting 2 cents on the dollar of government spending ($3.6 trillion).
(3) Hiking tax rates ignores the real drivers of debt, which, as Obama himself has acknowledged, are entitlements.
Has the president ever publicly proposed a single significant structural change in any entitlement? No. As regarding the supercommittee, Obama was AWOL — then immediately pounced on its failure by going on TV to repeat his incessantly repeated campaign theme of the do-nothing (Republican) Congress.
Nice slogan, but ...
A swell slogan that fits nicely with the Norquist myth. Except for another inconvenient fact: It is the Republicans who passed a real budget that cut $5.8 trillion of spending over the next 10 years. Obama's February budget, which would have increased spending, was laughed out of the Senate. As for the Democratic Senate, it has submitted no budget at all for2 1/2 years.
Who, then, is do-nothing? Republicans should happily take on this absurd, and central, Democratic campaign plank. Bring Simpson-Bowles to the House floor and pass the most radical of its three deficit-reduction alternatives.
Dare the Senate Democrats to vote down the grandest of all bargains. Dare Obama to veto his own debt commission. Dare the Democrats to actually do something about debt.