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.