It’s Time for Republicans to Put a Stake in the Ground and Walk Away

by Bill O'Connell on November 30, 2012

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Treasury Secretary Tim Geithner, another presidential proxy, met with Republicans to put on the table the furthest thing from a serious solution to the impending “fiscal cliff.” This is both sad but unsurprising. Considering that President Obama has sent several budgets to Capital that didn’t garner a single vote from either side of the aisle is the unsurprising part. The sad part is that this country gave him the benefit of the doubt with a second term and he begins with the view that he is so clever he can dictate any terms he wants.

One almost has to wonder if he is playing a game to see just how much he can get away with. But the American people are suffering under his complete lack of leadership. Here is what Secretary Geithner put on the table.

Treasury Secretary Timothy F. Geithner presented the House speaker, John A. Boehner, a detailed proposal on Thursday to avert the year-end fiscal crisis with $1.6 trillion in tax increases over 10 years, $50 billion in immediate stimulus spending, home mortgage refinancing and a permanent end to Congressional control over statutory borrowing limits.

This is supposed to be a real solution? Increase taxes on a very weak economy by $1.6 trillion. Spend $50 billion more in stimulus after the $787 billion in stimulus failed so miserably in 2009. Getting more deeply involved in home mortgages to prolong that problem rather than let the market clear the problem. It was government’s increasing involvement in housing that triggered the financial collapse we are in now. And the cherry on top of this fantasy sundae is an end to the debt limit. No more debate, no more haggling, no more icky confrontations over spending too much money. Let’s pull out all the stops and spend, baby, spend. How the hell did we let Mitt Romney get away?

A Historical Perspective

 

Since 1946 the top marginal tax rate has been as high as 91% and as low as 28%. Throughout that time, however, the amount of revenue taken in as a percentage of GDP has remained remarkably stable, as you can see from the trend line in the graph. Spending, on the other hand has been trending higher. So if a swing of sixty-three percentage points in the top marginal tax rate has virtually no effect on the amount of money taken in, why is the focus on taxes? President Obama is held up by his supporters as a man of extraordinary intellect. If he really wanted to solve this problem, one look at this chart would tell a man of such brilliance that, no, that won’t work. But he presses on. Why?

I can suggest two reasons. First, if he can get some Republicans to go weak in the knees and vote for a tax increase, he can do what Bill Clinton did in 1992 to George H. W. Bush, beat them over the head about breaking their tax pledge. We know Democrats want more taxes. If Republicans also vote for more taxes, why in the world vote for them? Result, instead of another off-year landslide in 2014, Democrats might actually make gains. Second, it’s about wealth distribution. Keep taking from the rich in the guise of fairness and giving to those who would repay him with their votes. It matters little the country will fiscally go to hell, that will be on someone else’s watch. Only conservative historians are blaming Wilson, FDR and Johnson for their contribution for our current mess. When Obama leaves office, he will look to join the progressive giants in their hall of fame.

A Kentucky Congressman John Yarmouth, this morning, correctly pointed out that revenues as a percent of GDP, currently 15%, are at the lowest level in sixty years. That is true, but it has nothing to do with tax rates. When the top marginal tax rate was at 91% between 1946 and 1964, eighteen years, the amount of revenue taken in ranged from 14.4% to 19% of GDP. If increased tax rates translated into increased revenue, we should have been swimming in money back then, but we weren’t. The second flaw in Congressman Yarmouth’s position is that these same tax rates we have now brought in 18.5% of GDP, above the long-term trend, only five years ago in 2007. It’s not the tax rates, it’s the economy and you do not grow the economy by raising taxes, period.

What the Republicans Should Do Now

The Republicans should demonstrate their seriousness in dealing with the matter by taking two steps. First, pass a bill to keep tax rates where they are. For income taxes, do not put an expiration date on them. Second, pass one or more spending bills to carry out the Penny Plan. This is the plan proposed by Connie Mack that would cap spending at 2011 levels and cut one penny out of each dollar of spending, that is, a one percent cut. If you look at your own personal situation, how many could not live on the same spending as 2011 less 1%? We know how to tighten our own belts, why can’t Washington? Then each year for the next six years, cut baseline spending by another penny per dollar. By that time spending will be back down to where it was under Bill Clinton, 18% of GDP. Then freeze it there. If the economy grows, there will be more money to spend. If the economy contracts, then cuts will be in order. Since historically tax revenues have been about 19% of GDP, it means we will begin paying off our debt rather than growing it.

The Republicans then have to go out and sell this plan, really sell it, to the American people. Every individual’s and family’s budget starts with how much money you are bringing in. Spend less than that and you can live the American Dream. Spend more than you take in and you are looking and a long life of misery. It should be no different with the government. You don’t start with how much stuff you want to buy. You start with how much revenue you are going to take in. Throughout the year, if what you projected is less, then during the year the government should cut back more.

Mr. Boehner, put that on the table and walk away. Let Harry Reid and Barack Obama, drive the bus over the fiscal cliff.

 

That’s my opinion; I’d like to know yours. Please comment below.

 

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