Video: Is the President listening?

posted at 10:01 am on December 12, 2012 by Ed Morrissey

So far, the House Republican caucus doesn’t want to go down (or vote “present”) without a fight.  While it seems increasingly likely that any deal that the GOP can make with Barack Obama will have to include tax hikes on those making $250,000 or more a year, House Majority Whip Kevin McCarthy wants to make sure everyone knows what that will mean for many thousands of small-business owners — and for job seekers, too.  “Linda’s Story” focuses on Linda Lizanich, an accountant with the Kennedy Group in Ohio, explaining the obvious consequences of sucking more capital out of an already-stagnant economy:

It seems that Republicans have belatedly learned the value of personalizing policy choices.  If that doesn’t move the needle, though, the National Taxpayers Union offers a more academic argument.  A letter to Congress from 180 economists from around the country urges Congress to eliminate the fiscal cliff tax hikes, or risk significant damage to the economy:

As the nation approaches the so-called “fiscal cliff,” we, the undersigned economists, urge Congress to carefully consider the relative merits of tax increases and spending restraint. Increasing taxes would likely slow or reverse our nation’s fragile economic recovery and undermine long-term growth. Restraining the growth of expenditures, however, would help stabilize the government’s fiscal imbalance and create a more conducive environment for robust expansion.

Some in Congress have advocated allowing the 2001 and 2003 taxpayer relief laws to expire for some or all taxpayers. Such an action would have a significant, negative impact on the economy. Low taxes can have a constructive economic effect by keeping money in the private sector, where it is far more likely to be utilized for efficient purposes. By contrast, raising taxes would divert resources into the relatively inefficient public sector, thereby curbing potential job creation and economic growth. This effect would be even more pronounced during a persistent slump.

In particular, Congress should avoid raising marginal tax rates on income and taxes on investment, such as capital gains and dividends taxes. These types of taxes most directly and meaningfully affect job creation.

Additionally, lawmakers must resist other destructive proposals that would boost effective tax burdens, such as curtailing itemized deductions for higher earners or imposing discriminatory taxes on energy or other industries. Such policies are merely revenue-raising ploys when executed outside the context of comprehensive tax reform that includes correspondingly lower marginal rates. And like other tax increases, they would serve as inadequate substitutes to much-needed spending restraint.

While some Members of Congress are concerned about the short-term impacts of slowing the growth of federal expenditures, they must uphold their commitment to the American people to address the alarming trajectory of U.S. spending and borrowing. There are more tangible benefits to consider as well: research has shown that spending restraint is superior to tax increases for both deficit reduction and long-term economic vitality. This has proven true in many other developed nations that have implemented fiscal adjustments.

To best foster a strong economy, Congress should ultimately create a simpler system of taxation with a broader base and low rates on income and investment. Simultaneously, it should prioritize government programs and pursue entitlement reforms that bring the budget to sustainable balance. Individuals and businesses are depending on — and deserve — greater certainty in policy making that affects their everyday financial decisions.

Both approaches have their limitations.  Political fights come down to anecdotes vs anecdotes and experts vs experts, with all sides claiming support.  It comes down to policy and basics — or rather, it should come down to policy and basics.  We have gone from spending 18.6% of GDP in 2000 to over 25% of GDP today.  That’s the real driver of the massive deficits and debt, and we need to return to the 18.6% level in order to solve those issues.  If we have to trade a higher marginal tax rate to do so, I’d take that deal — but it’s still going to cause damage when it gets applied.


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