Enacting tax reform is the most important thing Congress can do to grow the economy, yet new hesitations are being expressed by lawmakers who worry that the tax overhaul will increase the budget deficit. But why? The deficit is the difference between what the federal government spends and what it the government takes in. Put another way: It is the resulting measure of two meaningful metrics, both of which (conservatives typically argue) should be low.
Congressional Republicans have spent the past eight years fighting the expansion of the state by taking aim at the driver of government growth: spending. Now, on the precipice of enacting serious tax reform that would also decrease taxes (the other side of the deficit equation), so-called fiscal hawks are balking.
This is a mistake and sets the stage for poor fiscal stewardship in the future.
After the Senate passed its budget resolution that allows for a tax package to grant $1.5 trillion in tax relief over 10 years, the Wall Street Journal's William Galston charged that Republicans are suffering from “debt amnesia.” This kind of criticism misstates the leadership Republicans have shown in righting the nation’s fiscal ship. While fixation on the deficit has always been a convenient fig leaf for Democrats attempting to fake fiscal discipline, it is now regrettably being weaponized by both sides to derail tax reform.
Addressing the country’s debt is a crucial component for long-term solvency. The liabilities presented by entitlement programs portends disaster for the nation’s fiscal future if left unaddressed. Little progress has been made in this arena; Obamacare further accelerated the instability of both Medicare and Medicaid. Social Security’s infrastructure was built for a population much smaller and younger than the one it serves today.
The only serious recent discussion of rescuing these entitlements and the bankruptcies they present have been under the leadership of now-Speaker of the House Paul Ryan. When he took over the chairmanship of the House Budget Committee, his Path to Prosperity offered a vision for reforming mandatory spending. With Ryan’s ascent to the speakership, that mantle has been carried by his successor; the budget produced this year by Chairman Diane Black, R-Tenn., called for the most ambitious mandatory spending reforms seen in the modern era.
Contrast this to how Democrats spent their time in leadership; confronted with fiscal reality, House and Senate Democrats chose to simply not write budget plans to avoid revealing their defrauding of taxpayers. The first year of President Barack Obama's presidency saw Democrats band together to pass a trillion-dollar "stimulus" plan followed one month later by half a trillion more in omnibus spending.
Thanks to this recklessness, federal spending ballooned to 26 percent of GDP, a full 5 percentage points higher than the historical average. This was accepted as the new normal – until Republicans gained control of the House in 2010. Then-Speaker of the House John Boehner moved immediately to eliminate earmarks, targeting the mechanism by which the omnibus and “stimulus” bill had been passed. The following year, Republicans forced Obama to commit to $2.5 trillion in spending cuts under the Budget Control Act of 2011.
None of the success conservatives have garnered in erasing the Obama-Pelosi-Reid spending legacy would have been possible if simply eliminating the deficit had been their focus. This was, after all, how Democrats were compelled to go along with the BCA; it created a fiscal commission that was charged with finding savings to eliminate the deficit. Unsurprisingly, Democrats proposed tax hikes to find these savings, rather than spending reductions. Republicans, rightly focused on reducing the size and scope of government to satisfy the deficit target, rejected this approach. The result was the sequester, which has drawn discretionary spending back in line with historical norms.
Medicare and Social Security present an $82 trillion — with a “T” — liability. We can’t tax our way out of our debt problem. The political will to tackle the unsustainable commitments represented by our entitlement spending remains thin. And the courage required to undertake their reform will be made even more slim unless there is widespread confidence in the economy. As long as voters feel economically unstable, politicians will not be free to make these changes.
Passing tax reform will spur worker productivity, resulting in wage growth and greater economic certainty. As the Council of Economic Advisors pointed out last month, persistent tightening in capital formation resulted in a downturn in labor productivity under the last administration – the first time in the modern era. Their research shows that cutting the corporate income tax rate and implementing full business expensing would increase wages for the average household by $4,000.
These gains would be undermined by the implementation of a tax-hike "trigger," which has been suggested as a means to addressing the deficit senators signed off on last month in their budget plan. The uncertainty this would interject into the economy would diminish the growth impact of the corporate income tax cut and deprive workers of the wage growth they so sorely need.
An unrealistic fixation on the deficit will lead reliable conservatives to snatch defeat from the jaws of victory in two major ways: by relinquishing the policy triumphs they have enjoyed through a disciplined approach to cutting the deficit through spending reductions and by jeopardizing the growth aspects of tax reform by injecting uncertainty and instability into an otherwise admirable reform package.
For years, Republicans have forced Democrats to reconcile their feckless tax-and-spend philosophy with fiscal reality, to great success. Passing comprehensive tax reform is the most effective and critical way to spur economic growth. Undermining its stimulating effects, while simultaneously abandoning the case conservatives have successfully built against bad fiscal policy, is the worst path forward.
Mattie Duppler Springer (@MDuppler) is a contributor to the Washington Examiner's Beltway Confidential blog. She is the senior fellow for fiscal policy at the National Taxpayers Union. She's also the president of Forward Strategies, a strategic consulting firm.
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