Clear Fog Blog

Political musings from Warren E. Peterson

Cut Spending. Increase Taxes. Do Both?

Posted by Warren Peterson on July 1, 2011

Commentator, actor and attorney Ben Stein was on Fox News’ O’Reilly Factor with Laura Ingraham last Wednesday. Stein, generally considered a conservative, made the case for tax increases as part of any debt reduction plan. Ingraham countered with the, “We don’t have a revenue problem, we have a spending problem.” mantra.

Indeed we do have a spending problem and it has caused a debt crisis that spending reductions alone will never resolve. The Federal government is currently borrowing 40 cents of every dollar of expenditure. Arrival of that elusive economic recovery would take care of a portion of the revenue/expenditure gap but significant cuts across the board would still be required to achieve a balanced budget. Cuts in Social Security, Medicare/Medicaid, and the military would surely be included. Even then, a balanced budget does nothing to reduce the $14 heading to $16 trillion debt.

At some point tax increases will be required but before the deficit hawks toss in the tax increase chip, they must extract a high price. Something more than just a high ratio of spending cuts to tax increases. A constitutional balanced budget amendment tops the list. It would give cover for legislators from the demands of special interest groups. Liberals would be forced to temper their demands for more spending and conservatives would have to at least be open to tax/fee increases. Both could blame the balanced budget amendment for having to make painful votes contrary to their principles. A close second is true tax reform. Not revising the current code but repealing it and instituting a Fair Tax (national sales tax) or a flat tax with a single standard deduction. In either case, everyone should be required to have some “skin in the game” by paying a minimum tax even if it is only a nominal amount. A simpler tax system would be a transparent system. No burying tax breaks in the massive code, no fiddling with brackets and deductions.

Former President Bill Clinton has suggested a lower spending and increase taxes plan that would not go into effect until the economy has recovered. It speaks to the “don’t cut spending, don’t raise taxes in the middle of a recession” debate. It’s an interesting idea, clouded by some cheap shots at Republicans, but not nearly strong enough. The time line for approval of a balanced budget amendment and a new tax system would accomplish the implementation delay Clinton is suggesting but the result would be two powerful tools for fixing our fiscal mess.

It’s trite but true, if not now, when, if not soon, Greece?

Cross posted on: Sound Politics


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