Are Tax Increase Critics ‘Irrational?’

Are Tax Increase Critics ‘Irrational?’

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Larry Haas this week described opposition to tax increases as “irrational.”   Yet he never makes a persuasive case for raising taxes.

His op-ed is packed with over-generalizations and straw men. He asserts that conservatives believe “no tax is justified for any purpose” (only the most radical libertarians would say that). He states that “on the right, no effort to cut taxes further is ever considered beyond the pale? (None? Ever? By Anyone? That is not an informed statement).

He goes on to assert, as if conservatives would disagree, that Americans have “an obligation to pay taxes.” Mr. Haas fails to offer examples of conservatives offering the extremist beliefs he ascribes to them, or to even bother distinguishing between different parts of the conservative coalition (moderates, social conservatives, libertarians, supply-siders). Instead, he classifies 50 million individual voters as one rigid, monolithic group of anti-government radicals demanding the immediate elimination of every tax, damn the consequences. 

Conservatives could be forgiven for concluding that Mr. Haas needs to get out and meet some actual conservatives, read their legislation and watch them debate tax policy. He would discover that only a tiny fraction of conservatives support eliminating all taxes (most would stop at modest tax cuts coupled with spending cuts), and many oppose special interest tax loopholes, as well as tax cuts that do not increase incentives to work, save and invest.

Without explanation, Mr. Haas then leaps from the common sense premise that some taxes are required for society, to the sweeping conclusion that therefore taxes must be raised above current levels. But Americans already pay more than $2 trillion in federal taxes, plus $1 trillion more in state and local taxes. One can agree that some taxes are necessary and still consider the current tax burden to be more than enough.

Mr. Haas defends tax increases by vaguely mentioning that Americans are disillusioned, the economy is weak, incomes are stagnating and the long-term economic picture is problematic. Nowhere does he even attempt to explain how tax increases would solve any of these problems. In fact, virtually all economic schools of thought agree that tax hikes would further weaken the economy and (by definition) reduce after-tax incomes. And when was the last time a tax increase cured Americans’ disillusionment?

Throughout the op-ed, the author takes rising government spending for granted, and demands that taxes rise accordingly. If spending rises faster than taxes, then it’s the fault of a radical group of quasi-anarchists who must not believe in any taxes. Yet this analytical framework is hollow:  Someone on the other side could just as easily write that tax rates should always be falling, and spending should fall accordingly. This opposite narrative would blame any failure to cut spending on 50 million radical liberals who all believe that no spending increase is beyond the pale in their attempt to nationalize the economy. If a conservative wrote such a narrative, Mr. Haas would be justified writing the same critique I offer here.

Any serious case for tax increases must show that current tax policies are insufficient for the spending levels needed, and that the negative economic consequences of higher tax rates would be more than offset by the positive effects of the additional spending. Mr. Haas never does this.

He says tax increases are necessary to close the budget deficit. Yet the long-term deficits almost exclusively result from rising spending, not falling tax revenues. Under the continuation of current policies, Congressional Budget Office (CBO) data projects that federal spending would reach 26.0 percent of GDP by 2020 – 5.3 percent of GDP above the 40-year average. Tax revenues in 2020 would come in at 17.7 percent of GDP – 0.6 percent of GDP below the 40-year average (and even that assumes the 2001 and 2003 tax cuts are extended). Putting that together, 90 percent of the increased budget deficit by 2020 would result from higher-than-average spending, and only 10 percent would result from lower-than-average revenues. And after 2020, CBO confirms that 100 percent of the rising deficits result from additional (entitlement) spending hikes.

If the rising budget deficit is almost exclusively the result of surging spending, common sense suggests paring back those spending programs. Yet Mr. Haas does not even acknowledge these entitlement spending trends driving the long-term deficit. The terms “Social Security” and “Medicare” never appear in his op-ed. He lets the runaway spending programs totally off the hook, and then blames the deficit on conservatives’ unwillingness to steeply raise taxes to match these historic spending increases.

The political debate on taxes and spending is quite simple. Washington has historically taxed 18 percent of GDP, and spent 20 percent of GDP. Most conservatives would prefer to balance the budget at or slightly below that 18 percent of GDP average. Most liberals would prefer to balance the budget closer to the 26 percent of GDP level that spending is heading towards. This is a fair debate to have – both viewpoints are legitimate and defensible. But bypassing real analysis in favor of straw man mischaracterizations and exasperated indignation  over the basic idea that some people may oppose steep tax increases does not move that debate forward.

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Brian Riedl is Grover M. Hermann Fellow in Federal Budgetary Affairs in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.