Should Congress Pass the Senate's Tax Plan? >
The Senate Tax Plan Is a Bait-and-Switch
The Senate tax plan does nothing to address excessive spending
July 31, 2012
About Antony Davies:
Antony Davies is a scholar at the Mercatus Center at George Mason University and an associate professor of economics at Duquesne University.
First, we have to recognize that we reached this point because politicians pulled a bait-and-switch. The bait came in 2008, when we were told that we needed stimulus spending to avoid a depression. Americans said OK, and government spending jumped from 20 percent of GDP in 2007 to almost 24 percent of GDP in 2011. The increased spending increased the deficit, making it difficult—so Congress claims—to now fully extend the Bush tax cuts. That's the switch. Recession calls for stimulus spending. Stimulus spending makes bigger deficits. Bigger deficits call for higher taxes. Following this recipe, we're only a handful of recessions away from ending up with tax rates that would make a European central planner blanch.
Since we're now out of the recession, politicians should return government spending to the pre-stimulus level of 20 percent of GDP. This would close the deficit by $600 billion. Coincidentally, that's the same amount that the Congressional Budget Office predicts we'd save by allowing the Bush tax cuts to expire for everyone and by reversing the 2 percent payroll tax reduction. In other words, we can keep the Bush tax cuts for everyone plus keep the 2 percent reduction in payroll taxes if we simply shut down the stimulus now that the purported reason for it is gone.
[See a collection of political cartoons on the economy.]
Second, the Senate plan keeps us bickering among ourselves. As long as we keep arguing about who is and is not paying their "fair share," Congress keeps our attentions off of the real problem—out of control spending. According to recent CBO figures, a huge discrepancy already exists in taxation levels. The average American in the top 1 percent paid an average of 29 percent of his income in federal taxes versus 11 percent for the average American. And this is after accounting for deductions, exemptions, and all the various loopholes and accounting gymnastics. While the discussion of what constitutes a "fair" tax level is an important one, the fact remains that if spending were cut, the tax burden could be reduced for all taxpayers.
So we're left with a choice. Pass the Senate tax plan, allowing the stimulus-level spending to become a permanent fixture and continue to fight among ourselves over who's going to pay the bill. Or, defeat the Senate tax plan and focus our attention on the real enemy: profligate spending.
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- Other Arguments
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#24319
No — Tax increases are not the way to combat the deficit
MATT JENSEN, APARNA MATHUR, Research Associate and Resident Scholar at the American Enterprise Institute
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#32729
Yes — The economy did pretty well the last time tax rates were higher, during the 1990s boom years
DEAN BAKER, Co-Director of the Center for Economic and Policy Research
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#41720
No — The Senate plan doesn't go far enough in either the short term or long term
WILLIAM GALE, Senior Fellow at the Brookings Institution
