Tax Reform Trumps the Fiscal Cliff

A solution to the budget deficit must include real tax reform to create jobs and improve the economy.

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Never mind the "fiscal cliff." Rep. Dave Camp, chairman of the powerful House Committee on Ways and Means, says tax reform is the order of the day—at least for next year.

Speaking Thursday at an event marking the 75th anniversary of the influential Tax Foundation, the Michigan Republican said, "Tax reform is more necessary now than it was in 1986, and that is why the Ways and Means Committee will write, act on, and pass comprehensive tax reform legislation in 2013."

It's a welcome bit of news to the collection of supply-siders, advocates for economic growth, taxpayer groups, businesses, and others who are waging a thus far successful effort to keep President Barack Obama and the entitlement crowd from raising taxes.

[See a collection of political cartoons on the economy.]

This is not an academic argument. Nor is it, as Obama might suggest, a matter of greed. What the president and his allies would like to do is create a permanent, significant increase in the amount of money flowing into federal coffers, measured as a a percentage of U.S. gross domestic product. To them it's not about getting more money to Washington to close the gap between spending and revenues while reducing borrowing; it's about more money period—all the better to spend on vote-winning social programs.

What Camp and those the New York Times refers to as the other "supply-side dead enders in the U.S. House," want to do is to restructure the tax code in ways that allow the private economy to grow. Right now the United States is still limping along through its most anemic recovery since the end of the Second World War. The tax shock that is coming, if the government cannot be stopped from going over the "cliff," will most surely produce massive layoffs and another recession. What is needed is not a balanced budget or a reduction in borrowing. What is needed is an agenda for growth, which produces jobs, high living standards, greater levels of investment, increased economic activity and, by the way, higher revenues over time for the federal government.

[See a collection of political cartoons on the fiscal cliff.]

Why, you ask? Because even at lowered rates, a $20 trillion economy that grows at 3 percent per year is bigger than a $15 trillion economy with yearly growth of 1 percent. A bigger pie yields either bigger pieces or more pieces—the choice is up to the ones who slice it.

Camp is right when he says, "Comprehensive tax reform is the path forward. Tax reform can get more revenues for the president and the Democrats. And, tax reform can get more economic growth and job creation for the American people." 

[See a collection of political cartoons on the Democratic Party.]

America needs growth. President Obama, while he has lots of interesting "ideas," has put forward no plan. He has, as Camp said Thursday, "a choice to make before the end of the year. Does he simply want to stand for higher tax rates on top of a broken code, or will he support comprehensive tax reform that strengthens our economy?"

These are good questions. We know what the House Republicans wants. We don't know what the Senate—which has not passed a budget in three years under the leadership of Nevada Democrat Harry Reid—wants because Reid's not saying. And all Obama wants is "shared sacrifice" that leads to the wealthiest Americans paying more of their fair share, whatever that means. "Fair share" is not a concept they teach in economics class.

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