My resolution to the debt ceiling debate states that we need a balanced budget amendment and a constitutional limit on spending at no more than 19 percent. And actually that’s a higher spending percent than I’d consider ideal, because since 1971-2010 the US has only taken in an average of 18.47 percent of GDP in tax revenues (despite the varying tax rates in that period). From 1950 to 2000 federal spending as a percent of GDP averaged 19.8 percent. Under George W Bush (2001-2008), despite his overseeing of large deficits, spending was actually lower than the 50 year average at 19.6 percent. By comparison, under President Obama, federal government spending as a percentage of GDP was 25 percent in 2009 and 23.8 percent in 2010.
As part of the debt ceiling compromise, Democrats want to increase taxes (which is typically their solution to every problem) and combine that with spending cuts (which they will rabidly fight against). The Republicans’ typical position is to refuse any plan that raises taxes, however they are even more emboldened in this case because our economy is already in such bad shape.
Obama went on the attack during his June 29, 2011 press conference, accusing Republicans of favoring corporate CEOs over middle class Americans. One may be inclined to ask, “How does not wanting to raise taxes on anyone, including the people who want to hire middle and lower class people, the same thing as opposing the middle class?” To borrow a line from Ayn Rand’s classic Atlas Shrugged, “Why ask useless questions? How deep is the ocean? How high is the sky? Who is John Galt?”, the answer is nobody knows; just don’t question it.
Despite his 2009 stimulus package giving tax incentives for corporate jets, Obama attacked corporate jets six times in his speech. For the record, eliminating the tax incentives for corporate jets would generate roughly .1 percent of the revenue he wants to take in as part of the Democrat debt reduction strategy. As you may have been able to tell by the measly increase in tax revenue generated by an elimination of corporate jet tax incentive, his focus on corporate jets and CEOs and such isn’t really about debt reduction. His focus on the issue is a tactic in class warfare, which has long been a Democrat strategy to gain popular support for tax increases on the wealthy and corporations; as well as painting Republicans as corporate shills.
Interestingly, on The O’Reilly Factor airing 6/28/11, liberal radio host Alan Colmes said the Democrats don’t want to raise taxes, they just want to eliminate tax loopholes and deductions. For the record, I think that Alan Colmes is qualified to have a show called “Alan Colmes says the darndest things”, as he has a history of saying the most absurdly false things that come to his mind. Democrats have been clamoring for higher taxes for as long as I can remember. But it does appear as though he may have forecasted a strategy change, as lately President Obama has been echoing the same thing.
A true supporter of free markets understands that means not incentivizing or disincentivizing the purchasing of certain goods. For example, politicians levying high taxes on cigarettes to discourage smoking creates a disincentive and thus isn’t a free market action. The Democrats subsidizing and giving tax breaks to green energy companies and offering tax breaks to people who buy their products creates incentives for sellers and buyers of the products, and also isn’t a free market action.
Therefore I propose this idea: for every specific tax deduction that Democrats want to eliminate, we lower the corporate and individual tax rate by .015 percent. So if the Democrats want to eliminate 200 deductions from the tax code, that is great so long as the overall rates are lowered by 3 percent. According to the Cato Institute, the income tax code in the US had 54,846 pages in 2003, and it has grown by thousands of pages since. There are probably thousands of deductions, promoting activities/behavior at the expense of other competing industries and other taxpayers who have to pay more to make up the revenue surrendered by the deductions. My proposal will get us closer to a freer market and will lower the already too high taxes. It should also be stated that this isn’t a radical proposal, as Obama’s own debt reduction committee recommended an idea very similar, but their idea was ignored by the Obama administration. I should also mention that lowering taxes as a whole under Ronald Reagan, increased revenues to the government. Combining the revenue generated by the elimination of numerous tax deductions and economic growth through people being able to keep and spend a little more of their money could perhaps generate much more revenue than anticipated.
Lowering the corporate income tax is just as important as lowering the personal income tax rate, because the United States has the highest corporate income tax rate in the world. This causes American companies to move operations overseas and for US money to stay in offshore bank accounts; when it could be in our banks for them to lend it out as loanable funds to Americans. Also problematic is that the corporate income tax is in many ways a double tax. As businesses typically have a set profit margin, they pass on the cost of their taxes on to consumers. As a result, companies must sell their items for much higher prices to pay for the taxes levied on them. People may argue that removing the corporate income tax after its been in effect, won’t cause companies to lower their costs, as they’ll just pocket the money. Businesses could do that, but for them to stay in operation, they’d either have to lower their prices or resort to praying that their competition isn’t interested in expanding market share by lowering prices. However, even in that unfortunate scenario, the companies would then have the revenue to increase hiring, give their current employees raises, and put tons of money in R&D to make better products. Or perhaps the companies would drop the prices by half of the tax decreases and keep the other half, either way it’s a win-win for the economy.