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Turn on cable news and you hear Democrats and an ever increasing chorus of Republicans cheer about our need to raise “revenue”. Revenue usually refers to income or earnings, the profit or proceeds from the sale of good or services or one’s labor. It does not often refer to taxes or levies. Yet there go the politicians claiming their entitlement to an ever increasing slice of the proceeds of our work as their reward. Language aside, it seems instructive to ask, what do they really need the money for? Maybe we really do need to pony up for the good of the country. Maybe all we need is a few of those “rich” fellas to kick in a little more.
It turns out that “one time” ‘we have do this since we face the worst economic crisis since the great depression’ “stimulus” is the new federal baseline. In other words, our government has been spending the equivalent of a trillion dollar “stimulus” every year since Barack Obama took office. While it is no surprise our government has been running trillion+ dollar deficits year after year after year, by endorsing the idea that our government needs to collect more “revenue” to pay for this increased spending, politicians are endorsing the belief that we need to continue spending at this increased rate!
Some Republican politicians have suggested that “it’s time to rip the Band-Aid off and reach a deal.” Other Republican pundits have decried that it “won’t kill the country if we raise taxes a little bit on millionaires.” In fact, raising taxes on the “rich” as Obama has suggested would fund the federal government for a grand total of 8 days at current spending levels. While raising taxes on the “rich” may not “kill the country,” it will not help it much either. What it might do however, is “kill” the Republican Party which will lose its mantle as the party of low taxes and limited government. Further, it will immunize President Obama and Congressional Democrats from blame when the 8 days of new government funding does little to balance the budget or improve the economy.
Though promising voters they would not vote to raise their taxes, some Republican politicians have suggested “the world has changed” from the time they signed their pledge. Yet, some have remarked that “if politicians won’t keep their word when they sign their names, what use is what they say when they don’t?” The pledge is not a promise politicians made to some “purist” who runs an advocacy group, the pledge is a promise politicians made to the constituents who elected them. That is the fidelity that is being broken when politicians go back on their word.
Where can we begin making serious spending cuts? I challenge GOP lawmakers to read the House Republican Study Committee’s Spending Reduction Act of 2011. It lays out $2.5 trillion in cuts to federal programs most taxpayers have never heard of. This is without even discussing cuts to so-called entitlement programs which conservatives understand need to be reformed.
Rather than increase income tax rates, some Republicans have proposed curtailing deductions on mortgage interest, state and local taxes, and charitable contributions. Ignoring the semantics that eliminating a deduction on which a taxpayer relies is the functional equivalent of raising his income tax rate, decreasing the deduction taxpayers are allowed for mortgage interest will further depress housing prices in an already depressed housing market. Reducing the ability of taxpayers to deduct state and local taxes will amount to double taxation as some of those taxes are taxes on income. Reducing or eliminating the deduction for charitable contributions will result in considerably less holiday cheer for many charitable institutions.
Throughout the year, Tea Partiers traveled to Wisconsin to help a governor survive a recall election in a state that they do not live in. They traveled to Texas in the sweltering summer sun helping to ensure we “extremists” had representation in DC. Many more traveled to Ohio and Virginia because we appreciate that all elections are important as the votes of every politician effect us all. We know who is up for re-election in two years. We are watching and we are coming!
In the wake of being pummeled by ads depicting him as a heartless robber baron who leaves cancer-stricken women to die, Mitt Romney unveiled his VP selection on a Saturday morning at 9am on the final weekend of the Olympic Games. This was not only an effort to stem the tide of negative news coverage, but also an effort to allay conservative fears reignited by remarks made by his press secretary defending Romneycare. Lest anyone forget, in answer to an ad accusing Mitt Romney of killing a cancer-stricken woman several years after she left her job at a Bain Capital owned plant, Mitt Romney’s press secretary stated,
“To that point, if people had been in Massachusetts, under Governor Romney’s health care plan, they would have had health care.”
In other words according to Mitt Romney’s chief spokesperson just last week, if this woman had been living under socialized medicine in Massachusetts, she would have been fine. It is only because she lived in one of the 49 states without socialized medicine that she dropped dead!
In an effort to allay some of those conservative fears, Mitt Romney nominated House Budget Committee Chairman Paul Ryan as his running mate. As the author of the House Budget Plan, Paul Ryan is the face of Republican efforts to reform entitlement programs and create a more growth oriented economic environment. Mind you, the House Budget Plan does not endorse the Cut, Cap and Balance approach promoted by the House Republican Study Committee. In fact, the House Budget Plan does not endorse a balanced budget amendment at all preferring to balance the federal budget slowly over time, over the next 28 years. That aside, by nominating Paul Ryan, Mitt Romney demonstrated he intends to make reforming entitlements and promoting economic growth the centerpiece of his fall campaign.
In picking Paul Ryan, Mitt Romney has overlooked one key area of disagreement between the two, tax policy. Mitt Romney’s tax plan favors an across the board rate cut maintaining the “progressivity” of the Internal Revenue Code, Mitt Romney’s word and a funny one for someone seeking to convince Republican voters of his conservative bona fides. The House Budget Plan by contrast, favors a flattening of the Internal Revenue Code to two individual rates and a significant tax simplification effort. Mitt Romney favors no such effort with the exception of a willingness to phase out or eliminate deductions for mortgage interest and state and local taxes for taxpayers in the upper income brackets. The problem with the Romney approach is that he does not favor a rate reduction that will equal or exceed the phase-out thus INCREASING the net tax liability of small business owners in the upper income brackets that the ENTIRE GOP Congressional caucus pledged to protect.
Before Mitt Romney announced his VP pick, President Obama launched a character assassination calling Mitt Romney a ‘Reverse Robin Hood,’ stealing from the poor to give tax breaks to the rich. Ignoring the Marxist assumption that it is “stealing” money from low income earners and the federal government money if higher income earners are not taxed as heavily, Mitt Romney would do well to negate this political narrative by endorsing a flat tax that goes beyond the House Budget Committee proposal and is completely flat and independent of income source and taxpayer status. This proposal would tax all income at one rate, no matter the source or status of the taxpayer. It would be hard to argue Mitt Romney is a ‘Reverse Robin Hood’ in such an environment. If you make more, you pay more but you are not penalized for making more. Further, such a proposal would eliminate the negative economic incentives the Internal Revenue Code provides by directing economic activity to tax-advantaged enterprises. Also, such a proposal would eliminate the cudgel legislators wield over taxpayers for directing tax policy. In one instance, tax revenue rose by nearly 80% over a three year period in the early 2000’s when Russia implemented a flat tax. Not only is a flat tax good politics, it is good policy as well.
When the excitement of the VP announcement dies down and the political conventions are over, Mitt Romney will have to combat the same character assassinations that were haranguing him prior to the announcement. On July 31st in Texas, an insurgent grassroots Tea Party candidate shocked the political establishment beating a sitting Lt Governor for the Republican U.S. Senate nomination. The Lt Governor was a $20 million self-funded candidate in his fourteenth year of elected office. Yet in the span of two short months, Ted Cruz turned a 150,000 vote deficit after the initial primary into a 150,000 vote win after the runoff election representing a nearly 30% vote swing. He did it by embracing the grassroots, attending over forty Tea Party forums across the state and engaging voters at every opportunity. When the Lt Governor embraced his inner Obama accusing Ted Cruz of being responsible for the suicide of young man, a character assassination similar to the ones Mitt Romney is now facing, voters were in a position to give Ted Cruz the benefit of the doubt. This was not merely because of the ridiculousness of the charge, but also because voters knew Ted Cruz since he had made himself accessible to them. Republican strategists might be quick to dismiss the Cruz win as one of a conservative candidate in a conservative state. After all, the saying goes that Presidential elections are won and lost fighting for “moderate” votes. Yet according to a Yankee Institute survey, a whopping 70% of true blue Connecticut voters support cutting spending without raising taxes. In Wisconsin, Governor Scott Walker survived a recall vote with a 10% margin of victory after signing legislation ending forced unionization. Over 60% of Connecticut voters favor the abolition of teachers unions according to the same Yankee Institute survey.
Mitt Romney needs to leave his Boston Brahmin liberal elitism in Taxachusetts and embrace the conservative values that are held dear by Paul Ryan and represent the core of the Republican Party. Mitt Romney needs to propose policy initiatives that move him closer to Paul Ryan and not use his VP pick as conservative window dressing. Mitt Romney should not shun conservative voters. We are hard working Americans who, after the federal government has racked up $16 TRILLION in debt, have had enough. Win our hearts and minds and the rest will follow. Need proof? Ask Ted Cruz and Paul Ryan!
The conventional wisdom that nearly infinite demand exists for U.S. Treasury debt is flawed and especially dangerous at a time of record U.S. sovereign debt issuance.
The recently released Federal Reserve Flow of Funds report for all of 2011 reveals that Federal Reserve purchases of Treasury debt mask reduced demand for U.S. sovereign obligations. Last year the Fed purchased a stunning 61% of the total net Treasury issuance, up from negligible amounts prior to the 2008 financial crisis. This not only creates the false appearance of limitless demand for U.S. debt but also blunts any sense of urgency to reduce supersized budget deficits.
Still, the outdated notion of never-ending buyers for U.S. debt is perpetuated by many. For instance, in recent testimony before the Senate Budget Committee, former Federal Reserve Board Vice Chairman Alan Blinder said, “If you look at the markets, they’re practically falling over themselves to lend money to the federal government.” Sadly, that’s no longer accurate.
