Conservatives say debt commission plan really a tax hike, but don’t agree on how much

An emerging conservative criticism of the debt reduction plan released by President Obama’s commission this week is that it would represent a massive tax hike.

What they don’t agree on, however, is how big of a tax increase it would be.

Americans for Tax Reform, usually the most aggressive in denouncing any form of tax increase, comes in on the low end, saying the plan would be a $1 trillion tax hike over 10 years.

But Rep. Paul Ryan, a Wisconsin Republican and the next chairman of the House Budget Committee, says it’s a $2 trillion tax increase.

The Heritage Foundation, meanwhile, says the figure is $3 trillion.

Much of the difference in the numbers comes from different assumptions about what will happen to different programs, what level of troops will remain in Iraq and Afghanistan, and so forth.

But one of ATR’s points is that the overall tax burden on American citizens will go up as a result of this plan. The debt commission plan sets a target for government revenues to be capped at 21 percent of the economy, or gross domestic product.

The historical average for government revenues, however, is 18 percent of GDP.

“This report shifts the debate from where it properly should be – spending – and onto deficit reduction, and thereby tax increases,” said ATR President Grover Norquist, in a letter this week to Republican lawmakers on the commission who supported the plan.

And in fact, the rhetoric from some of the more liberal commission members was indeed focused on deficit reduction.

Andy Stern, the former president of the Service Employees Union International, said that when the commission began its work, “deficit reduction was not a very sexy, front page, high priority issue.”

“This commission changed that – forever,” he said Friday.

ATR has said for years that if conservatives want to reduce the size of government, they should focus on reducing spending, not the deficit, because deficit reduction can be achieved through tax increases just as much as it can through spending cuts.

That idea is at the core of Ryan’s argument, as well.

Ryan argues that while the commission represents its plan as $3 of spending cuts for every $1 in tax increases, that is based on assumptions about future policies that are unrealistic. The technical way of saying this is that the commission depends on a budget baseline that Ryan does not think is the best to use. Ryan uses a different baseline.

Ryan says the plan is actually $2 of tax increases for every $1 in spending cuts.

The commission’s plan assumes, as does President Obama’s budget baseline, that the Bush tax cuts from 2001 and 2003 – currently under debate in Congress now – will not be extended beyond the end of this year. Ryan’s plan assumes they will be extended.

  • rachelgarratt

    Geez, more taxes, really? There has to be a better way to make our country more competitive so we’re not having to hurt ourselves to survive.

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  • Tess_Comments

    Raising Taxes is NOT the answer.
    What will help with our debt situation? The Federal Government needs to STOP spending tax dollars as if we had a surplus of 15 million.
    Stop the Federal Government Over-Spending.
    Stop the Hand-Outs.
    No Unemployment extension over a total of 50 weeks of Unemployment Insurance.
    No more Subsidies.
    Stop the Over-Printing of US Dollars.
    Give Small Businesses Tax Breaks if they create a job and hire someone that is collection Unemployment.

  • PolyIndependent

    You know, I’ve been hearing since Reagan that “tax cuts increase revenue”, yet here we are at $8 trillion in debt and with some of the lowest taxes in recent history. Curious.

    • missywise

      Only happens when there are spending cuts to go with them. Congress has spent like drunken fools in the last 4-6 years – massive spending in the last 2.

      • GunTotingLibertarian.PhD

        Wasn’t there a predicted surplus in 2000? And didn’t Clinton raise taxes to 39% in the highest tax bracket? I’m not an economist, but there appears to be both smoke and fire here.

        • krjohnson

          There was a phony bubble economy in the late 90s that popped in 2001.

          • loudog

            Ah, just like the phony housing bubble economy of the 00’s, except the gov’t had paid down our debt and deficit when times were good under Clinton but not so now, we started in the hole this time because of failed Republican tax cut and over-spend policies.

      • loudog

        That’s what happens in recessions, governments spend money on unemployment benefits, buy treasuries to bring down interest rates, provide tax breaks to stimulate the economy, etc. That’s why it’s important to pay down debt and deficits during the good years, which we failed to do last time.

    • snappercat

      Doesn’t work if half the population sucks money out of the system rather than contributes.

      • GunTotingLibertarian.PhD

        Again, I’m not an economist, but. Which part of the population buys and which part saves? If you need to inject money into the economy, wouldn’t you want to put cash into the hands of the lower classes? I’m just asking here. By my understanding, for every $1 spent on the upper 1%, .35 is returned. 1.35 for the lower classes. I’m just asking, where should we put money?

        • krjohnson

          I am horrified that a fellow libertarian does not realize that growth comes from savings and not consumption. More spending will result in phony growth, and higher GDP because of increased prices but will not create any more goods or services.

          It doesn’t take anything special to consume, anyone can do it. Different people will have different consumption preferences that will direct future investments, but the bottom line is that we will consume what is produced at some price. Increasing the amount that is spent merely bids up the prices of the goods and services already produced.

          Growth comes from savings and under-consumption. It happens when a business takes out a loan to buy another piece of capital equipment. It happens when a corporation decides to take money from their profits and spend it on a new factory instead of paying it back to shareholders in dividends. It happens when a small business owner decides to hire another employee instead of take a vacation. In short, it happens when people save and under-consume.

          Please google “How an Economy Grows and Why it Doesn’t” and you should be able to read Irwin Schiff’s great, and short, book on the subject for free online. If you don’t agree that growth comes from savings after that I don’t know what else I can say.

          • GunTotingLibertarian.PhD

            e economy grows by nearly two dollars for every dollar spent on unemployment benefits “because recipients typically spend all of their benefit payments quickly.” The money “ripples through the economy into supermarkets, gasoline stations, utilities, convenience stores.” Flush with the revenue provided by these new consumers, those businesses are then able to hire additional workers and diminish the ranks of the unemployed.

            Tax cuts for the rich, on the other hand, are only marginally more useful than simply burning the money. Indeed, corporate America is presently sitting on a massive $1.6 trillion in cash reserves, but their actions in recent months demonstrate that business leaders would rather let this money grow mold than actually spend it to put Americans back to work. Gingrich offers no explanation for why simply giving the rich even more money to hoard will magically cause them to spend it on hiring people.

          • thephranc

            So $1 magically becomes $2? And Taking money from one who earned it and giving it to some one who didn’t is better?

            Libertarian? More like liberal by account of your tired and discredited liberal talking points.

            Businesses are sitting on the money to buffer the inflation that is coming because of the government spending you endorse. We would love to spend that money here and now on new equipment and hires but we can’t because we don’t know how bad tomorrow will be.

          • krjohnson

            It is pretty clear to me that you are not a libertarian. What you are talking about is Keynesian economics, which is to sound economics what witch-doctoring is to medical science. It’s also pretty clear to me that you didn’t take the hour or so it would take to read through Irwin Schiff’s book.

            All this new money you’re talking about going through the system is phony growth. Prices get bid up, for labor, raw materials, and capital goods because there is more money chasing the same purchases. Businesses make long term decisions based on incorrect prices, and eventually you end up with a crash like we had in 2008. If you try to fix it by pushing more money into the system you’re going to get the same thing you got except it will be bigger because the problems weren’t fixed from the previous crash.

            We need savings! We need investment! I cannot believe that ANYONE could look at the American economy since the 90s and think that our problem is that there is not enough consumption. 70% of our economy is consumer spending! Only 30% is production. That is a huge imbalance. There is no wonder we had a crash, and no one should be surprised when we have another one in a few years.

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  • rainmaker1145

    All of this to preserve the monopoly on credit and wealth that our banking industry enjoys. All this suffering, all this want and all the pain that is still to come because of the Federal Reserve Act of 1913 and the completely unsustainable concept known as fractional-reserve banking. All of it is a failure and the shortcomings of the central bank approach to sustaining the engine of fiscal appropriations, capital market platforms, credit and wealth are all interrelated and all require a complete overhaul that must start with an end to the Federal Reserve System and a complete replacement of the commercial fractional-reserve banking system and capital markets organization we use today that allows bankers to exercise their exclusive franchise at the cost and risk of everyone in our economic society.

    The truth is that it all has to end and as soon as we decide to end this crooked parlor game, the solution to these monster deficits and national debt is already waiting for us. We don’t have to pay enormous taxes to pay off our national debt, we need to reorganize our banking system and the way we undertake fiscal appropriations. You can see what the future looks like by reading our FREE white paper on commercial banking systems, currency inflation, fiscal appropriations and capital markets organizations for the 21st century by downloading it at: http://www.capitalismbookstore.com/The-Consumption-Banking-System.pdf.

    We do have choices and these people are all working to prevent us from having anything that is not of their doing because no matter what they choose for us, it will always be good for them and indentured servitude for us. They just don’t flatter us any more with the chains that go with the economic slavery they have created. Help us end it.

  • loudog

    We’re spending $2 billion/week of China’s money to prop up a corrupt government in Afghanistan. Lets cut spending and start there.

    • clw

      Shouldn’t you be telling Obama, and not us? That’s on him. Isn’t he the POTUS? Seems like he could say “we’re out of there”, and we’d be out. I guess he thinks it’s a good idea to stay there right now. That must really burn you up.

      • loudog

        Yes, it does burn me up that he’s listening to people like yourself who want to borrow money from China to stay there until we’re bankrupt.

    • krjohnson

      Sounds like a plan.