The Corner

I Thought the Supercommittee Was Supposed to Reduce the Deficit

According to The Hill, “Democrats on the supercommittee have proposed that the savings from the end of the wars in Iraq and Afghanistan be used to pay for a new stimulus package”:

The latest offer from Democrats on the deficit panel, made Monday night to their Republican counterparts, would use some of the war savings to help pay for spending on infrastructure.

In this context, I think this cartoon (via Dan Mitchell) is very fitting:

Of course, this cartoon can also be used as a warning to any Republicans on the supercommittee who may be tempted to raise taxes to achieve their deficit-reduction target. While sometimes it seems like a good idea to compromise, I was reminded recently of the real risk that this approach entails: that the tax increases will be implemented and the spending cuts won’t. In a recent article in Commentary, Steven Hayward reports on how President Reagan experienced the true cost of agreeing to raise taxes in exchange for spending cuts. In Reagan’s case, it happened when he made a deal with Congress before the 1982 elections ($1 in revenue for $3 in spending cuts).

That deal, which came to be known as TEFRA (the Tax Equity and Fiscal Responsibility Act), featured what was then, to date, the largest tax hike in American history. TEFRA came a little more than a year after the enactment of the Kemp-Roth bill, which slashed marginal tax rates at every level by 23 percent over three years and was the heart of what came to be known as “Reaganomics.”

. . . All the “tax increases” to which Reagan agreed as part of TEFRA were temporary excise hikes on cigarettes and telephone calls. The bill also featured technical changes in the tax code (such as the elimination of depreciation schedules and the reduction of tax credits and deductions).

The result:

. . . the “balanced approach” he had advocated in the 1982 budget deal had never come to pass. TEFRA was designed to bring about $3 in spending cuts for every $1 in new revenue, which meant that, on paper, it advanced Reagan’s goal of shrinking the federal government. In practice, the results of TEFRA were almost exactly the opposite. While the tax increases were real, Congress never delivered on the spending cuts. By one calculation, the 1982 budget deal actually resulted in $1.14 of new spending for each extra tax dollar.


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