We need a debt-ceiling deal. It should be one that signals that fiscal responsibility is coming eventually. In that respect, the president’s most recent proposal isn’t serious. It’s all tax increases, none of which put an end to loopholes for special interests that he likes. It’s the same old tax-the-rich proposal we always get from Democrats.
This is what the plan looks like:
Don’t be fooled by the spending-cuts section: It’s all tax increases. As Doug Holtz-Eakin writes in his excellent Daily Dish:
First, there are no real spending cuts. “Eliminate cryptocurrency trading tax loopholes” is a tax increase. “Eliminate real estate loopholes” is a tax increase. “Eliminate tax subsidies for oil and gas” is a tax increase. “Cut handouts to Big Pharma” is a rhetorical flourish hiding the price controls being imposed on drugs used by seniors in Parts B and D of Medicare – price controls made possible by a confiscatory excise tax on those drugs.
The president’s plan is tax, tax, tax, tax, tax, tax, tax, tax, and tax.
It is ridiculous. While we aren’t going to change the fiscal path we are on through the debt-ceiling debate, it matters because it is a strong signal of what the president is thinking. It’s frustrating because it’s not as if there aren’t plenty of special-interest loopholes to cut and many reforms to implement to make the tax code more efficient and productive — and to keep the country growing. The president’s plan isn’t that.
This plan also signals that the president is unwilling to put any spending on the table. This is disappointing a few days from the X-date. But it is also crazy when this year’s deficit will be $1.5 trillion at a time when last year’s tax revenues were historically high as a share of GDP.
Looking beyond the debt-ceiling fight, it is the right time to remind politicians that countries that have successfully reduce their debt-to-GDP ratio have done so with fiscal adjustments that were mostly based on spending reforms, not tax increases. If we fail to remember that, whatever future deal Republicans and Democrats reach to address the debt-sustainability issue we face will fail to reduce the debt to GDP.
Back to the debt-ceiling deal on the table, Holtz-Eakin concludes:
The policy moral is simple. The fiscal outlook cannot even be stabilized until the gap in the growth rates of spending and revenue is closed. Since revenue is limited to rise at roughly the rate of nominal economic growth, that means any serious plan cannot be tax, tax, tax, tax, tax, tax, tax, tax, and tax. It must control the growth of spending.