The S&P downgrade this weekend confirms the obvious — we need to cut a lot more spending.
The best, most credible plan to solve both our short- and long-term fiscal challenges is the “Cut, Cap, and Balance” plan, which is supported by the overwhelming majority of conservative, free-market, and tea-party groups. That makes it especially strange to see so many on the left blaming the tea parties for the downgrade; tea parties wanted the $4 trillion in deficit reduction S&P called for, and a lot more. MoveOn.org — the most vocal proponent of the “tea-party downgrade” smear — was urging Congress to authorize more debt without any deficit reduction right up to the August 2 deadline.
While S&P took pains to say it “takes no position on the mix of spending and revenue measures that Congress and the Administration might conclude is appropriate,” the historical record is clear that, regardless of how high we raise tax rates, tax revenue is unlikely to ever exceed about 19 percent of GDP. With spending around 25 percent of GDP and slated to jump dramatically as more baby boomers retire, that means we need to focus on much bigger spending reductions and fundamental reforms.
Higher tax rates would undermine incentives to work, save, and invest and would further imperil our very weak economy. Instead, the proper way to bring revenues back up to historical norms is to encourage new investment and economic growth. One key revenue measure that the super-committee should include is to finally open the Outer Continental Shelf, as well as ANWR and other on-shore areas, for energy exploration and production. A recent study showed that simply streamlining the government’s drilling permit process would add nearly $12 billion to federal and state revenues in 2012, while at the same time creating 230,000 jobs across the country. Another is the REINS Act, which would stop the most egregious and costly regulations by requiring Congress to vote on them before they could take effect, restoring Congress to its proper constitutional role. Elected officials should be making the laws in our country, not unaccountable bureaucrats.
S&P noted that “a new political consensus might (or might not) emerge after the 2012 elections.” Activists who are committed to getting spending under control and the economy growing again can play a key role in building that new consensus by demanding that our elected officials show the political will necessary to tackle the nation’s toughest fiscal challenges with genuine reforms.
— Phil Kerpen is vice president for policy at Americans for Prosperity.
[Editor’s Note: For more on the downgrade, read our symposium.]