With less than a week left for the White House and congressional negotiators to come to some sort of compromise, it is time to put all of this debate into perspective.
How did we, as a nation, get to this point where there isn’t enough money to run the country and taxes need to be raised? On one side, elected officials argue it was the Bush tax cuts that got us into trouble. On the other side, elected officials argue it was all the spending and creation of entitlements that got us into trouble. What they both miss is that none of these shortfalls could have happened without the White House proposing them and Congress agreeing to adopt them. So, to a large degree, both Congress and the White House are responsible for the financial pickle in which we find ourselves.
While middle-class and rich taxpayers enjoyed tax cuts, we clamored for more and more services and benefits from the federal government. Not only that, Social Security and Medicare benficiaries demanded increased cost-of-living allowances and additional benefits. At the same time, lawmakers borrowed from the Social Security system, leading to less reserves to invest to earn returns to cover the benefits. At the same time, actuaries warned that with a shrinking workforce, there are fewer contributors to the system than there are beneficiaries.
The situation was further exacerbated during the past couple of years when both the White House and Congress bought into the idea that a payroll tax cut would put more money into consumers’ hands that would stimulate the economy. Instead of stimulating the economy, it merely shortchanged the Social Security system in the long term, with less funds to pay future benefits.
Middle-income and rich taxpayers enjoyed the windfall of the Bush cuts, they also enjoyed the endless list of benefits and services officials provided as they approved program after program over the past 12 years. In all honesty, no elected official can truly say he didn’t see it coming as the debt ceiling was regularly increased over the same period. Where did they think they were going to get the money to pay for all the programs they were approving? Did lawmakers really think the economy was suddenly going to take off and all sorts of funds would be generated? Did they ever think of putting away funds for a rainy day like Katrina and Sandy?
White House officials would prefer to raise taxes on the rich, after all, there are far fewer rich than middle-class taxpayers. So it makes more political sense to pander to the vast majority of votes and stick it to the rich. Since most people don’t think of themselves as being rich, this would seem to make far more sense at the ballot box. The problem is that until the vast majority of taxpayers realize there is no free lunch, they will continue to demand more. More programs, more services, more, more, more is the mantra that got us in trouble.
Budget officials estimate if the tax-the-rich strategy isn’t the cornerstone of the compromise plan, every American family will see their tax bill on average, rise by $2,200. No doubt many will consider that pure heresy. How can we ask middle-income families to pay even more in taxes? Are you willing to pay $2,200 more in taxes to keep the status quo?
And if not, what services and programs are taxpayers willing to give up? Until taxpayers realize there is a bottom to the barrel, they will clamor for more. Sure, there can be more government, but it comes at a price. That price is the health of the nation’s and our state’s economy. We have already seen the consequences as we watch countries like Greece, Spain, Italy and Portugal struggle with their debt and national economies.
With the nation headed for the fiscal cliff, the solution must be a combination of tax increases and spending reductions. Taxpayers must be told federal programs and services come at a price and we can no longer ignore that cost by merely passing the tab on to rich taxpayers. Finally, elected officials must learn how to say no to constituent demands. That money they like to hand out is not free, it comes from us.
Lowell L. Kalapa is the president of the Tax Foundation of Hawaii.