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Archive for the ‘Supercommittee’ Category

There’s a big behind-the-scenes fight inside Republican circles about the military budget. GOP hawks are so concerned about the possibility of a sequester (automatic reductions in projected spending) that some of them are willing to capitulate to a tax hike.

Others are pursuing a more productive approach, as explained in this story. They want to cancel the defense sequester and replace the savings by restraining pay levels for federal bureaucrats.

This is an excellent idea since domestic programs are overwhelmingly to blame for America’s fiscal problems, and those programs employ hundreds of thousands of unnecessary and over-compensated bureaucrats.

Regardless of how that effort plays out, though, George Will explains in a new column that Republicans hawks can ease up on the overheated rhetoric. Simply stated, there is no risk to America’s military supremacy.

The U.S. defense budget is about 43 percent of the world’s total military spending — more than the combined defense spending of the next 17 nations, many of which are U.S. allies. Are Republicans really going to warn voters that America will be imperiled if the defense budget is cut 8 percent from projections over the next decade? In 2017, defense spending would still be more than that of the next 10 countries combined. Do Republicans think it is premature to withdraw as many as 7,000 troops from Europe two decades after the Soviet Union’s death? About 73,000 will remain, most of them in prosperous, pacific, largely unarmed and utterly unthreatened Germany. Why do so many remain? …GOP critics say that Obama’s proposed defense cuts will limit America’s ability to engage in troop-intensive nation-building. Most Americans probably say: Good. …Osama bin Laden and many other “high-value targets” are dead, the drone war is being waged more vigorously than ever, and Guantanamo is still open, so Republicans can hardly say that Obama has implemented dramatic and dangerous discontinuities regarding counterterrorism. …even with his proposed cuts, the defense budget would increase at about the rate of inflation through the next decade.

The last point is similar to something I wrote last year. Even with a sequester, defense outlays will climb by about $100 billion over the next 10 years.

And I very much agree with Will’s point about defending Germany, which is part of the broader discussion of why NATO still exists about 20 years after the Warsaw Pact dissolved.

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Some people have asked why I’m so agitated about the possibility that Republicans may acquiesce to tax increases as part of the Supercommittee negotiations.

Rather than get into a lengthy discourse about the proper role of the federal government or an analysis of how the Bush-Obama spending binge worsened America’s fiscal situation, I think this chart from a previous post says it all.

Republicans are considering a surrender on taxes because they are afraid that a deadlock will lead to a sequester, which would mean automatic budget savings. And the sequester, according to these politicians, would “cut” the budget too severely.

But as the chart illustrates, that is utter nonsense.

There are only budget cuts if you use dishonest Washington budget math, which magically turns spending increases into spending cuts simply because the burden of government isn’t expanding even faster.

If we use honest math, we can see what this debate is really about. Should we raise taxes so that government spending can grow by more than $2 trillion over the next 10 years?

Or should we have a sequester so that the burden of federal spending climbs by “only” $2 trillion?

The fact that this is even an issue tells us a lot about whether the GOP has purged itself of the big-government virus of the Bush years.

A few Republicans say that a sellout on tax hikes is necessary to protect the defense budget from being gutted, but this post shows that defense spending will climb by about $100 billion over the next 10 years under a sequester. And that doesn’t even count all the supplemental funding bills that doubtlessly will be enacted.

In other words, anyone who says we need to raise taxes instead of taking a sequester is really saying that we need to expand the burden of government spending.

So even though Ronald Reagan and Calvin Coolidge are two of my heroes, now you know why I don’t consider myself a Republican.

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Yesterday, I unloaded on supposed conservatives who are toying with a tax increase to enable more government spending.

Why would they take that route in the “Supercommittee” deliberations, I wondered, when they can deliver a guaranteed victory for taxpayers by holding firm and allowing a sequester to occur, which would automatically slow the growth of federal spending?

Many of the beltway elites seem to think a sequester would be catastrophic, leading to “savage” and “draconian” budget cuts.

This is nonsense. As I’ve already explained, a sequester simply means that spending climbs by $2 trillion between now and 2021 rather than climbing by $2.1 trillion (see this chart).

If that’s “savage” and “draconian,” then I suppose we should hospitalize 300-pounders for anorexia when they trim their toenails.

The Wall Street Journal’s editors are equally dismissive of the anti-sequester hysteria among the politicians, lobbyists, bureaucrats, and special interest groups. Here’s some of what they had to say.

…the sequester does have the virtue of imposing reductions in spending that Congress rarely agrees to on its own. …This would yield $68 billion in savings in 2013, and more savings in future years by ratcheting down the baseline level of spending. …Total domestic discretionary spending doubled to $614 billion in 2010 from $298 billion in 2000. Even if there were a 10-year $1.2 trillion “cut,” total discretionary spending would still rise by $83 billion by 2021 because those cuts are calculated from inflated “current services” projections. …If the super committee choice is between a tax increase that would hurt the economy or letting the sequester strike in 2013, go with the sequester.

And in a column on the editorial page of the Wall Street Journal, former Senator Phil Gramm, along with a Capitol Hill budget expert, Mike Solon, echoed these sentiments. Here are some key passages.

As markets and the media conclude that the congressional super committee on deficit reduction is likely to fail, public attention is increasingly focused on the “draconian” across-the-board cuts that will ensue. …Across-the-board cuts are clearly inferior to rationally setting priorities, but they’d be far from debilitating. Spending has grown so fast in the last five years that even if the cuts are triggered, total spending in 2013 would still be a whopping $3,582 billion—32% more than projected by the Congressional Budget Office in January 2007. Even after adjusting for inflation, real nondefense discretionary spending would be up $41 billion, or 7.6%, and real defense discretionary spending would be up $77 billion, or 13%. …The super committee should write a good plan now if it can do so, but it should not take a bad deal that could hurt the economy and further Hellenize America’s debt crisis. The committee members should bear in mind that help is just an election away.

Gramm and Solon also explain that it will be very easy to modify a sequester after the 2012 election, so pro-defense hawks should not be fearful of a sequester – which was the point I made in an earlier post.

For all intents and purposes, the Supercommittee fight is a battle to see whether the GOP has shed the corrupt big-spending mentality of the Bush years. This should be an easy choice for a party that believes in limited government. The fact that we’re even having this discussion is not an encouraging sigh.

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What would you do if you saw somebody standing at the top of a skyscraper, about to jump? Would you avert your eyes in horror? Would you watch in dismay as they plummeted to the ground?

These are similar to the thoughts that are going through my mind as I watch Republicans begin the process of capitulating to a tax increase as part of the Supercommittee process.

Indeed, this is one of those moments when I desperately wish I was wrong. I warned back in August that the Supercommittee was a tax increase trap. Republicans have this lemming-like instinct to jump off the cliff, even though they get taken to the cleaners every time they agree to real tax increases and get make-believe spending cuts in exchange.

Here’s a depressing paragraph from a recent Washington Post story.

Tensions have mounted in recent days as two of the GOP’s most fervent anti-tax stalwarts on Capitol Hill — Sen. Patrick J. Toomey (Pa.) and Rep. Jeb Hensarling (Tex.) — have lobbied party colleagues behind the scenes to forgo their old allegiances and even break campaign promises by embracing hundreds of billions of dollars in tax hikes.

What makes this potential sellout so disturbing is that every dollar of tax increases will enable another dollar of wasteful spending.

Here’s what George Will wrote in his latest column about the GOP’s foolish naiveté.

Although only 21 of the 242 Republicans in the House and eight of 47 Republicans in the Senate were on Capitol Hill in 1990, everyone there should remember the results of that year’s budget agreement, wherein President George H.W. Bush jettisoned his “no new taxes” pledge: Taxes increased. So did spending. And the deficit. Economic growth decreased.

So why are Republicans thinking of repeating this mistake? Well, there’s no good answer, but the most commonly cited reason is that they have been misled into thinking that the alternative result – automatic “budget cuts” known as sequestration – is too harsh.

This is an absurd line of reasoning, in part because it is blatantly inaccurate. The supposed “budget cuts” are only reductions if one uses dishonest Washington budget math. For those who rely on real-world numbers, total spending will climb significantly even if the sequester occurs.

Here is a chart that was part of an excellent article by Veronique de Rugy of the Mercatus Center. It shows that spending – including defense spending – will increase regardless of what happens.

The only issue is whether members of the Stupid Party agree to a tax hike so that the burden of federal spending can climb even faster.

The Washington elites want a deal so they can transfer more money to Washington. For American taxpayers, however, the only good conclusion is a Supercommittee deadlock, followed by a sequester.

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I’m baffled by stupid Republicans (sorry to be redundant).

Some GOPers have agreed to put taxes on the table. Not surprisingly, Democrats are praising them for this preemptive surrender, patting these Republicans on the head for being good little lapdogs.

(The Democrats are also high-fiving each other since they openly admit that tricking Republicans into a tax hike has been their top political goal, but that’s an issue for another day.)

And what are Republicans getting in exchange for violating their no-tax promises? As you might suspect, they’re getting nothing. For all intents and purposes, the left is saying “that’s a good start” and waiting for GOPers to make further concessions.

Needless to say, this is very irritating. And I’m not the only person who is upset. Here is a column that I co-authored along with Grover Norquist, Mike Needham, Phil Kerpen, Al Cardenas, and Duane Parde. We explain why higher taxes are a bad idea.

Some are now suggesting that instead of addressing the real problems our nation faces — by reducing government spending — the supercommittee should recommend tax increases to meet its deficit reduction targets. Tax increases are what politicians always do when they are not willing to govern—that is, to cut and reform government spending. The problem, of course, is that tax hikes crowd out and displace spending reform. …Advocates of…raising taxes…have put forward several unserious arguments. First, they say, “let’s compromise.” Let’s be balanced, they insist, and promise to cut some spending and raise some taxes. Having pushed spending way up, they now want to pretend this spending is normal or, at least, inevitable. It isn’t. …Why should anyone be asked to pay more taxes just so Washington can continue to overspend? …What’s more, there are good reasons to be wary – we’ve been down this road before. In 1982, President Ronald Reagan was promised three dollars of spending cuts for every dollar of tax hikes. The tax hikes were real. But spending — in real dollar terms — went up, not down. In 1990, the same trick was played out — this time at the expense of President George H.W. Bush and the American people. A two-to-one promise brought higher taxes and higher spending. When tax hikes are on the table, the talk about spending cuts evaporates. Oddly enough, the tax hikes remain. The second argument is: “We won’t raise tax rates – we will just reduce deductions and credits.” Nonsense. Closing tax loopholes is all well and good. But doing so to raise revenues is just as much a tax hike as raising tax rates. The tax hike crowd is trying to confuse tax hikes with tax reform. In fact, closing tax loopholes to raise revenue is ultimately antithetical to tax reform — there would then be less revenue available to use to cut tax rates.

As a long-time advocate of the flat tax, I think the second point is very powerful. If you want tax reform, the last thing you should do is let the politicians take away loopholes without using the revenue to finance lower tax rates.

But the most important argument is the first one. Simply stated, higher taxes mean higher spending. Period. End of argument.

If taxes increase $300 billion, that means $300 billion more spending. If taxes increase $600 billion, that means $600 billion more spending.

And since America’s fiscal problem is too much spending, why should we let politicians have more money so they can make government even more bloated and wasteful?

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Commenting on Supercommittee deliberations last month, I asked whether Republicans will choose the real budgetary savings of a sequester or surrender to a tax hike.

Well, it appears that the GOP likes being known as the Stupid Party and is seriously considering a plan to increase the net tax burden on the American people – even though some of us have warned from the beginning that the left would use the Supercommittee process as an opportunity to trick gullible Republicans into a tax increase.

Here’s the relevant section of an editorial by Steve Moore in this morning’s Wall Street Journal.

…raising rates and raising revenues are different. Eliminating loopholes in exchange for making the Bush tax cuts permanent after 2013 is on the table—and by broadening the tax base, this could bring in tens of billions of new revenues each year. Says Mr. Hensarling: “Republicans want more revenues. We want more revenues by growing the economy; we’re not happy with revenues at 14% of GDP, but we don’t want to do it by raising rates.” One positive development on taxes taking shape is a deal that could include limiting tax deductions, perhaps by capping write-offs on charities, state and local taxes, and mortgage interest payments as a percentage of each tax filer’s gross income.

I’m a bit disappointed that Steve thinks restricting deductions is a “positive development.” I’m a big fan of getting rid of all preferences and distortions in the tax code, but that should only happen if all the revenue is used to finance lower tax rates, not to finance big government.

But that’s a secondary issue.

Republicans have complete power to achieve a victory in this battle. All that’s needed is for them to say no to a tax hike. That will lead to a Supercommittee stalemate, which will then lead to automatic budget savings known as sequestration.

Failure to take that option – particularly when the alternative is a tax hike – is breathtakingly misguided.

Especially when the historical evidence is overwhelming that any new tax revenue will be used to make government even bigger. Heck, the cartoon in this post is a disturbingly accurate description of what’s happening.

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