Even if we could be sure that today’s legislators would honor their commitment to cut spending, tax hikes won’t help. Why? Because incentives matter. Businesses react to higher rates by slowing down and delaying economic activity. The hoped-for increase in revenue often fails to materialize. That’s what’s been happening in parts of Europe. Greece, Italy, Spain and France have raised rates, only to see their countries tip into recession.
Just ask Aetna CEO Mark Bertolini, a signer of the letter now before Congress: “You can't tax your way to fix this problem, and you can't cut entitlements enough to fix this problem.” He’s right. We need budget cuts. Not cuts in the rate of growth in spending, which is usually all you can manage to get through Congress once every couple of decades. Actual cuts.
The CEOs who signed that letter should know this. And if they genuinely believe that increasing taxes is the answer, Heritage Foundation budget expert J.D. Foster has a suggestion: “They should tell us how much they are willing to see the taxes rise on themselves and their own companies,” he writes in a piece published on National Review’s website. “Surely they are not so feckless as to propose a budget solution of taxing others. They should lead by example and have their own corporations take the first tax hike.”
They won’t, of course. Any more than a new “grand bargain” will bring the cuts the federal budget needs to come back into balance. If lawmakers are serious, they can do that any time they want. They can cut spending. Now.