In typical Washington fashion, hyperbole regarding the challenges coming for the lame-duck Congress is heating up, while actual solutions remain slim. Talk of averting the $50 billion defense sequester coming on January of 2013 and replacing the cuts with tax hikes stand to upend the gains taxpayers have made this year as we edge closer to the “Fiscal Cliff.”
The idea that tax hikes can be bartered for spending cuts undermines a critical difference between Republicans and Democrats. Republicans, for their part, have disarmed Democrats who have been able to claim fiscal credo by fixating on “deficit” problems. Instead, House and Senate conservatives have been keeping a laser-like focus on the real cause of the country’s fiscal malaise; overspending. This is why the debt deal last summer was such a significant victory for taxpayers; both Republicans (and Democrats, 138 of whom voted for the Budget Control Act) attested that a fiscal solution rested solely on the spending side.
These lawmakers also stand to undermine real progress on tax reform. “Closing loopholes” now takes revenues off the table for comprehensive tax reform later. With more spending to support if the sequester is eliminated, this further impedes progress in moving towards a fairer, flatter tax code.
As the current imbalance between spending and revenues attests—last year, the government spent $3.7 trillion while taking in $2.2 trillion in revenues—once there is more cash on the table supposedly prudent policymakers lose all reason to restrain spending. Offering tax hikes in place of spending cuts allows Democrats to claim with a straight face that a spending problem is simply an under-taxing problem.
Importantly, sheer mathematics don’t bear this out. Under President Obama’s budget, the Pentagon is slated to spend nearly $6 trillion over the next ten years. Under the same estimates revenues will total $39 trillion, bringing tax revenues to 20 percent of GDP, two percentage points higher than the historical average.
As Chris Preble of the Cato Institute points out, even under a more “constrained” budget like that proposed by presidential candidate Mitt Romney, defense spending would still average 64 percent higher than annual post-Cold War budgets and 42 percent higher than average spending under Reagan. The idea that we need to spending more, and taxing more, for a program that will take up 15 percent of historically high revenues is one real conservatives should be leery of supporting.