That Conversation With the In-Laws

Tim Phillips

12/26/2012 11:18:00 AM - Tim Phillips

In a few days we’ll celebrate the holidays with gift exchanges, eggnog, Christmas light viewings, and perhaps a political argument with a family member or two. Given the current fiscal cliff negotiations, this argument may be more lively than normal. Don’t be unprepared when Uncle Bob says that we can fix the deficit by just raising the top tax rate or when Aunt Susan says they've already cut spending to the bone.

Show up to the dinner table with facts and calmly but confidently win the argument for fiscal responsibility. You’ll impress your father-in-law – and who knows, perhaps Aunt Susan will reconsider whether Rachel Maddow and Chris Matthews are so smart after all.

The two false arguments you are most likely to encounter are the claims that raising tax rates on upper income Americans will fix the budget crisis and make things "fair" and that spending has already been cut. Both arguments are blatantly false and with the key facts, you can prove it. Unfortunately, you can expect that Uncle Bob and Aunt Susan have some mixed-up ideas about what has caused our fiscal crisis – and you can’t entirely blame them. Thanks to the

gargantuan size of the federal budget and complex nature of our tax code, it’s easy for pundits to say just about anything and get away with it. That’s why we have to know the facts inside and out.

First, raising taxes simply won’t raise enough money to curb Washington’s seemingly limitless capacity for reckless spending. According to the Congressional Budget Office, President Obama’s proposal to raise taxes on “high earners” will raise $960 billion over ten years. The federal deficit has been over a trillion dollars for the past four years. That means President Obama’s proposed tax hike will barely cover the deficit for even one year. Simply put, no amount of taxation on American income will impact our debt if Washington continues to overspend.

Second, increasing tax rates has a direct negative impact on economic growth, resulting in a smaller tax base and lower net revenues. Even Christina Romer, former chair of President Obama’s Council of Economic Advisors, admitted in a recent paper that raising taxes drives down investment and economic output. The best way to grow total revenues is to expand the “size of the pie” – to create conditions in which more business owners can build thriving businesses, hire more workers, and pay taxes on growing profits.

Aunt Susan probably thinks that raising taxes on “the rich” will hit those idle mansion dwellers who have bags of money under their bed. What she needs to know is that many of the so-called “rich” are small business owners or investors. Many small business owners file their taxes under the individual income tax code. According to Congress’s Joint Committee on Taxation, 940,000 small business owners would be hit with higher taxes if Congress raises taxes on “the rich.” These men and women aren’t sitting on piles of money – they’re investing it in businesses and creating jobs. Efforts to shake down the rich are more likely to hit the job creators and their employees. Is that we really want?

But in the end, government spending is the real back-breaker. Until 2008, spending and tax revenues grew at roughly the same pace – spending exceeded tax revenues, but not by the absurd 1.1 trillion that it does today. For the past four straight years, we’ve overspent by more than a trillion dollars. The national debt climbed quickly past $16 trillion earlier this year (that’s over $52,000 per citizen) and experts say the national debt will easily balloon to over $20 trillion in debt before Obama is out of office. So who’s minding the ship? The Republican controlled House passed budget the Ryan budget, which would make real spending cuts and take steps toward much-needed entitlement reform. Meanwhile, the Democrat led Senate has refused to pass a single budget for nearly four years. After the last debt-ceiling hike, Congress came up with $109 billion in sequester cuts scheduled to take effect January 2. That level of cuts would barely make a dent in the current deficit – and yet Congress seems determined to stop even those cuts from happening.

The “Uncle Bobs” and “Aunt Susans” in our families are wrong but they mean well. You may not change their mind overnight, but by showing them the facts and making a robust case for fiscal responsibility and economic freedom, you can help them rethink the issues and question their weak assumptions.

And to everyone – including Uncle Bob and Aunt Susan – Merry Christmas, Happy Hanukkah, and best wishes for the New Year!