Beware the Balanced Approach

by Michael D. Tanner

There is an old story of a man who offers a woman a million dollars to sleep with him. When she agrees, he offers her $20 for the same thing. "What do you think I am?" the woman asks indignantly.

"We've already established that," the man replies. "Now we are just haggling over price."

Republican members of the debt-reduction supercommittee now find themselves in the same position as the woman in the story. Having agreed to give up their "no new taxes" stance, they are left with nothing to do but haggle over the final price.



Big government's appetite for taxes is insatiable.

Last week, supercommittee Republicans offered a $1.2 trillion debt-reduction proposal that would include roughly $300 billion in new tax revenues. Most of the new revenue would come from closing some of the tax code's more notorious loopholes and by phasing out tax deductions for high-income earners. At the same time, the top marginal tax rate would be reduced to 28 percent, with commensurate reductions for other brackets.

Democrats, not surprisingly, pocketed the Republican offer and asked for more. They happily agreed to eliminate tax breaks, but refused to budge on tax rates.

The Republican offer was not indefensible on its face. Any serious tax reform will involve broadening the tax base by eliminating deductions and loopholes while lowering rates. And many tax breaks are so distorting that they should be eliminated simply as a matter of good tax policy.

Michael Tanner is a senior fellow at the Cato Institute and author of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution.
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But Republicans have been here before. Remember George H. W. Bush's famous budget deal in 1990? Forsaking "read my lips," Bush agreed to a "balanced" deal that supposedly included $2 in spending cuts for every $1 in tax increases. The result: taxes went up — and so did spending.

Or look at the debate earlier this year over the continuing resolution. The deal that averted a government shutdown was supposed to include some $61 billion in budget cuts. It ended up including less than $8 billion. The original round of budget cutting included in the debt-ceiling deal — the deal that birthed the supercommittee in the first place — doesn't appear to have resulted in any spending cuts either. In fact, despite those budget- and deficit-cutting agreements, both spending and deficits have increased this year.

If Republicans want to see another example of what a so-called balanced approach looks like in practice, they need look no further than the "austerity" measures being imposed in Europe. Nearly all these measures rely on such a balanced approach, combining tax hikes and benefit cuts. For example, Greece hiked its VAT, income taxes, gas taxes, and other excise taxes. Spain imposed a "wealth tax" on those with €700,000 or more in assets. Britain, Italy, and Portugal also hiked their VATs. Of course, these tax hikes were supposed to be accompanied by spending cuts, but it should come as no surprise that in nearly every case, the tax hikes are far more real and immediate than the spending cuts. The result in each case has been slow to negligible economic growth and failure to either reduce the size of government or meet deficit-reduction targets.

Big government's appetite for taxes is insatiable. It will spend everything it is given and more. True, "starving the beast" has done little to reduce government spending. But feeding the beast is not likely to be more successful. In the end, the only thing that will actually kill the beast is killing the beast. That means actually cutting spending.

What's all the more dispiriting is that there is no need for Republicans to compromise. If the supercommittee fails to reach an agreement, not only will the world not end, but there will be a perfectly adequate outcome: sequestration. Federal spending would be reduced by $1.2 trillion over ten years, with no tax increases. "Failure" would actually mean more budget cuts and less taxes — and the budget cuts are far more likely to be real. If that's failure, bring it on.