OPINION:
No other issue is paralyzing the U.S. economy more than the unsettled question of where taxes are headed in the years to come.
This question, raised by a tidal wave of expiring tax cuts that will hit most of us on Jan. 1, is the chief cause of the uncertainty that has swept through our economy, stalling business expansion, capital investment and job creation.
The issue is further complicated by Obamacare and a regulatory maze of mandates, tax increases, penalties and fees that will hit businesses and middle-class Americans alike. Why hire more workers when the feds could show up soon at your office to tell you how much more it’s going to cost your struggling business?
Meantime, tax policy is at the center of the “fiscal cliff” toward which we are headed. With 90 percent of Americans under the threat of higher taxes, consumers are pulling back and the business community is shifting into neutral.
It appeared this week that the tax battle lines were hardening between Democrats and Republicans in the run-up to the Nov. 6 elections. President Obama says he will not approve any interim plan to avoid going over the cliff that does not significantly raise the top two income tax rates — the 28 percent rate to 36 percent and the 35 percent rate to nearly 40 percent.
New York Sen. Charles E. Schumer, the Senate’s No. 3 Democrat, made it clear Tuesday that this is going to be the party line in a bitter post-election fight that economists say could push the economy into yet another recession. “These promises of lower rates amount to little more than happy talk when the math behind them doesn’t add up,” Mr. Schumer said in a speech at the National Press Club. “It is an alluring prospect to cut taxes on the wealthiest people and somehow still reduce the deficit. But you can’t have your cake and eat it, too.”
Mr. Schumer’s political salvo in a war that begins the day after the presidential election was met with this withering statement from Senate Minority Leader Mitch McConnell of Kentucky: “Senior Democrats are now openly acknowledging their plan to hold the economy hostage to massive, job-killing tax hikes and espousing the fiscally irresponsible view that says the country should be driven off the fiscal cliff.”
While Democrats clearly want to play short-term politics with this incendiary issue, a longer-term tax-reform movement is gaining strength. Its goal is to reduce tax rates in order to give the economy new incentives for growth, which would yield increased revenues that, in turn, would reduce the budget deficits.
This is at the core of Republican presidential nominee Mitt Romney’s long-term economic agenda to put the United States on a faster growth curve that would erase the uncertainty that is holding the economy back.
Mr. Romney wants to extend the George W. Bush tax cuts into 2013 in order to give a new Congress working room to overhaul the tax code. His proposal is based on President Reagan’s pro-growth 1986 reforms, which cut the rates but reduced or repealed many of the federal code’s exemptions, credits, loopholes and assorted corporate welfare provisions — making the tax reductions revenue-neutral.
That’s what Mr. Obama’s 2010 fiscal commission proposed in its plan to slash the deficit and debt, but it was given the cold shoulder by both the White House and Democratic leaders in Congress. The idea went nowhere under his presidency.
Nevertheless, there is strong support for the plan among Republicans and notable support in some sectors of the Democratic Party. Earlier this summer, Bill Clinton urged Mr. Obama to extend the Bush tax cuts at year’s end in order to give Congress time to tackle the insanely complicated tax code and lower the rates in 2013. He warned both the White House and Democrats in June “to avoid doing anything that would contract the economy now.”
Former Clinton Chief of Staff Erskine Bowles, who co-chaired Mr. Obama’s fiscal commission, has been crusading for a tax-reduction overhaul ever since.
There is no signal from the Obama campaign or the White House that they want to go down that road. They are married to higher income taxes on the rich, no matter how weak the economy is or how many jobs are lost.
Mr. Schumer “is making the important point here that the wealthiest must pay their fair share in any balanced approach to reducing our deficit,” a White House official told The Washington Post on Tuesday.
This is a clear signal that Mr. Obama, whose campaign has been all about class warfare instead of growth economics, persists in his opposition to broadening the tax base and reducing the tax burden on a bedridden economy.
Mr. Obama, Mr. Schumer and their Democratic allies continue to argue that tax-reduction incentives will not improve the economy, that “the numbers don’t add up.” However, they worked under Reagan, who cut taxes across the board during his first term and reduced them further in his second term. He did it with Democratic support in Congress.
You want evidence? Well, I’ll give it to you.
In 1983, after a severe recession sent unemployment up to 10.8 percent, Reagan’s quarterly economic growth rates were 1.5 percent, 3.2 percent, 5.6 percent and 7.7 percent.
By comparison, in the third year of Mr. Obama’s presidency, his quarterly economic growth rates were 0.4 percent, 1.3 percent, 1.8 percent and 3 percent.
In 1984, the year Reagan sought re-election, quarterly economic growth rates were 8.5 percent, 7.9 percent, 6.9 percent and 5.8 percent.
By 2012, Mr. Obama’s first two quarterly growth rates were 2 percent and a barely breathing 1.3 percent. Third-quarter estimates are about 1.5 percent.
When he was running for president on a platform for across-the-board tax cuts to “get the economy moving again,” John F. Kennedy dealt with the tax fairness issue by saying, “A rising tide lifts all boats.” Despite all of the naysayers, the economy strengthened, and by the end of the 1960s, we had a balanced budget.
Donald Lambro is a syndicated columnist and former chief political correspondent for The Washington Times.
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