Note: It's been eight months since I last wrote on Election Eve. I had the engaging of Chrissy to take care of immediately after the election and have been rather busy since then. I look forward to writing more frequently as Election 2012 comes into focus. It's only 487 days away! In the meantime, follow my political thoughts on Twitter,
@PearceGodwin.
Ongoing discussions taking place between the White House and both parties in Congress aimed at finding a solution to raise the debt limit, which America will breach on August 2nd, and returning to fiscal sanity by reducing out of control federal spending have taken an optimistic turn in recent days. As per usual, politicians only get serious and truly come to the table at the 11th hour with their feet to the fire. Reference the
deal to avert government shutdown in April. This is true of any opposing parties involved in high stakes negotiation. With their backs to the wall, a compromise tends to result. We see this playing out again as the President
reported Thursday that Democrats and Republicans are now coming to the table "in a spirit of compromise" and had "a very constructive meeting" realizing that "there is going to be pain involved politically on all sides." There is no bigger issue facing the U.S. today. If we don't solve this debt crisis and reign in our spending binge, we won't have an economy worth being employed in, never mind one that leads the rapidly evolving and globalizing world.
In light of these developments, I sent the following message in a series of tweets Thursday.
@PearceGodwin: Hoping for a grand compromise in order to take bold and decisive action to pull our country off the financial precipice of our national debt. As much as I favor slashing spending to raising taxes, afraid ruling out half of the balance sheet equation won't cut it. All remedies must be on the table to avert true economic crisis which could cripple America's financial stability and global stature.
Reaction from my conservative Republican friends was swift and provoked a great
discussion on spending, taxes and debt. This is exactly the kind of honest and comprehensive discussion I hope is taking place on Capitol Hill and in the White House now. Read the discussion below and then weigh in. Offer your thoughts in the comments section or on Facebook and Twitter, where it has played out thus far. This is what collective problem solving is all about. In this case, the future of America depends on it.
Hill Republican:
Come on, bro. We can't be raising taxes during a recession! Federal budget increases of 20% or more for each of the past two years is simply not sustainable. Just go ahead and say it...you're supporting tax increases.
Larry Shoemaker:
I can tell you from the business side if you raise taxes on business or business owners, businesses will not increase hiring. Will likely decrease employment. Until businesses have some assurance about taxes and regulation, they are not going to expand-too much risk. Texas created more than half of all new jobs. Look at their taxes, tort reform, etc.
Pearce:
Hill, you know I would cut every last ineffective, inefficient and unnecessary government program before even thinking about tax increases. Drastically slashing spending must be priority #1. I just think trying to solve a problem this dire and of this magnitude will unfortunately require looking at both sides of the balance sheet rather than taking an unequivocal hard line to solve our debt problem with one hand tied behind our back. Any way you slice it, tax increases, first via efficiency reform and closing loopholes rather than rate increases, will get us to fiscal solvency faster when added to the X that is the amount cut. We must balance the need to turn the ship around fast with the deleterious effects we know any tax increase will have during a recession. We absolutely should not raise rates on job producers, including the "millionaires" who represent many small business job engines, at a time of such high unemployment. My point is that given the practical reality that we can work both sides of our red ink to reduce the debt faster, it is a conversation worth having.
Pearce:
Larry, agreed, can't punish the job creators, must find any new revenue elsewhere. Excellent example of a conservative vision promoting real growth and job creation. Obama should notice that fact.
Hill:
You can't balance the budget over night, but meaningful, incremental progress will avert a disaster. Can you tell me what is or how you define "tax loophole"?
Pearce:
When I say tax loophole, I'm not taking the negative connotation of an unintended escape hatch. I'm talking about exemptions, deductions and subsidies, some hardened on the books due to robust lobbying and archaic logic. We should take a fresh look at these and only give such breaks when it advances our economic and national interest. They are an important incentivizing and market shaping tool but should be wielded carefully under such a debt crunch. Eliminating some of these out of date or unwise tax breaks would increase our revenue without raising rates at all, especially in sensitive areas critical to recovery, which of course in and of itself will increase tax revenues.
The GOP was right to anchor our negotiating position at the hard line of no tax increases, period. I understand tactical negotiation. However, we all know that neither side is going to lay down and die. Dems have the Senate and White House so must get enough out of the deal to win over Obama and four Democratic senators (or three plus Biden), unless of course we're talking about a supermajority to break filibuster. Therefore, changes to the tax code can't be dismissed out of hand as part of an honest and comprehensive discussion of the issue. If the President is genuine in pushing his caucus to go big in putting entitlements, the biggest components of this crisis which cannot remain untouchable if we are to solve it, on the table, it is fair for us to consider the appropriate level of taxation and subsidy as well. Whatever it is now, isn't perfect, so we should seek to make improvements that will expedite budget balance, promote recovery and strengthen overall economic health.
Hill:
While I appreciate the fresh, centrist tone you posit, I'm afraid the policies you're advocating will have a similar effect on the economy as raising taxes during a recession--which you defacto support. Unfortunately the unemployment rate ticked back up to 9.2% today, a rate that should have been, at the very least, sub-8.5% by now according to our Vice President. That said, the word "subsidy" is just another way of saying "tax credit" as you note and millions of businesses and individuals, both parents that send their kids to college and homeowners that write off their home mortgage interest use these "loopholes" as you refer to them, which incent certain economic activities our government has historically said it supports. Sure we should take a look at them when our economy is back on track, as we should do for every regulation on the book to ensure we don't impede job growth and business activity, but make no mistake about it, eliminating most of these "loopholes" will translate into higher costs for consumers as you learned in Econ 101. If the Dems pass cap-and-trade, then you can expect your electric company to pass the additional costs along to you the consumer in the form of higher electricity rates. The same holds true for most other federal cost-raising activities. I am not certain our economy can handle a fresh impetus for rising consumer prices, especially considering inflationary pressure from the record spending sprees of the past is really starting to take hold and will suppress consumer spending and thus broader economic growth. Let's just be carefule for we aren't out of the woods yet. We can and must pay down the debt without raisng taxes on job producers and consumers.
Chris Mike:
Compromise = lose.
Pearce:
Chris, I disagree that compromise = lose. The Constitution set up a system of government that, because the American people prefer and vote for split government between Democrats and Republicans, requires compromise to pass legislation. There are certainly core principles which should never be compromised, but there is often a vast playing field between the two sides' core endzone positions ripe for bargaining towards a mutually agreeable-enough-to-pass solution. I prefer to think compromise = progress. A stagnant, paralyzed federal government incapable of promoting national interest (i.e. something akin to what we have now) = losing.
Hill:
Yeah, but remember that Republicans only control one chamber of Congress and not the White House. It's not exactly a level playing field, yet at least.
Pearce:
Hill, sounds like our only point of disagreement is the timing of said fresh look at tax credits. Many such credits are prudent and wonderful tools which encourage the invisible hand of incentives among "selfish actors" in the economy, promoting positive choices such as college, home ownership and business expansion. That said, I'm quite sure there are some which are out of date or otherwise unnecessary that are keeping dollars out of our federal account which could be used to pay down our debt and reduce dependency on foreign nations.
Unfortunately, it seems Washington only acts when our feet are to the fire. Right now, our feet are to the fire on the debt limit. Therefore, I see this as a perfect time to pursue every opportunity for correcting and improving the financial mess we've created, including in the bloated tax code. We should not leave any stone unturned at this rare moment of receptivity to bold action on both sides of the aisle.
Any direct or indirect increase in taxes will indeed have an adverse impact on the affected consumers thus depressing economic growth to some degree. That is a cost to reform, a particularly high one in a time of recession toward fragile recovery, but it must be weighed against the long term benefit of tax reform at a moment of possibility to take such action which we may not see again for a very long time.
Hill:
There's little we can do to ensure these spending cuts are adhered to in the future, given annual consideration of appropriations bills. Once the President gets his tax increases, those are much harder to roll back. Any way you want to message it you're advocating for using this "perfect time" to raise federal revenue on the backs of businesses, consumers and other "selfish actors" as you call them during a recession. I know your message has probably polled well in a Facebook focus group, but be careful about who your audience is. We can eliminate our debt without increasing costs to consumers.
Pearce:
Important point on the permanency of the remedies proposed and potentially accepted by each side. Constitutional amendments to balance the budget have been discussed but, as you know, would only become an excuse for raising taxes rather than cutting spending down the road. We cannot raise any tax, including the elimination of credits, with any hope or expectation that the move will be reversed in the future. Therefore, such moves should only be supported if we believe they are good permanent fiscal policy. We cannot fall for the ruse of a temporary tax increase to address the deficit. Not only is this the worst possible time as we "tread water at the bottom of a very deep hole," but, as you point out, there is no more a temporary tax increase than there is a temporary spending increase. That's how we got into this mess. Taxing and spending gone mad over the last decades. And yes, Republicans are rightly blamed for part of this plague, however nothing in comparison to the way in which Obama has floored it towards the cliff.
To be clear, I am not advocating for raising federal revenue. I am advocating for allowing the idea to be part of a comprehensive and exhaustive conversation to avert a debt crisis and promote growth. The reality is that their are two numbers which combine to determine our debt, revenue and spending. There is no doubt about what must be done with spending, and it must be drastic and it should hurt. Any serious discussion will also include the issue of revenue; this is that discussion. There are innumerable problems with raising revenue, especially now, that anyone with an understanding of Econ 101 should get. Therefore, it's entirely possible that after considering the revenue side of the equation, we would rightly determine that it should not be increased in any way, in order to promote rather than depress growth. My objection is to a dismissal out of hand of even considering revenue. That is irresponsible and dishonest. Thoughtful individuals on both sides consider all elements and then draw firm conclusions, not the other way around. You, of course, have a full understanding of both revenue and spending in all of its many forms and implications, but I'm concerned that some are more interested in rhetoric and partisan pride than fully assessing and solving this problem.
Chris:
The real compromise would be to pass some deep spending cuts before we even start discussing anything else. After all, the Republicans did just win a historic election eight months ago. Let's see the conservatives in action! And by the way, you're forgetting Art Laffer and the fact that tax cuts will boost the economy and raise fed government revenue anyway.
Pearce:
I love Laffer. His curve is genius yet so logical. Under the premise that we are at a state of general over-taxation, you're right, leaving more money in people's pockets will increase spending and thus tax revenues. That's why the Christmas deal to extend the Bush tax cuts was positive. Conversely, raising taxes beyond the optimal point will actually depress revenues as Americans stop spending and producing to generate the wealth that is taxed. Not forgetting him. Laffer's concept should be a major component of this comprehensive discussion.
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