Each party’s wrong ideas on taxes

As our lawmakers try to prevent us from falling off the “fiscal cliff” when the Bush tax cuts expire with the new year and mandatory federal reductions click in, Matt Miller argues that BOTH Republicans AND Democrats are laboring under two wrong ideas when it comes to taxes.

Republicans believe our fiscal woes can be solved by cutting taxes.  And Democrats believe our fiscal problems can be solved by raising taxes on the rich.  Miller tries to show why neither will work and how such ideological blinders will prevent effective solutions.

See Matt Miller: Dead ideas on taxes – The Washington Post.

Perhaps it isn’t that one side is right and the other wrong, or that both are partially right, but that both are wrong!  Where does that leave us?

If this is true, does anyone have any viable suggestions for putting our financial house in order?

 

About Gene Veith

Professor of Literature at Patrick Henry College, the Director of the Cranach Institute at Concordia Theological Seminary, a columnist for World Magazine and TableTalk, and the author of 18 books on different facets of Christianity & Culture.

  • Pete

    Kind of like putting one’s personal exercise house in order – very simple: burn more calories, take less in. Weight will be lost. The devil is, as they say, in the details.

  • Pete

    Kind of like putting one’s personal exercise house in order – very simple: burn more calories, take less in. Weight will be lost. The devil is, as they say, in the details.

  • James Sarver

    “Republicans believe our fiscal woes can be solved by cutting taxes. ”

    What a fine exercise in reductionism. Not that Republicans haven’t said something similar or at least insinuated that, but it is for the consumption of those who are not really interested in economics and just don’t like paying taxes. You get your votes where you can.

    Republicans believe that our fiscal woes can be solved by not spending more than we take in. That said, Republicans also believe that the capacity for taxation is limited. That limits the capacity for spending if one wants to solve the problem. If we continue to feed the beast of ever increasing spending there will be no spare taxation capacity left to addresss the accumulated debt when the time comes. No new taxes = stop feeding the beast before it is too late.

    But that won’t fit on a bumper sticker. Or in the author’s article either apparently.

  • James Sarver

    “Republicans believe our fiscal woes can be solved by cutting taxes. ”

    What a fine exercise in reductionism. Not that Republicans haven’t said something similar or at least insinuated that, but it is for the consumption of those who are not really interested in economics and just don’t like paying taxes. You get your votes where you can.

    Republicans believe that our fiscal woes can be solved by not spending more than we take in. That said, Republicans also believe that the capacity for taxation is limited. That limits the capacity for spending if one wants to solve the problem. If we continue to feed the beast of ever increasing spending there will be no spare taxation capacity left to addresss the accumulated debt when the time comes. No new taxes = stop feeding the beast before it is too late.

    But that won’t fit on a bumper sticker. Or in the author’s article either apparently.

  • Fr Gregory Hogg

    1. Government sees a problem.
    2. Government administers a cure.
    3. The cure creates more problems.
    4. Go to line 1.

    There is, of course, a role for government. But big centralized government is fragile–susceptible to large-scale failure. And we, the patients, are dying from the cures they administer.

    Alexander the Great encountered Diogenes, who was drawing in the dust of an Athenian street. “I am Alexander,” he said, “what can I do for you?”
    Diogenes replied, “Get out of my light.”

  • Fr Gregory Hogg

    1. Government sees a problem.
    2. Government administers a cure.
    3. The cure creates more problems.
    4. Go to line 1.

    There is, of course, a role for government. But big centralized government is fragile–susceptible to large-scale failure. And we, the patients, are dying from the cures they administer.

    Alexander the Great encountered Diogenes, who was drawing in the dust of an Athenian street. “I am Alexander,” he said, “what can I do for you?”
    Diogenes replied, “Get out of my light.”

  • Rich Shipe

    Uhhh… I though the GOP has already conceded on the question of whether to raise taxes on the “rich”? Sure there is still some debate. But the real hangup is whether it will be a “balanced approach.” Where are the proposed spending cuts from the dems and president? I’m not going to hold my breath. The other half of the “fiscal cliff” is mandatory spending cuts. But we don’t hear about that side.

  • Rich Shipe

    Uhhh… I though the GOP has already conceded on the question of whether to raise taxes on the “rich”? Sure there is still some debate. But the real hangup is whether it will be a “balanced approach.” Where are the proposed spending cuts from the dems and president? I’m not going to hold my breath. The other half of the “fiscal cliff” is mandatory spending cuts. But we don’t hear about that side.

  • http://theoldadam.com/ Steve Martin

    When you cut ‘tax rates’ the economy grows because you are removing hinderances and creating incentive.

    Cutting tax ‘rates’ increases revenue.

  • http://theoldadam.com/ Steve Martin

    When you cut ‘tax rates’ the economy grows because you are removing hinderances and creating incentive.

    Cutting tax ‘rates’ increases revenue.

  • http://homewardbound-cb.blogspot.com ChrisB

    So Miller’s dead idea is that we must tax the young heavily to take care of their self-absorbed parents and grandparents? How about everyone take care of their own parents and grandparents?

  • http://homewardbound-cb.blogspot.com ChrisB

    So Miller’s dead idea is that we must tax the young heavily to take care of their self-absorbed parents and grandparents? How about everyone take care of their own parents and grandparents?

  • Cincinnatus

    I really don’t think Republicans any longer believe, as they did in the 1980s, that cutting taxes is the answer to our fiscal woes. To claim such is uncharitable in the extreme. Rather, Republicans believe that raising taxes (particularly without cutting spending) is also not the answer to our fiscal woes.

    And I’m inclined to believe them in this case.

  • Cincinnatus

    I really don’t think Republicans any longer believe, as they did in the 1980s, that cutting taxes is the answer to our fiscal woes. To claim such is uncharitable in the extreme. Rather, Republicans believe that raising taxes (particularly without cutting spending) is also not the answer to our fiscal woes.

    And I’m inclined to believe them in this case.

  • http://facebook.com/mesamike Mike Westfall

    Politicians in general have no business sense at all.
    Or they chose to set it aside in order to coddle ignorant constituents in order to retain political power.

    That;s how we got into the mess we’re in.

    What’s the solution?

  • http://facebook.com/mesamike Mike Westfall

    Politicians in general have no business sense at all.
    Or they chose to set it aside in order to coddle ignorant constituents in order to retain political power.

    That;s how we got into the mess we’re in.

    What’s the solution?

  • fjsteve

    “Perhaps it isn’t that one side is right and the other wrong, or that both are partially right, but that both are wrong! Where does that leave us?”

    In the woeful state of being human, I suppose. Considering all of the major factors leading us to this supposed cliff are government-made, I’m not optimistic the government has any right answers at all. Just varying degrees of wrong.

  • fjsteve

    “Perhaps it isn’t that one side is right and the other wrong, or that both are partially right, but that both are wrong! Where does that leave us?”

    In the woeful state of being human, I suppose. Considering all of the major factors leading us to this supposed cliff are government-made, I’m not optimistic the government has any right answers at all. Just varying degrees of wrong.

  • Klasie Kraalogies

    Steve @ 5 – within certain limits, yes. It is not an absolute rule, otherwise you’d just cut tax to 0, and we’ll all be rich!

    The “where to” is the sticky point, devils in details etc etc. People make this a more simplistic thing than what it actually is.

  • Klasie Kraalogies

    Steve @ 5 – within certain limits, yes. It is not an absolute rule, otherwise you’d just cut tax to 0, and we’ll all be rich!

    The “where to” is the sticky point, devils in details etc etc. People make this a more simplistic thing than what it actually is.

  • Jon

    How about raise taxes and cut entitlements?

    Everyone’s got to have some skin in the game.

  • Jon

    How about raise taxes and cut entitlements?

    Everyone’s got to have some skin in the game.

  • http://www.bikebubba.blogspot.com bike bubba

    The big dead idea that Miller–and to a degree both parties–labor under is the idea that the plethora of programs from FDR, LBJ, and others really are at their core dealing with public goods. If we simply remember what Adam Smith’s criteria were for a public good–ones not well supplied by private markets–we will find enough foolish spending to cut the budget not by one trillion dollars, but by at least twice that.

  • http://www.bikebubba.blogspot.com bike bubba

    The big dead idea that Miller–and to a degree both parties–labor under is the idea that the plethora of programs from FDR, LBJ, and others really are at their core dealing with public goods. If we simply remember what Adam Smith’s criteria were for a public good–ones not well supplied by private markets–we will find enough foolish spending to cut the budget not by one trillion dollars, but by at least twice that.

  • Klasie Kraalogies

    You don’t know what to do? See what Chretien did back in the nineties in Canada. Then emulate.

    “I said to myself, I will do it. I might be prime minister for only one term, but I will do it,” Mr. Chrétien said..

    A shrewd political strategist, he believed Canadians were on board, after they were shocked and embarrassed a year earlier when Standard & Poor’s downgraded Canadian foreign currency debt to double-A plus from triple-A.

    He wanted history to remember him as the man who rescued Canada from financial ruin and humiliation.

    Mr. Chrétien sat his skeptical cabinet down and laid down the hard truth. He would get rid of the deficit, it would be painful and unpopular and nobody would be spared. There was no choice, no room for negotiation. It had to be done.

    The chill in the room was such that newly appointed junior minister for veterans affairs, Lawrence MacAulay, called his wife afterward to say he would soon be out of a job.

    “He said, ‘Darling, I will be back home in the next election. I will be defeated, because the prime minister explained to us this morning what he intended to do,’” according to Mr. Chrétien’s recollection.

    and

    At one 1994 cabinet meeting, Mr. Martin announced a spending freeze. A minister put forward a project that needed funding but Mr. Chrétien cut him off, reminding him of Mr. Martin’s freeze.

    A second minister raised his hand to ask for funding, and a testy Mr. Chrétien told the cabinet that the next minister to ask for new money would see his whole budget cut by 20 per cent.

    Mr. Chretien’s scrappiness, which was one result of his upbringing in a working-class family in rural Quebec, had already earned him the nickname of “Dr. No” when he was finance minister in the 1970s.

    “The prime minister was the man with the steel rod up his spine. He was inflexible,” Mr. Manley said.

    For ministers it was brutal. Mr. Manley lost half his budget as industry minister in the 1994 budget and went from 54 programs down to 11.

    “Everyone knew they had to face the music, and they did it,” Mr. Chrétien said in the interview in his law offices. “They had no choice. There was no great debate. I had made my view very clear.”

    MORE SPENDING CUTS THAN TAX HIKES

    The ratio of spending cuts to tax hikes was seven-to-one. Asked why, Mr. Chrétien said simply: “There was more need on one side than the other.”

    From http://www.theglobeandmail.com/report-on-business/economy/the-lesson-from-canada-on-cutting-deficits/article4252006/?page=all

  • Klasie Kraalogies

    You don’t know what to do? See what Chretien did back in the nineties in Canada. Then emulate.

    “I said to myself, I will do it. I might be prime minister for only one term, but I will do it,” Mr. Chrétien said..

    A shrewd political strategist, he believed Canadians were on board, after they were shocked and embarrassed a year earlier when Standard & Poor’s downgraded Canadian foreign currency debt to double-A plus from triple-A.

    He wanted history to remember him as the man who rescued Canada from financial ruin and humiliation.

    Mr. Chrétien sat his skeptical cabinet down and laid down the hard truth. He would get rid of the deficit, it would be painful and unpopular and nobody would be spared. There was no choice, no room for negotiation. It had to be done.

    The chill in the room was such that newly appointed junior minister for veterans affairs, Lawrence MacAulay, called his wife afterward to say he would soon be out of a job.

    “He said, ‘Darling, I will be back home in the next election. I will be defeated, because the prime minister explained to us this morning what he intended to do,’” according to Mr. Chrétien’s recollection.

    and

    At one 1994 cabinet meeting, Mr. Martin announced a spending freeze. A minister put forward a project that needed funding but Mr. Chrétien cut him off, reminding him of Mr. Martin’s freeze.

    A second minister raised his hand to ask for funding, and a testy Mr. Chrétien told the cabinet that the next minister to ask for new money would see his whole budget cut by 20 per cent.

    Mr. Chretien’s scrappiness, which was one result of his upbringing in a working-class family in rural Quebec, had already earned him the nickname of “Dr. No” when he was finance minister in the 1970s.

    “The prime minister was the man with the steel rod up his spine. He was inflexible,” Mr. Manley said.

    For ministers it was brutal. Mr. Manley lost half his budget as industry minister in the 1994 budget and went from 54 programs down to 11.

    “Everyone knew they had to face the music, and they did it,” Mr. Chrétien said in the interview in his law offices. “They had no choice. There was no great debate. I had made my view very clear.”

    MORE SPENDING CUTS THAN TAX HIKES

    The ratio of spending cuts to tax hikes was seven-to-one. Asked why, Mr. Chrétien said simply: “There was more need on one side than the other.”

    From http://www.theglobeandmail.com/report-on-business/economy/the-lesson-from-canada-on-cutting-deficits/article4252006/?page=all

  • DonS

    As has been said above, most Republicans are under no illusion that increased tax revenues will be necessary to have any hope of achieving a balanced budget, let alone paying down any of our massive accrued debt. However, the practice in the past has been that Democrats propose a “balance” of tax increases and spending cuts. The tax increases take effect immediately, and the spending cuts are scheduled for the out years, and are also typically mere reductions in increased spending rather than actual cuts.

    Show me actual cuts in real spending, enacted now, and we can talk about tax increases to “balance” those real cuts.

    But, to minimize the pain of the tax increases, they should take the form of real tax reform, with simplified laws, lower rates, and sharply reduced tax deductions and credits. Sharply reduced tax compliance costs, and a reduced ability for Congress to favor certain activity and disfavor other activity — true tax fairness — will go a long way to keep the economy productive even though government is taking a greater share of GDP.

  • DonS

    As has been said above, most Republicans are under no illusion that increased tax revenues will be necessary to have any hope of achieving a balanced budget, let alone paying down any of our massive accrued debt. However, the practice in the past has been that Democrats propose a “balance” of tax increases and spending cuts. The tax increases take effect immediately, and the spending cuts are scheduled for the out years, and are also typically mere reductions in increased spending rather than actual cuts.

    Show me actual cuts in real spending, enacted now, and we can talk about tax increases to “balance” those real cuts.

    But, to minimize the pain of the tax increases, they should take the form of real tax reform, with simplified laws, lower rates, and sharply reduced tax deductions and credits. Sharply reduced tax compliance costs, and a reduced ability for Congress to favor certain activity and disfavor other activity — true tax fairness — will go a long way to keep the economy productive even though government is taking a greater share of GDP.


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