The Real Facts About Taxes

Obama’s deficit commission will inevitably recommend a package of “benefit cut” and “tax” increases.  The problem with this recommendation is that IT NEVER WORKS!  WHY?  History shows us that the tax increases get permanently adopted into law but the spending cuts are almost never fully adopted, and even if they are they are swept away when Congress passes their new budget in subsequent years! 

In 1982, Congressional democrats promised Ronald Reagan $3 in spending cuts for every dollar of tax increases. They lied!  Reagan never saw the reductions in spending let alone a 3 to 1 reduction! 

In 1990, President George H. W. Bush agreed to violate his campaign pledge—no new taxes.  However, with a Democratic controlled congress the budget increased substantially by $290 billion in 1992 from $221B in 1990 (sounds pretty small compared to what we have now, eh?)

Clinton was then greeted with a Republican controlled Congress with a budget projected at $200B deficit indefinitely.  Now it gets interesting and this is the point of this article that I write.  Newt Gingrich and the Republican controlled Congress in 1994 really did some innovative stuff.  They cut tax rates to improve incentives for economic growth (yes, it has worked many, many times in past history—Obama—and the democratic controlled Senate—listen up).. YOU DON’T INCREASE TAXES TO A) GET OUT OF A RECESSION OR B) TO PRODUCE HIGHER GROSS TAX REVENUES!  IT SIMPLY DOES NOT AND HAS NEVER WORKED—IN FACT JUST THE OPPOSITE OCCURS—TAX RECEIPTS ARE REDUCED!

After the taxes were cut—a strong economy followed in the second half of the 90’s decade.  The second step—cut spending growth so that revenues eventually exceed spending (wow—what a novel thought—like we do this every day, every week, every year in our personal budgets).

During the Gingrich years, the Republican-controlled Congress cut the capital gains tax rate by 40% (Obama and the progressives fought the continuation of the Bush tax cuts which were scheduled for expiration in January of 2011—if you recall, Obama and the progressives first proposed an increase from 15% to 20%–a 33% increase of the capital gains tax—they finally succumbed to public pressure and the Republicans digging in.  Gingrich and the Republican congress further reduced other tax burdens on capital investment—i.e. created an environment for the private sector to invest!  What a novel idea again!

Congress also CUT federal discretionary spending by 5.4%.  By the year 2000, discretionary spending was about where it had been in 1995!  As a percent of GDP, discretionary spending dropped 17.5% between 1995 and 1999 (due to Gingrich and the Republican controlled congress).  As a result, although annual federal deficits of $200B had lasted for over 15 years, by 1998 the government was running surpluses.  In 2000, the surplus peaked at $236B (Another lie—Clinton of course took credit for all of this but in fact it was Gingrich and the Republican controlled congress that cut spending AND cut taxes and created incentives for businesses to invest—and guess what—they did and more tax revenues were produced to in fact turn the federal deficit around to a surplus.  So boys and girls in congress—it isn’t hard to do this again—but folks—you are doing exactly the opposite—you are spending like drunken sailors and now you are proposing to increase taxes—it simply is the exact opposite to what you should be doing and what has worked in the past countless times!

There are other things congress should also be doing now that have worked in the past.  Cut the federal corporate tax rate to 15% from 35%.  Did you know US corporations are nearly the highest taxed entities in the world?  Now how is that going to create aggressive investments and create jobs?—duh—it won’t! 

In addition, they should adopt a 15% flat tax for individuals and corporations.  Keep capital gains and dividend taxes at 15% while abolishing the death tax and the Alternative Minimum Tax.

Then terminate all unspent stimulus funding which still totals $400B and end TARP.  For everything besides Social Security, Medicare, and Medicaid, return spending to 2007 levels, which would save $670B a year!  Another $100B could be saved by slashing corporate welfare—including Obama’s handouts to green energy businesses.  Lastly, of course, repeal ObamaCare, which alone would save a minimum of $2-3 trillion (most likely much more) over 20 years as CBO scoring ALWAYS comes in at 1/5 to 1/10 of what federal programs actually come in at.  Congress should similarly reform its remaining 184 means-tested welfare programs including Medicaid.  Next, it should phase in personal savings, investment and insurance accounts to finance all benefits currently financed by the payroll tax eventually replacing that tax entirely.  Shifting all those benefits to the private sector would reduce federal spending by over 20%! 

Ladies and gentlemen, this can be done—the formula will work—but we need to find the people to put in Congress to make it happen—and the ones there now—will only exacerbate the problems because they are doing exactly the opposite to what they should be doing to fix our debt/spending problem.  We need leaders—so get involved—find out who they are—and get out and support and vote them in—we have a self correcting system, but it won’t self correct unless we all get off our duffs and get involved.  We have a rejuvenated Tea Party organization in South Florida—spread the word—tell your friends—attend meetings—send face book and webpage links to everyone—and don’t let rejection get you down—we have met the enemy—and it is us!   Obama is in office today because folks were fooled—and did not sufficiently vet out his background and experiences.  If you think the first term was bad—just imagine what damage he could do in a second term when term limits will preclude his ability to run again—now that is scary!

Mark Wohlschlegel