F. Scott Fitzgerald famously said: "The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function." With that in mind, let me make a modest proposal. Yes, we do have to reign in government spending. But, the objective evidence shows that we are not over-taxed.
Most people agree with the first statement. But, the second one is absurd on its face, isn’t it? All we hear these days is how overtaxed we are, and what a drag this is exerting on our economy and its ability to prosper and create jobs. But, recently, a commentator on a national show noted that federal taxes are currently 14% of the nation’s Gross Domestic Product (GDP), which is the lowest since 1948. Who was this commentator, some liberal Democrat, right? Sorry, it was Reagan’s budget chief, David Stockman, a strong fiscal conservative.
It is simply a myth that we are overtaxed. Corporations and rich individuals currently have the smallest percentage of their incomes taxed in generations. Sure, the Tea Party rants about how high their theoretical tax rates are. But, no one with an IQ above room temperature actually pays those rates, because of all the exclusions, deductions and other loopholes available to them. The rich and corporations hire high priced accountants and tax advisors to take full advantage of all the loopholes. We don’t need higher tax rates. If we had a cleaner, simpler tax system, we could have lower marginal tax rates but still raise more revenue.
As Mr. Stockman noted, we have a fairly simple problem – federal taxes are 14% of GDP while federal spending is 24% of GDP. What we have to do is reduce the latter significantly and also increase the former somewhat. If we just increased the tax percentage of GDP to the level it was at in 2000, we would be in fine fiscal shape, if we combined this with some sensible expenditure cuts, such as reducing subsidies to oil and gas companies. If we’re over-taxed now, why was our economy doing so well in 2000, when taxes on upper incomes were much higher?
Another wise commentator hit the nail on the head the other day. David Gergen has advised several Presidents, including Ronald Reagan. He says our biggest problem is that too many politicians today lack imagination and backbone. He says we need to think back to Pres. Reagan, who raised taxes several times. He did it in cases where he was able to cut a deal that benefited his constituents and the country as a whole. He forged several deals with politicians like Tip O’Neill, surely his equal on the other side as an ideological liberal.
Then Reagan went straight to the American people and persuaded them that he was right. He convinced them to tell their political leaders to go along. Gergen says a clever and resourceful leader will succeed in this way. Sure, there is a chance he or she might fail in the attempt. But, isn’t that what leadership is all about. Too many of today’s politicians spend their time looking back to make sure the crowd is following, rather than boldly leading in the right direction. They blindly sign pledges put forward by right wing saint Grover Norquist. Once they’ve signed, they can never go back, no matter how sensible the plan, because they made a promise to Saint Grover.
I believe Ronald Reagan was far too savvy a politician to sign such a foolish pledge. Indulge me as I channel Pres. Reagan. Here’s how I think he would explain a grand bargain to get our country back on a proper fiscal footing:
“I hate raising federal revenue as much as anybody, and more than most. But, I’ve cut a deal with Congress that cuts $4.00 of federal spending for every $1.00 in additional federal revenue. We’ll have a streamlined, simplified tax code that frees businesses to make decisions based on how profitable they will be, rather than on which tax loophole they will qualify for. This is simply too good a deal to pass up. If you really care about your country’s future, you will join me in supporting this agreement.”
Will we ever find politicians with the imagination and guts to break out of the current left-right gridlock? For my future, and especially those of my children and grandchildren, I sincerely hope so.
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