spending cuts for every $1 of new taxes. He said, âNo.â How about $10 in cuts for every $1 of tax increase? Again, the answer was no. Finally, the questioner asked all eight candidates, âIs there any ratio of cuts to taxes that you would accept?â and the answer wasstill no. The exchange revealed an ideological rigidity that endangers America. In a system that requires compromise to advance the public interest, itâs difficult to move the country forward if compromise is ruled out. Apparently what was most important to those Republican candidates was the next election, not the economic health of their country.
As we saw in the federal debt-limit confrontation last summer, many Republican senators and representatives seem ready to let the country default on its debt rather than raise taxes. To give you an idea of how radical the views of these latter-day Republicans are, consider Ronald Reagan. He was known by his political base as the president who cut taxes by reducing the top marginal rate in 1981 from 70 percent to 50 percent and in 1986 from 50 percent to 28 percent. What is acknowledged by only a few Republicans, and just as rarely reported by the press, is that in 1982 he presided over the largest peacetime tax increase in American history, which replaced nearly one third of the revenue lost in the 1981 tax cut, and he followed this in 1984 with another large tax increase. He did this by closing a substantial number of tax loopholesâthose special exclusions, credits, and deductions that benefit only selected taxpayers. In todayâs budget debates, the radical Republicans reject loophole closings because they increase taxes on someone. (Actually, closing loopholes doesnât âincreaseâ taxesâit just makes sure that someone who owes taxes doesnât get out of paying them.) By taking this rigid âno taxâ position, they forfeit their claim to the legacy of Ronald Reagan.
Before Congress can appropriate money (which means to direct that it be spent), an authorizing committee has to determine the amount allowed for a particular project. The appropriations committee then decides the amount to be actually spentâusually something less than the authorized amount. For tax loopholes, there isnât even an authorizing committee; in effect, itâs totally unaccountable spending.Getting loopholes into the tax code is one of the specialties of well-heeled members of the Washington club. Thatâs why a book about the Tax Reform Act of 1986 was entitled Showdown at Gucci Gulch , a reference to the hallway, lined with lobbyists, outside the Senate Finance Committeeâs hearing room. All you have to do in order to cut taxes for, say, corporations that buy a certain kind of machine, or people who buy a house rather than renting, is to stick a loophole in the tax code for them. From a budget standpoint, the result of this kind of tax cut is the same as if it were a spending program: It increases the deficit. You might as well have sent a check from the government to the special interest. Rewarding these taxpayers means that taxpayers who donât exhibit the encouraged behavior (by buying the machine or the house) suffer the consequences of a higher deficit.
There is more than $1.1 trillion of hidden spending in the form of credits, exclusions, and deductions in the present tax code. Most of them benefit some narrow interestâbanks, oil companies, real-estate companies, insurance companies, mining companies, and charitable institutions, among others. So the rest of us pay higher taxes than we otherwise would, to make up for the lower taxes levied on the special interests. Russell Long, the chairman of the Finance Committee when I got to the Senate, told me one day, âIf you give someone a tax cut, they never remember what you did. If you give them a tax increase, they never forget.â Still, politicians believe that the members of the special-interest
As we saw in the federal debt-limit confrontation last summer, many Republican senators and representatives seem ready to let the country default on its debt rather than raise taxes. To give you an idea of how radical the views of these latter-day Republicans are, consider Ronald Reagan. He was known by his political base as the president who cut taxes by reducing the top marginal rate in 1981 from 70 percent to 50 percent and in 1986 from 50 percent to 28 percent. What is acknowledged by only a few Republicans, and just as rarely reported by the press, is that in 1982 he presided over the largest peacetime tax increase in American history, which replaced nearly one third of the revenue lost in the 1981 tax cut, and he followed this in 1984 with another large tax increase. He did this by closing a substantial number of tax loopholesâthose special exclusions, credits, and deductions that benefit only selected taxpayers. In todayâs budget debates, the radical Republicans reject loophole closings because they increase taxes on someone. (Actually, closing loopholes doesnât âincreaseâ taxesâit just makes sure that someone who owes taxes doesnât get out of paying them.) By taking this rigid âno taxâ position, they forfeit their claim to the legacy of Ronald Reagan.
Before Congress can appropriate money (which means to direct that it be spent), an authorizing committee has to determine the amount allowed for a particular project. The appropriations committee then decides the amount to be actually spentâusually something less than the authorized amount. For tax loopholes, there isnât even an authorizing committee; in effect, itâs totally unaccountable spending.Getting loopholes into the tax code is one of the specialties of well-heeled members of the Washington club. Thatâs why a book about the Tax Reform Act of 1986 was entitled Showdown at Gucci Gulch , a reference to the hallway, lined with lobbyists, outside the Senate Finance Committeeâs hearing room. All you have to do in order to cut taxes for, say, corporations that buy a certain kind of machine, or people who buy a house rather than renting, is to stick a loophole in the tax code for them. From a budget standpoint, the result of this kind of tax cut is the same as if it were a spending program: It increases the deficit. You might as well have sent a check from the government to the special interest. Rewarding these taxpayers means that taxpayers who donât exhibit the encouraged behavior (by buying the machine or the house) suffer the consequences of a higher deficit.
There is more than $1.1 trillion of hidden spending in the form of credits, exclusions, and deductions in the present tax code. Most of them benefit some narrow interestâbanks, oil companies, real-estate companies, insurance companies, mining companies, and charitable institutions, among others. So the rest of us pay higher taxes than we otherwise would, to make up for the lower taxes levied on the special interests. Russell Long, the chairman of the Finance Committee when I got to the Senate, told me one day, âIf you give someone a tax cut, they never remember what you did. If you give them a tax increase, they never forget.â Still, politicians believe that the members of the special-interest
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