Tax reform is irrelevant to debt concerns
I hate debt.
Really hate it.
In 2010, one of the most encouraging things that I thought came out of the Tea Party movement was a focus on the issue of the budget deficit and the national debt. That year, candidates who promised to address those issues managed to gain 63 seats in Congress.
For Democrats, this represented the biggest decline of a party in a House midterm election since 1938.
The reasons why were hard to miss. Between the $787 billion Obama “stimulus” package, and the massive expansion of government spending due to Obamacare, it looked to the public like the Democrats were not serious about responsible governance, and were unconcerned about debt.
So what has happened since that debt driven revolt?
At the end of 2010, the national debt topped $14 trillion. Today it has eclipsed $20 trillion.
Oh, they’ve nibbled, they’ve tried gimmicks, and they’ve desperately tried to find ways of explaining that, while they’d love to do something about it, they just can’t because of (insert excuse here).
And now, with tax reform being debated in Congress, the question of debt has become — rather hilariously — the focus of Democratic opposition. Suddenly, the party that promises massive welfare expansion, medicare for all, and universal free college is concerned about the impact of this legislation on the debt.
But, is $1 trillion to $1.5 trillion added to the national debt over 10 years a reason not to do tax reform?
I have very little doubt that investment created as a result of a simplification and lowering of the tax burden — particularly the corporate tax burden — will create investment and economic activity, and make that $1 trillion to $1.5 trillion number much smaller in reality.
Tax cuts, particularly reductions and simplifications, do in fact result in increased receipts to the government from economic expansion. The type of reform being debated now has a lot of real potential to drive investment and growth.
But let’s pretend that economic growth won’t happen. Let’s pretend the perpetually, hilariously wrong government estimates are somehow right, for once. Would that be a reason not to do it?
I say do it anyway, for two very specific reasons.
The first is that our debt problem is independent of the tax code. Change it. Don’t change it. Do whatever you want, but the uncontrolled growth of our debt has been driven by other, more insidious factors related to economic performance, and spending.
Our debt-to-GDP ratio was at 54 percent as recently as 2001. Do you know what those evil Bush tax cuts and the military spending on two full-scale wars after the Sept. 11th attacks increased it to? Sixty-one percent by 2007.
Debt is 104 percent of GDP this year.
The reason behind this growth of debt has been an incredibly anemic, pathetically weak economic recovery after The Great Recession, coupled with rapid, uncontrollable expansions of spending.
In other words, the economy isn’t producing enough revenue to feed the government’s appetite because it isn’t growing strongly enough, and while that general malaise persists, politicians in Washington keep spending more money, particularly on the ever-growing entitlement programs — health care and welfare — which drive most federal spending today.
We need to produce years of growth that eclipse 3 percent, as has not happened in a decade, and work to get closer to 4 percent or higher.
We also need to seriously look at reforming government in such a way that puts controls on spending, and reins in entitlement spending. And yes, we need to have a discussion about military spending, too.
If we don’t do that, any additions to our national debt that come from this tax reform package will be insignificant.
Which brings me to my second, far more cynical reason for disregarding the question of debt as it relates to tax reform. I have absolutely no faith that Washington will step out on a limb and address this problem bravely. They won’t reform entitlements. They won’t tackle spending. They won’t deal with the debt, and it will continue to spiral out of control.
And if that is the case, and I’m asked if I want to live in a country 10 years from now with Greek levels of debt, and a hopelessly complex and backwards tax system, or a country with Greek levels of debt and a simpler, fairer, more growth oriented tax system, I guess I’ll take the latter.
Matthew Gagnon of Yarmouth is the chief executive officer of the Maine Heritage Policy Center, a free market policy think tank based in Portland. A Hampden native, he previously served as a senior strategist for the Republican Governors Association in Washington, D.C.