Apparently Rex Nutting didn't get the memo. Nutting, a Marketwatch columnist who is the poster child for the maxim that a master's degree doesn't mean you actually know what you're talking about, lists Grover Norquist eighth on his list of "10 people who led us to the 'fiscal cliff.'" Eighth!
By listing Mr. Norquist, the President of Americans for Tax Reform and perhaps the most successful individual bulwark against higher income tax rates for two decades, behind former President George W. Bush and the chief economist for the National Association of Realtors in terms of responsibility for the "fiscal cliff," Nutting has obviously missed the talking points that Democrats are trumpeting and useful idiots are parroting.
Sadly, by "useful idiots" I don't mean the media, whose complicity in the growth of government is perennial, as much as I mean gullible Republicans, desperately seeking to be seen as participating in "cooperation" and "balance," code words which mean today what they always mean: Republicans buying into Democrat proposals and getting little or nothing in return.
The biggest arrow in Grover Norquist's quiver is the Taxpayer Protection Pledge which ATR asks candidates to sign, and which most Republicans do indeed agree to with at least superficial enthusiasm. By signing, politicians promise to "oppose any and all efforts to increase the marginal income tax rates for individuals and/or businesses; and… oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates."
In the upcoming 113th Congress, there are 219 Representatives and 39 Senators who have signed the pledge. With the exception of Rep. Robert Andrews (D-NJ), all the signers are Republicans. Sixteen GOP House members have not signed, along with six GOP senators although at least two (Jeff Flake of Arizona and Tom Barrasso of Wyoming) are not likely to succumb to the worst of Potomac Fever.
Unfortunately, several of those who have signed are now showing indications of Gelatinous Spine Syndrome, a Republican-selective symptom of Potomac Fever which precedes total collapse of both spine and cerebrum and allows a senator to be elected in Maine. Republican senators who are walking away from their "no tax increase" pledge include not just the usual suspects such as Lindsey Graham (SC) and John McCain (AZ), but relative newcomers to such intense levels of squish, such as Bob Corker (TN) and Saxby Chambliss (GA). Even Jeff Sessions, usually more reliable than other veteran GOP senators, seems to be mistaking "the political reality of the president's victory" for a non-existent mandate to implement highly destructive tax policy. Political epidemiologists are very worried about the spread of the disease from the Northeast into the previously resistant South.
Republican House Leadership has only been slightly better, with Speaker of the House John Boehner (OH) saying he opposes tax rate hikes, but being open to "putting revenue on the table." And of course, we will all be persistently reminded by a helpful media that a year ago Boehner called Norquist "some random person."
House Majority Leader Eric Cantor (VA) is trying to thread the narrowest of needles, saying "When I go to the constituents that have reelected me, it is not about that pledge. It really is about trying to solve problems." One wonders whether the air in the MSNBC studio confused Rep. Cantor; after all, what real problem can be solved by draining the private sector of much-needed capital in order to enable the spending addiction of our federal government?
I may be projecting, but is the nation not hungering for leaders who would fit ESPN commentator Jon Gruden's description of Philadelphia Eagles' head coach Andy Reid: "He does not feel pressure; he applies it"? Apparently our "leading" politicians don't have the courage to find out.
Senator Corker, in an effort to appear to be showing leadership ("let's hurry up and compromise!"), is proposing a bill which he expects to raise $1 trillion in revenue (over a decade) as part of a $4.5 trillion deficit reduction package. One of the keystone revenue boosters is a provision that would cap federal income tax deductions at $50,000 per year for high-income Americans.
To be sure, Corker's plan has plenty of meritorious items, including gradually increasing the eligibility age for Medicare and Social Security as well as changing the inflation measure used for many cost-of-living increases to entitlements.
But capping at such a low level the deductibility of mortgage interest and charitable contributions, just to name two big-ticket deductions for the well-heeled, is a mistake that will have several large unintended negative consequences.
First, the obvious: For universities, hospitals, and other recipients of very large donations, this plan would instantly dry up a major source of funding. The outcry from the non-profit industry against this plan will be intense as it was the last time Barack Obama tried to limit the deductibility of gifts to non-profits.
Second, the value of expensive homes will drop as the effective after-tax cost of mortgage payments on those homes skyrockets. For those of you who won't shed a tear when someone's $3 million home becomes worth only $2.25 million, just wait until your county soon comes to raise your property tax and sales tax rates to make up for that lost revenue, telling you "it's for the children."
Third, although this change would have very little impact on people like Barack Obama or Joe Biden who are notoriously uncharitable, the impact on Americans who do desire to give away more money will be very large -- in some cases larger than if deductions were left uncapped and the tax rate were increased.
Imagine someone who earns $1,000,000, pays $50,000 a year in mortgage interest, and gives away $100,000 to charity. If these deductions were capped at $50,000, per Corker and friends, her tax bill would be $35,000 higher than today. However, if the deductions were not capped and the top two marginal income tax rates were raised to the 36 percent and 39.6 percent levels that we saw under Bill Clinton, this taxpayer's federal income tax bill would rise by $25,386 instead. She'd be almost $10,000 better off with the higher rates. In short, Corker's bill penalizes not just expensive homes but major philanthropy as well.
Admittedly, this exemplar is not the ordinary person (in terms of income), and certainly not an ordinary Democrat (in terms of charitable impulse). And to be crystal clear, I am not arguing for higher marginal tax rates (more on that in a moment.) Perhaps Republicans feel that this is the best they'll be able to do in negotiations with a re-elected president and public opinion polls that show some support for soaking the rich despite history suggesting that such a strategy is doomed to failure.
In an interview on CNBC, Senator Johnny Isakson (R-GA) obligingly offered that a means-tested cap on deductions "say at $50,000 or $30,000...makes more political sense." Leave it to the GOP to negotiate with themselves, with Democrats smiling at their good fortune and wondering "will these people never learn?"
In the meantime, Senator Dick Durbin (IL), the second-ranking Democrat in the U.S. Senate, says that Medicare should be given more "solvency" (Democrat-speak for more of your money), that Social Security should not be part of fiscal cliff discussions, and that upper bracket tax rates should rise in addition to imposing caps on deductions. Republicans should take a lesson in negotiation strategy. Instead, they're hitting the mat before the first punch is even thrown and blaming Grover Norquist for putting them in the ring.
At the risk of awakening the "shoot the messenger" crowd, some words of wisdom from New Jersey Governor Chris Christie, perhaps the political corollary to Jon Gruden's laudatory language on Monday Night Football, bear repeating: "Real leaders don't follow polls. They change polls."
Republicans are and have long been truly terrible at explaining "conservative," which is to say real-world, economics. Grover Norquist is better than most. But if GOP members of Congress don't get better at this, and in a hurry, their poll-following fears will cause them to sell the nation down the fiscal river in a much more permanent way than even the Republican Congress during the George W. Bush years did.
The lessons are very basic:
- From Barack Obama's former senior economic adviser, Christina Romer: "[T]ax increases are highly contractionary," with "a large, rapid, and highly statistically significant negative effect on output" and "a large and highly significant rise in the unemployment rate."
- From Nobel laureate Milton Friedman, the most important economist in American history (and a heck of a nice guy who always shredded liberal arguments with a smile on his face): Tax hikes do not reduce the deficit because "in the long run government will spend whatever the tax system will raise, plus as much more as it can get away with."
- "Hauser's Law" suggests that changing tax rates has a minimal impact on the percentage of national revenue confiscated from the people. Raising rates, if it raises revenue at all, will bring in much less than Keynesian "static" models predict -- which is why Democrats insist on using static models rather than realistic ones.
In short, no person who is actually focused on the economic impact, rather than aiming to assuage liberal guilt or further an anti-wealth ideology, would consider raising income taxes -- and this means total tax collections, not just tax rates. But then we are facing a rabidly ideological president who wants to raise taxes "for purposes of fairness" regardless of the economic impact.
Political reality may doom economic rationality, as happens more often than not in Washington, D.C. But like the Hippocratic Oath taken by physicians, our elected leaders -- particularly those Republicans who should know better -- must aim first to do no harm.
As for the fiscal cliff itself, the spending side, particularly "sequestration," is undoubtedly a meat-axe-instead-of-scalpel approach. But when politicians have been unwilling or unable to cut anything of substance for more than a decade, almost any cut is a welcome one. And while the defense cuts are disproportionately -- perhaps even dangerously -- large (because yet again Republicans got snookered in negotiations with the White House), it is beyond time that politicians in both parties, but especially the GOP, realize that defense spending is not a jobs program, much less an entitlement destined never to decline in the districts of powerful members of Congress.
To put it another way: as politicians play Thelma and Louise politics with our federal budget, it is worth remembering that for many who saw that overrated film, the sight of the two going over the cliff seemed a fitting, even welcome, end to their destructive (of self and others) behavior.
And for those Republicans who are worried about the both the outcome of current negotiations as well as their reputation if they break their no-net-tax-increase pledge, going off the cliff solves both problems and puts the GOP back on a more level playing field for determining what comes next. Perhaps it is the aggressive therapy needed to treat the disease of metastasizing government. Better to suffer the nausea of chemotherapy than to die of national fiscal cancer hastened by complications of Potomac Fever.
The biggest risk of going off the fiscal cliff is not the short-term damage to the economy but the risk that an ignorant electorate, goaded by a leftist media, will respond by calling for more and bigger government, blaming Republicans for economic chemotherapy rather than worrying about the underlying disease. The results of our recent election makes that outcome seem sadly likely.
Republicans who would become, as Newt Gingrich described Bob Dole, "the tax collector for the welfare state" will one day wish that Grover Norquist's ire was really the worst of their problems. Unfortunately, the worst we can do to these Jello-spined ersatz conservatives is not reelect them; the worst they can do to us is bankrupt our children while furthering the Obama/Alinsky dream of "fundamentally transforming" our nation. Sadly, some of them seem hell-bent on doing just that.
In the meantime, in this world of Republican weakness, some of us wonder from where will come the next Barry Goldwater, whose many fundamentally American pronouncements include this:
I have little interest in streamlining government or in making it more efficient, for I mean to reduce its size. I do not undertake to promote welfare, for I propose to extend freedom. My aim is not to pass laws, but to repeal them. It is not to inaugurate new programs, but to cancel old ones that do violence to the Constitution, or that have failed their purpose, or that impose on the people an unwarranted financial burden. I will not attempt to discover whether legislation is "needed" before I have first determined whether it is constitutionally permissible. And if I should later be attacked for neglecting my constituents' "interests," I shall reply that I was informed that their main interest is liberty and that in that cause I am doing the very best I can.
Few members of today's Congress could summon up this level of moral courage and fewer still the rhetoric with which to express it -- although this judgment may incorrectly presuppose that the American people still hold dear the values of our Founding.
For those Republicans who fear a similar impact to their political careers as Barry Goldwater suffered in 1964, I hope, though without much optimism, that they will remind themselves of the success of Ronald Reagan who knew how to make conservative policy a political asset. As a wise friend put it, "If chicken Republican pols have learned nothing from their party's history of the last half-century they're not likely to have much of history in the coming half-century."
It may well be that the political situation requires "putting revenue on the table." The source of that revenue should be pro-growth tax reform which, as Cato Institute economist Dan Mitchell has shown repeatedly, can be a panacea to our fiscal ills if combined with restraining the growth of government.
But given the likelihood that Republicans will indeed cave in to media-magnified pressure to make a deal, any deal, just for the sake of a deal, they should at least negotiate real, immediate, and substantial cuts to the cost and growth of entitlement programs. The nation can no longer afford politicians whose role model seems not to be Barry Goldwater but rather Wimpy, of Popeye cartoon fame, who suckered his friends repeatedly with the promise "I will gladly pay you Tuesday for a hamburger today."
If I may close with one last quote, this from the late columnist Robert Novak: "God put the Republican Party on earth to cut taxes. If they don't do that, they have no useful function." Thank goodness we have Grover Norquist keeping many Republican politicians focused on doing the right things. No doubt his effectiveness in doing so -- or embarrassing those who stray -- is precisely why Democrats and RINOs alike are demonizing him daily.
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