Political Hay

Don’t Blame the House

Congressional Republicans have done their deficit duty.

By 7.27.11

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The indisputable facts show that Congressional Republicans have done their job. Months ago, the House Republican majority passed the budget proposed by House Budget Committee Chairman Paul Ryan (R-WI). Ryan's budget provided for $6.2 trillion in spending cuts for its first 10 years alone. Over the long run, it drives federal spending to 15% of GDP, well below the postwar historical average of 20%.

Ryan's budget included tax reform to get the economy booming again, with a 25% top income-tax rate for incomes over $100,000 a year, and a 10% rate for incomes below that. The internationally uncompetitive federal corporate tax rate of 35% would be reduced to 25%, which would return federal taxes to their long term, postwar, historical average of 18% of GDP. Because that figure is higher than our spending, the Ryan budget eventually pays off the national debt entirely.

Yes, that takes decades. $14 trillion is a big debt to pay. It takes that long because the careful reforms are designed so that no one is actually hurt by the changes -- senseless Democratic rhetoric to the contrary notwithstanding. The Democrats just don't like it because by reducing government dependency it threatens their political machine.

Moreover, the first act of the new GOP House majority was to vote to repeal Obamacare. That means $1 trillion in spending cuts, and $500 billion in tax cuts, during the first 10 years alone, as scored by CBO.

Cut, Cap and Balance

Last week the Republican-controlled House passed the Cut, Cap and Balance Act of 2011. It cuts government spending for fiscal year 2012 (which starts on October 1, 2011) by $111 billion. Despite President Obama's unreasoned, reality-free rhetoric, it includes no cuts to Social Security, Medicare, or Veterans benefits.

The Act then places a cap on total federal spending that would reduce it to the long run, postwar, historical average of 20% of GDP by 2017.

The Act then provides for President Obama's requested increase in the debt limit, if Congress first passes a specified Balanced Budget Amendment to the Constitution and sends it to the states for ratification. That Amendment would require Congress to balance the budget every year except in a wartime emergency, meaning that the federal government would have no legal authority for increased borrowing except under the wartime procedures specified in the Amendment.

That Balanced Budget Amendment would also include a supermajority requirement to raise taxes, so no tax increase could be enacted without a vote of 67% in favor in each house. The Constitutional Amendment also specifies a cap on federal spending equal to 19.9% of GDP, limiting federal spending to the long-term average for the past 70 years.

This Act solves the federal government's runaway spending, deficit and debt problem, entirely.

This Act passed the House with bipartisan support.

Democrat No-Shows

In sharp contrast, the United States Senate, controlled since 2007 by Democrats, actually tabled Cut, Cap and Balance without allowing it to even come to a vote.

For two years now, the Democrat-controlled Senate has refused to adopt a budget, as required by law, or to even pass the necessary appropriations bills to fund the government. That is why we faced the government shutdown crisis in the spring. And if the Senate majority does not show up to do their job by September 30, the federal government will face another shutdown crisis this fall.

The Shame of Barack Obama

Barack Obama revels in the glory of the presidency, but refuses to take any of its responsibility.

This is the man who, in open debate with the hapless John McCain, promised the nation's voters that his budget plans involved a "net spending cut." Federal spending for the year at the time totaled $2.983 trillion. Federal spending today: $3.819 trillion, according to President Obama's own 2012 budget. For Democrats, who by definition lack numerical literacy, that is a net spending increase of $836 billion.

This is the man who argued vociferously on national television in 2009 that there was no way the Obamacare individual mandate -- the one forcing citizens to buy the health insurance the government specifies they must have -- could be considered a tax. After it was enacted into law, President Obama then sent his government lawyers into court to argue that the individual mandate is constitutional because it is only a tax.

President Obama has already increased federal spending by nearly one-third in his first three years in office. In February of this year, he submitted his 2012 budget to Congress proposing to increase spending by nearly another two-thirds by 2021. That finally roused the Senate to action. In a rare, thoroughly bipartisan response, they voted down Obama's proposed 2012 budget 97-0.

Realizing that he was falling behind the political curve, President Obama gave a speech on federal spending, deficits and debt on April 13, which was another exercise in calculated deception. When House Budget Committee Chairman Paul Ryan asked CBO Director Doug Elmendorf if he had scored the President's April 13 budget proposals, Elmendorf responded by saying that the CBO doesn't score speeches.

Since then we have gotten even less from our pretend President. As the Wall Street Journal explained on Monday:

In June, the President dispatched Joe Biden to negotiate spending cuts, only to have the White House insist at the last minute that modest trims be accompanied by significant new taxes. Mr. Boehner and the Senate's bipartisan Gang of Six produced plans that would have acceded to the White House demands in return for substantive tax reform that would have lowered individual and corporate tax rates. Yet last week the White House backtracked on its agreement for the lower tax rates and demanded another $400 billion in tax revenues above the $800 billion the Speaker had already conceded.

Most importantly, the Journal added, "Here's a number for the debt history books: Mr. Obama's final offer in the Biden talks was a $2 billion cut in 2012 non-defense discretionary spending." With Obama having budgeted $3,819 billion in federal spending for this year, his offer would provide a heroic spending cut of 1 penny for every $20 Obama's federal government spends.

Calculated Deception

President Obama's address to the nation Monday night was a supreme performance of calculated deception. After administering to America the greatest fiscal blowout in world history, he opened the speech posing as a President gravely concerned about federal spending, deficits and debt. Manfully, he blamed our problems on George W. Bush, who was last seen as President nearly three years ago.

Note for the record: in the last year with a budget adopted by a Republican-controlled Congress (2007), the federal deficit came in at $161 billion. The current federal deficit is roughly 10 times that. So Congressman Jeb Hensarling (R-TX) was close to the truth when he told Obama to his face that the annual deficits under the Republicans had become the monthly deficits under the Democrats.

President Obama then exercised his national leadership by telling America that it is a nation "with a system in which the deck seems stacked against middle-class Americans in favor of the wealthiest few." It is a disgrace for a man who is supposed to be serving as President of these United States to make such a fundamentally false, defamatory assertion about his own country.

As I explain in my new book, America's Ticking Bankruptcy Bomb, before President Obama was even elected, official IRS data showed that for 2007 the top 1% of income earners paid more in federal income taxes than the bottom 95% combined. The top 1% paid 40.4% of all federal income taxes that year, almost twice their share of income. The middle fifth of income earners (the actual middle class) paid 4.7% of federal income taxes. The bottom 40% of income earners as a group paid no federal income taxes that year. They instead received net payments from the IRS equal to 4% of total federal tax revenues -- the result of nearly 30 years of Reaganomics.

In California, the top 1% pay 48% of all state income taxes. In New York, the top 1% pay 41% of all state income taxes. In New Jersey, until recently the top 1% paid 46% of state income taxes, and Castroite government employee unions want to bring those policies back.

Moreover, America's corporate income tax rate is virtually the highest in the industrialized world at nearly 40% on average, counting state corporate rates. As I have noted previously, even Communist China has a 25% corporate rate, with the average in the mostly-socialist European Union below that. In left-wing Canada, the corporate rate today is 16.5%, scheduled to fall to 15% next year.

And already scheduled under current U.S. law for 2013? Increases in the top tax rates of every major federal tax, apart from the already too-high corporate tax rate. Why? Because the Obamacare taxes become effective that year, and the Bush tax cuts expire. So the top two income tax rates will go up nearly 20%, the capital gains tax rate will go up nearly 60%, the tax on corporate dividends will nearly triple, and the Medicare payroll tax will go up 62% for the nation's small businesses, job creators and investors.

Yet, on Monday night, President Obama called for a "balanced" solution to the nation's spending, deficit and debt crisis. This means still more tax increases on the nation's "millionaires and billionaires" -- you know, those absurdly rich people making over $200,000 a year if they are single and $250,000 if they are married. The House-approved Republican budget returns federal taxes to their long-term historical postwar average. Any tax increases above that would just finance higher spending, which is exactly what President Obama is after.

These are central reasons why there has been no recovery from the last recession, and why a record number of Americans find themselves in poverty.

Obama also told the nation Monday night that he wants to "ask hedge fund managers to stop paying taxes at a lower rate than their secretaries." This is another false truism that is widely circulated on the Left. The allegation arises because capital gains income is taxed at 15%, while individual income tax rates range far higher than that. But as I explain in my book, capital income is taxed multiple times, not just by the capital gains tax. It is taxed at least four times: by the capital gains tax, the individual income tax, the corporate income tax, and the death tax. That is why the most fair (as well as the most economically productive) rate for the capital gains tax would be zero -- as is the case in much of the industrialized world.

The pretend President helpfully suggested that "most Americans don't understand how we can ask a senior citizen to pay more for her Medicare benefits before we ask corporate jet owners and oil companies to give up tax breaks that other companies don't get." But his Obamacare law essentially asks seniors to pay more for their Medicare benefits. It requires them to pay 40% to 200% more if they, in the President's infinite wisdom, earn too much.

Note also the tax break for corporate jet owners was adopted in the Obama stimulus to create jobs in corporate jet manufacturing. It is so trivial it is not even worth talking about. But, again, Obama thinks he can manipulate a majority into hating on "the rich," "millionaires and billionaires," and the evil corporations.

Finally on Monday night, he threatened America's seniors, saying that if House Republicans don't agree to his tax increase to increase the debt limit, "we would not have enough money to pay the bills -- bills that include monthly Social Security checks." That was a shameful threat.

The Social Security trust funds include $2.7 trillion in government bonds, which are due and payable when needed to pay Social Security benefits. While those bonds are explicitly not transferable -- and so cannot be sold to the public to raise money -- under prior practice they would be cashed out by selling new government bonds to the public. Since the Social Security trust-fund bonds are included in the national debt subject to the debt limit, they can be replaced by new public bonds without the total debt going over the limit. Moreover, those Social Security trust-fund bonds are explicitly backed by the full faith and credit of the United States. That means President Obama is constitutionally required to pay them when needed to pay Social Security benefits. In addition, there is more than enough general revenue coming in to just cash out the trust fund bonds as necessary in any event, even without issuing any new public bonds.

As a result, President Obama is required to pay Social Security benefits, under his constitutional duty to take care that the laws be faithfully executed. Not paying those benefits would be an impeachable offense.

And therein may lie the only timely solution to our national problems.

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About the Author
Peter Ferrara is Director of Entitlement and Budget Policy at the Heartland Institute, General Counsel of the American Civil Rights Union, Senior Fellow at the National Center for Policy Analysis, and Senior Policy Advisor on Entitlements and Budget Policy at the National Tax Limitation Foundation. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.