Taxes & Spending

What the GOP Loss Hath Wrought

Taxpayers were angry last November because while Republicans talked a good game about fiscal responsibility and spending restraint, they were spending money like Paris Hilton with a new MasterCard.  And sometimes you have to take one step back in order to take two steps forward.  So to stop the binge, voters kicked the GOP out of power, knowing full well that the Democrats would likely be even worse.
 
Naturally, our worst fears are already being realized.
 
First up on Speaker Pelosi’s fiscal agenda was a rule change known by Washington insiders as PAYGO.  And in theory, this sounds like such a great idea.  As the Wall Street Journal explains it, PAYGO means that “If government spends more on program A, it has to spend less on program B, and thus deficits will be restrained.”
 
But as is so often the case, you need to read the fine print to figure out what PAYGO really means.  For example, as the WSJ notes, PAYGO “doesn’t apply to current entitlements that will grow automatically over the next several decades.”  In other words, PAYGO won’t constrain the bulk of the government’s exploding spending.
 
It will, however, constrain future tax relief.  As the WSJ explains, Pelosi’s version of PAYGO requires that “all new entitlement programs and all new tax cuts would have to be offset by either cutbacks in other entitlement programs or tax increases.”  But (see above), not current entitlement programs.
 
So any future tax cuts will have to be offset my corresponding cuts in spending…which just ain’t gonna happen, no matter who is in charge.  As we’ve all come to realize, the only way to reduce spending is to reduce the amount of money we give the government to spend in the first place — otherwise known as “starving the beast.”  Pelosi’s PAYGO scheme means you have to cut spending on non-entitlement programs before you can cut taxes.  A political non-starter if there ever was one.
 
It should be noted here, however, that any proposed tax INCREASES under the Pelosi plan need not be offset by corresponding spending cuts.  Go figure.  All of which led Americans for Tax Reform to conclude that “PAYGO is a mechanism that will finance higher levels of spending with tax increases, while at the same time ending all tax cuts from here on in.”
 
Thanks, Republicans.  Thanks a lot for bringing this fiscal plague upon us.  But it doesn’t end here.  PAYGO is just the beginning of the coming nightmare.
 
Before being kicked out of power, congressional Republicans kicked the Social Security reform can down the road.  They just never got around to tackling this 8-gazillion-pound gorilla while they were in charge.  Democrats, on the other hand, are anxious to take this issue off the electoral table by enacting their own plan to “save” Social Security – which inevitably will neither save it, nor secure it.  It will merely help save the Democrat majorities in Congress in 2008, as well as put a Democrat in the White House.
 
Their plan – which should come as no surprise to anyone – features a tax hike.  What HAS come as a surprise, though, is apparent support for this scheme from the nation’s foremost conservative think tank, the Heritage Foundation.
 
The scheme works like this: Currently, the Social Security tax only applies to the first $97,500 you earn in 2007.  Whatever you pull in over that amount is tax-free…at least as far as the Social Security tax is concerned.  What the Democrats want to do is raise or eliminate that cap…a de facto tax hike on anyone and everyone making over that amount of money.
 
Now here’s where the Heritage Foundation enters the picture.  According to a New York Sun editorial last month, David John, a senior research fellow at Heritage, told the paper that he’s “willing to look at” the tax hike as part of a comprehensive Social Security reform package — making the point that “in order to fix the problem, everyone is going to have to compromise.”
 
In a subsequent letter to the Sun, Mr. John stated that he strongly opposes lifting the cap, while at the same time reiterating that “everything will have to be on the table to get meaningful discussions going on Social Security reform.”  According to Mr. John, “accepting that something is on the table as part of a serious discussion is vastly different from endorsing it.”
 
He then went on to explain how a Social Security tax hike “might be acceptable…within a hypothetical reform package,” stressing that such a tax hike “would be a bitter pill to swallow,” but perhaps OK if the overall reform package was “acceptable” and “enforceable.”
 
Color us confused.  Is the conservative Heritage Foundation open to a cap-lifting tax hike…or isn’t it?  For us, this is pretty black and white: No tax hike, no lifting of the cap, no way, no how.  Is that Heritage’s position…or isn’t it?
 
Why not give them a shout yourself — (202) 546-4400 or [email protected] — and ask for a clarification?  Having the nation’s premier conservative think tank thinking about a tax hike is no way to advance true Social Security reform.


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