Economy & Budget

Norquist: Showdown at the fiscal cliff

Norquist: Showdown at the fiscal cliff

Barack Obama won the presidency and claims he has a mandate to increase taxes to pay for the larger government he created in his first term.

Republicans were re-elected to remain the majority in the House of Representatives and they point out that voters watched them stop Obama’s drive for higher taxes for the past two years. Clearly their victory in the House is America speaking out against higher taxes.

And the people? On Election Day exit polls, when asked about supporting tax hikes to reduce the deficit, 63 percent of Americans said they were opposed.

So now what? Well, we have been here before.

Two years ago, we faced a “fiscal cliff” because the Bush tax cuts of 2001 and 2003 and various other tax cuts were all scheduled to end on January 1, 2011. At the time, Obama was president, there was a Democrat-controlled Senate and the GOP had just won the House. The compromise was to extend all Bush tax cuts two years. Obama said it would be a mistake to raise taxes during a lousy economy.

Two years later, we have all the same players around a chessboard with the pieces arrayed exactly the same: Democratic White House and Senate, and GOP House. One likely possibility is that the status quo is extended for two years to refight after the 2014 elections—exactly what happened in 2010. An alternative is that Congress and the White House may extend lower tax rates for six months to continue negotiations.

Obama’s present demand is that the top two marginal tax rates be increased to 39.6 percent plus the 3.8 percent Obamacare tax surcharge for a top rate of 43.4 percent. The death tax would also jump back to 55 percent, capital gains tax would jump from 15 percent to 23.8 percent, and the tax on dividends would increase from 15 percent to 39.6 percent.

Speaker John Boehner is calling for extending all of the Bush tax cuts for all income groups.

Boehner notes that there are 11 million businesses that pay taxes at the individual level. Obama, on the other hand, is demanding that more than half of small business income be taxed at 43.4 percent rather than today’s 35 percent. This would be a body blow to job creation.

If Obama follows through on his threat and refuses to extend the Bush tax cuts, then there would be an automatic $500 billion tax increase beginning January 1, 2013, that would total $5 trillion over the decade.

A second factor is that Obama and Boehner agreed last August to create an automatic sequester to reduce Obama’s planned spending by $100 billion each year for 10 years. Obama deliberately weighted the sequester to fall more heavily on defense than social welfare programs hoping Republicans might later undo the automatic budget cuts. These spending reductions were passed as part of the debt ceiling increase last year. It is very important to Congressional Republicans that the total amount of the automatic savings be made and that the savings are not undone or delayed. The House passed the Ryan Budget, which has the same total spending restraint and avoids most if not all of the sequestration hit on defense.

Here’s the thing

Now Obama is trying to conflate these two issues: the automatic tax hike that takes place unless the present rates are not extended as they were two years ago and the automatic spending cuts. They are of course very different. The tax hikes would hurt the economy. The spending cuts would reduce the Obama debt machine and strengthen the economy.

So far, both House Speaker Boehner and Senate Republican Mitch McConnell have both said they would not support any increase in marginal tax rates. They have said they are open to more revenues from economic growth. One fear is that taxes could be raised by limiting tax deductions for home mortgages, health insurance, charitable giving and state and local taxes to raise a great deal of money from taxpayers without technically increasing marginal tax rates.

This would be a bad idea one, because those tax hikes would be instead of spending restraint and second, because reducing deductions now in order to spend more money makes tax reform much more difficult later.

Some had hoped that President Obama would focus on job creation and back off his high tax/stimulus spending agenda that has so damaged the economy. It does appear that four years of failure have taught him nothing.

Obama has not put on the table any specific entitlement reforms and is demanding a total of $1.6 trillion in tax hikes. He is all tax hikes and no spending restraint. Nothing has changed in four years.

Grover Norquist is president of Americans for Tax Reform, founded in 1985, opposes all tax increases as a matter of principle and asks candidates for office to sign a Taxpayer Protection Pledge. The group’s website is www.atr.org.

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