The Taxpayer Protection Pledge has been in the spotlight since Sen. Bob Corker, R-Tenn., a signer of the Pledge, presented a plan to address the fiscal cliff that violated the covenant’s guidelines. Americans for Tax Reform (ATR), the D.C.-based nonprofit that administers the Pledge, responded strongly, vowing to go after anyone who supports Corker’s plan.
As a result, conservatives are divided on the issue. Should Pledge signers compromise on their promise not to raise taxes in order to legislate a workable solution to the fiscal cliff? Or should they strictly adhere to the Pledge in hopes that it roadblocks liberal policy-makers from instituting planned tax hikes? The answer may be a little bit of both.
Since 1986, when ATR founder and president Grover Norquist first introduced the idea, the Taxpayer Protection Pledge has asked signers to make two promises:
• 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 tax deductions and credits, unless matched dollar for dollar by further reducing tax rates.
The Pledge — which is a promise to constituents, not to Norquist or ATR, as some critics wrongly suggest — has been extraordinarily effective. It has given fiscally conservative federal and state lawmakers a concrete way to express their belief in responsible government. It has also offered voters a way to determine which candidates are serious about low taxes. Further, it has held elected officials’ feet to the fire, since lawmakers who break the Pledge rarely stay in office.
Most importantly, with the Pledge, ATR has faithfully and successfully kept Congress — as well as state legislatures — from passing most proposed tax increases.
However, it is becoming apparent that the Pledge’s restrictions can be counter-productive to efforts of conservative policy-makers. The Pledge has also grown into an impediment to ATR’s ultimate goal of overhauling America’s convoluted tax structure and replacing it with a system that is much flatter and fairer.
Specifically, the Pledge has two drawbacks. First, it focuses exclusively on government tax policies, while completely ignoring spending. This is not a problem for state governments since 49 states have some form of a balanced-budget requirement, making it difficult for government to spend more than it brings in. On the federal level, however, where the government can borrow (and even print) money, and spending can far exceed revenues, the Pledge has done little to address the serious issue of spending.
Governments don’t go into debt by taxing too little; they go into debt by spending more than they have. While its determination to protect the American taxpayer from excessive taxes is important, Americans for Tax Reform — or perhaps another similarly positioned national organization such as the National Taxpayers Union or the Taxpayers Protection Alliance — should direct its focus towards encouraging members of Congress to promise to balance the federal budget each year.
The second problem with the Pledge is its requirement that when a tax deduction or loophole is eliminated, a tax cut must be implemented that reduces the tax burden by at least the same amount.
On its face, it’s a completely understandable position. After all, the people who previously claimed a now-eliminated deduction pay more in taxes, thus it’s fair that their taxes be lowered somewhere else so that their overall tax burden doesn’t increase. Unfortunately, the stipulation prevents beneficial policies from being passed and, worse, makes it much more difficult to implement the flat tax that ATR claims as its greatest goal.
For example, ATR stonewalled Republican efforts to eliminate unpopular and outlandish tax credits on ethanol production. The Ethanol Tax Credit, now expired, took a $20 billion chunk from the federal budget. It was largely recognized by many on both sides as incentivizing a bad idea. ATR heavily criticized lawmakers who tried to eliminate what amounted to a green energy handout because it wasn’t coupled with $20 billion in tax cuts elsewhere. Without allowing Congress to easily remove unjustifiable tax credits, it will be impossible to ever usher in a meaningful flat tax system that simplifies the tax structure by creating one standard deduction for all.
Over the past quarter century, the Taxpayer Protection Pledge has been perhaps the single most important factor in keeping existing taxes reasonable and preventing new taxes - but, by itself, the Pledge is not enough to keep the federal government in check.
Minor alterations to the Pledge that address the issue of spending and deductions would make it an even more valuable tool while allowing it to continue to succeed and its intended mission of lowering taxes.