'Debt reduction,' 'stimulus' poor excuses for tax hikes

'Debt reduction,' 'stimulus' poor excuses for tax hikes

February 6th, 2012 in Opinion Free Press

A number of reasons -- or excuses -- are put forth to justify tax increases on "the rich."

At present in Washington, there is a debate on an extension of payroll tax relief, and on whether to make up the temporarily reduced revenue with spending cuts or with tax increases on wealthier Americans.

Republicans generally have favored spending cuts and a federal pay freeze, while Democrats usually favor higher taxes on a small group of Americans to pay for payroll tax relief for a larger group.

But a quick look at the supposed justifications for tax increases -- whether to pay for payroll tax relief or to fund more government spending -- shows that tax hikes would be counterproductive.

n One reason offered for increasing taxes is that the revenue raised could be used to reduce our catastrophic $15.2 trillion debt.

But history shows something else. In the early 1980s, President Ronald Reagan went along with a plan to cut spending by $3 for every $1 that was raised in new taxes. That seemed like a good deal on balance, but it didn't pan out. The taxes went up, but the promised spending cuts didn't materialize.

It happened again in 1990, when President George H.W. Bush agreed to tax increases that were supposed to be coupled with even larger spending cuts. As expected, taxes went up, but not only was spending not cut, it actually rose.

There is, in short, no guarantee that revenue from higher taxes will actually be used to reduce the debt. Congress has far too strong a tendency to spend every new dollar it gets its hands on.

n Another excuse given for raising taxes is that in this weak economy, businesses are sitting on large amounts of money rather than investing it in job creation. Washington should tax them more -- the argument goes -- and raise money for more government "stimulus" spending to boost the economy.

That is a bad idea on many levels.

In some cases, it is true that companies are holding back on investing. But there are reasons for their reluctance: Consumer demand is low, and they are concerned about the twin threats of higher taxes and heavier regulations from laws such as ObamaCare. More taxes and regulations could destroy much of the return they might otherwise get on their investments in job creation. Many small businesses know, for example, that under ObamaCare they soon will have to provide government-approved medical insurance to employees or else pay large fines for many of their workers.

Businesses obviously would invest if they felt it would be profitable. But in the stifling business climate created by Congress and the Obama administration, it is not practical or even rational for some companies to expand. And it is ludicrous to think they will somehow become more likely to invest if Washington begins confiscating more of their income.

As for increasing taxes to fund more stimulus spending, the failure of the first $862 billion stimulus to produce the jobs it was supposed to create and to hold down unemployment is surely no reason to throw good money after bad. In fact, one federal "investment" after another has proved disastrous.

A recent example is the half-billion dollars that the solar company Solyndra got from Washington -- before it went bankrupt and taxpayers got the bill. "Green energy" subsidies for electric cars have been equally unsuccessful. Indeed, Congress and the Obama administration have a poor record of "investing" taxpayer dollars, and they certainly have no greater aptitude for doing so than private companies have.

As lawmakers and the president debate everything from payroll tax relief to the federal budget as a whole, it would be encouraging if they dropped the talk of ruinous tax increases.