Taxes, Spending, and Debt are the Real Issues

October 16,  2006    

In Washington we hear a lot of talk about tax cuts, but the rhetoric does not always match the reality.  For most Americans, taxes remain too complex and too high.  After the tumult of the upcoming midterm election, it is imperative that Congress gets back to basics and addresses our terrible tax system.

Lower taxes benefit all Americans by increasing economic growth and encouraging wealth creation. I’m in favor of cutting everybody’s taxes – rich, poor, and otherwise.  Whether a tax cut reduces a single mother’s payroll taxes by forty dollars a month, or allows a business owner to save thousands in capital gains and hire more employees, the net effect is beneficial.  Both either spend, save, or invest the extra dollars, which helps all of us more than if those dollars were sent to the black hole known as the federal Treasury.  

Many conservatives have touted the Fair Tax proposal as an issue in the upcoming election.  A pure consumption tax like the Fair Tax would be better than the current system only if we truly did away with the income tax by repealing the 16^th amendment.  Otherwise, we could end up with both the income tax and a national sales tax.  A consumption tax also provides more transparency and less complexity.  But the real issue is total spending by government, not tax reform.  In other words, why change the tax structure if spending stays the same? Once we accept that the federal government needs $2.7 trillion from us-- and more each year-- the only question left is from whom it will be collected.  Until the federal government is held to its proper constitutionally limited functions, tax reform will remain a mirage.

I apply a very simple test to any proposal to overhaul the tax code: Does it reduce or eliminate an existing tax?  If not, then it amounts to nothing more than a political shell game that pits taxpayers against each other in a lobbying scramble to make sure the other guy pays.  True tax reform is as simple as cutting or eliminating taxes.  No studies, panels, committees, or hearings are needed.  When reform proposals seem complicated, they almost certainly don’t cut taxes.  Congress should simply focus on cutting existing taxes and reducing spending, instead of complicated overhauls of the system. 

The question to ask yourself is this: What would I do with the money withheld from my paycheck each month?  The answer is simple:  you would spend, save, or invest the money, all of which do more for the economy and society than sending it to Washington.  Thanks to the deception of income tax withholding, however, some people actually look forward to tax time and a much-anticipated refund. Imagine how quickly Americans would demand lower taxes and spending if they had to write the federal government a check each month!

Tax relief is important, but members of Congress need to back up tax cuts with spending cuts- and they need to vote NO on every wasteful appropriations bill until we start over with the federal budget.  True fiscal conservatism combines both low taxes and low spending.

Cutting spending would not be hard if Congress simply showed the political will to tackle the problem.  I’m not talking about cutting the rate at which government spending grows, but cutting the actual amount of money spent by the federal government in a single year. 

If federal spending grows at 5% rather than 7% one year, that’s hardly a great achievement on the part of Congress.  The current federal budget of around $2.7 trillion could be cut to $2.5 trillion quite easily.  The vast majority of Americans would not even notice.  But we must begin chipping away at the federal budget if we hope to address the underlying problem of government debt.