January 2013

Big Government is the Cause of Our Problems and Not Grover Norquist

By John R. Hendrickson

On January 1, 2013 the United States will be hit with the “fiscal cliff,” which will result in a massive tax increase of $500 billion. This tax increase will have across-the-board consequences which will not only continue to slow economic growth, but could actually throw the nation back into recession. President Barack Obama is demanding that Republicans support his plan to avoid the fiscal cliff by calling for tax increases on the upper-income brackets. The major focus of the “fiscal cliff” debate is over the expiration of the Bush Tax Cuts, spending cuts (including entitlements), and the defense budget which is scheduled to be cut with sequestration.

As columnist Patrick J. Buchanan noted, “if the Bush Tax Cuts and the payroll tax cuts expire on January 1, Americans will face the highest tax hike in history.”[1] Buchanan described the significance of the tax increase:

  • Every family earning up to $100,000 would see two percent of its income lopped off, as the employee half of the Social Security tax rises from 4.2 to 6.2 percent. The discretionary income of Middle Americans would be ravaged.
  • The federal tax on capital gains will rise from 15 percent to a maximum 24.7 percent, a jump of 60 percent.
  • The federal tax rate on interest and dividends will triple from 15 percent to a maximum 44.7 percent.
  • Where $5 million of an estate can now be passed on to one’s heirs non-taxed, that will be cut to $1 million. And the death-tax rate would shoot from 35 percent to a neo-Marxist 55 percent.[2]

Republican policymakers have been reluctant to support raising taxes on anyone during this slow recovery, but it appears that this may not be certain. President Obama is continuing to utilize his gift at class warfare to attack the Republicans for supporting the “rich.” Liberals and even some Republicans have also blamed Grover Norquist, President of Americans for Tax Reform (ATR), for holding many Republican policymakers hostage because of the “Taxpayer Protection Pledge,” which candidates for office sign as a promise to their constituents not to raise taxes.

The truth is that Norquist and the ATR “Taxpayer Protection Pledge” are not responsible for this current fiscal crisis. The cause of this problem is uncontrolled government spending. Alison Acosta Fraser, who serves as Director of the Thomas A. Roe Institute for Economic Policy Studies, recently wrote:

Total federal spending for fiscal year 2012 reached $3.6 trillion, or 22.9 percent of the entire U.S. economy. In the past 20 years, federal outlays have grown 71 percent faster than inflation. The average American household’s share of this spending is $29,691, roughly two-thirds of median household income. This relentless growth is projected to continue, pushing total government outlays to $5.5 trillion a decade from now, and to about 36 percent of gross domestic product (GDP) in the next 25 years.[3]

Fraser also notes that the “federal government has closed out its fourth straight year of trillion-dollar-plus deficits.”[4] Thomas Sowell, a noted economist, wrote that “no previous administration in the entire history of the nation ever finished the year with a trillion dollar deficit. The Obama administration has done so every single year.”[5]

In addition to the four straight years of trillion dollar deficits — the national debt is over $16 trillion. The federal government continues to operate without a federal budget, although the House of Representatives has actually passed a budget plan, the Senate has been idle. Driving this spending crisis are the entitlement programs of Social Security, Medicare, and Medicaid, along with the massive increase in the number of Americans who are receiving some form of government assistance, such as the food-stamp program.

Walter E. Williams, an economist from George Mason University, recently wrote that “a conservative estimate of Washington’s unfunded liabilities for the year ending in 2011 is $87 trillion.”[6] “That’s more than 500 percent of our 2011 GDP of $15 trillion,” noted Williams.

Fraser noted that “in 2012 entitlements were nearly 62 percent of total federal spending, while defense dropped to less than one-fifth (18.7 percent) of the budget.”[7]

President Obama’s solution to the “fiscal cliff” is to not only raise taxes, but also continue the current course of massive government spending, including seeking increased executive power to increase the debt limit. President Obama and the progressive movement fail to understand that the problem is not lack of revenues, but the uncontrolled spending. “The fact of the matter is there are not enough rich people to come anywhere close to satisfying Congress’ voracious spending appetite,” noted Williams.[8]

Senator Rand Paul, who is one of several conservatives in Congress leading the charge to return the government back to constitutional principles, warned that Republicans should not cave on the tax issue:

Many Republicans are beginning to cave on the tax front. Some say to hell with the Taxpayer Protection Pledge they made to voters not to raise taxes. Some say they’ll eliminate some undeserved loopholes. But the truth remains: If taking more money from the private sector is harmful, it doesn’t matter whom you tax or what form the revenue increase takes. Taking more money out of the private sector is injurious to economic growth.[9]

Paul is certainly correct in his argument that federal intervention in the economy through government spending or high tax rates only hurts economic growth. The current economic record of President Obama’s policies prove this point: trillion dollar deficits, 7.9 percent unemployment (even higher when those who are underemployed or discouraged from looking for work are taken into consideration), record numbers of Americans on government assistance programs, and the escalation of the fiscal crisis.

History has demonstrated that not only do lower tax rates result in economic growth, but combined with limited government policies, will unleash periods of prosperity. President John F. Kennedy, a Democrat, along with President Ronald Reagan understood the need for low tax rates to spur economic growth. The best example is when tax rates and spending are lowered, which was the policy example directly out of the 1920s. Presidents Warren G. Harding and Calvin Coolidge were both constitutional conservatives who believed in limited government. They did not just lower tax rates, but slashed government spending, and the result was economic prosperity.

Senator Rand Paul is echoing the limited-government philosophy when he stated that he wants “to balance a budget that is limited in scope by the Constitution and limited in scope by the understanding that the private sector is more efficient than the public sector.”[10] This is the solution to solving the fiscal crisis.

In the end the true culprit of our current fiscal crisis is not those such as Grover Norquist who fight for liberty and low tax rates, but rather the political forces who embrace the philosophy of endless federal leviathan. As Senator Paul stated:

The Taxpayer Protection Pledge simply codifies what is incontrovertibly true. The economy and all individuals in it thrive when we are allowed to keep more of what we earn. If Republicans give up on that principle, we may as well disband the party.[11]

Walter E. Williams argues that “the true tragedy for our future is that there are millions of uninformed Americans who will buy the political demagoguery and treachery that our problems can be solved by taxing the rich.”[12] Certainly the election results proved this and it also demonstrates how far as a nation we have drifted away from constitutional government. This is not just an economic crisis, but a cultural crisis.

John R. Hendrickson is a Research Analyst at Public Interest Institute.

The views expressed herein are those of the author and not necessarily those of Public Interest Institute or Tax Education Foundation. They are brought to you in the interest of a better-informed citizenry.

[1] Patrick J. Buchanan, “The True Disciple of Saul Alinsky,” Creators Syndicate, December 4, 2012, <http://www.creators.com/conservative/pat-buchanan.html> accessed on December 4, 2012.

[2] Ibid.

[3] Alison Acosta Fraser, “Federal Spending by the Numbers-2012,” Special Report, No. 121, The Heritage Foundation, Washington, D.C., October 16, 2012, <http://www.heritage.org/research/reports/2012/10/federal-spending-by-the-numbers-2012>  accessed on December 6, 2012.

[4] Ibid.

[5] Thomas Sowell, “Fiscal Cliff Notes,” Creators Syndicate, December 4, 2012, <http://www.creators.com/conservative/thomas-sowell/fiscal-cliff-notes.html>  accessed on December 6, 2012.

[6] Walter E. Williams, “Future Generations,” Creators Syndicate, December 4, 2012, <http://www.creators.com/conservative/walter-williams.html> accessed on December 6, 2012.

[7] Fraser.

[8] Williams.

[9] Senator Rand Paul, “The Real Danger from the Fiscal Cliff,” Office of United States Senator Rand Paul, November 29, 2012, <http://paul.senate.gov/?p=news&id=648> accessed on December 6, 2012.

[10] Ibid.

[11] Ibid.

[12] Williams.