By Robert Romano – The Obama Administration must be laboring under the delusion that the $14.3 trillion debt can somehow be paid for with tax increases.
It cannot. And it would a foolish gambit to try.
That is why House Majority Leader Eric Cantor and Senate Minority Whip Jon Kyl are to be commended for walking out of the Biden-led White House debt ceiling talks.
“As it stands, the Democrats continue to insist that any deal must include tax increases,” said Cantor on the matter. “There is not support in the House for a tax increase, and I don’t believe now is the time to raise taxes in light of our current economic situation. Regardless of the progress that has been made, the tax issue must be resolved before discussions can continue.”
Lest there was any confusion at the White House, House Speaker John Boehner reminded the Obama Administration that “since the beginning, the Majority Leader and myself, along with Sen. McConnell and Sen. Kyl have been clear: tax hikes are off the table.”
As they should be. After all, to paraphrase Ronald Reagan, we don’t have a $14.3 trillion debt because we have not taxed enough, we have a $14.3 trillion debt because we spend too much.
Barack Obama is trying to get Republicans to accept the premise that somehow the deficit has grown on account of tax cuts. It has not.
In 2007, the total budget was just $2.728 trillion with only a $160.7 billion deficit. Now, in 2011, according to the Office of Management and Budget, the budget will be $3.771 trillion with a $1.597 trillion deficit. That’s a whopping 893 percent increase in the deficit in just four years. How can this be, when tax rates are the same?
A part of the $1.436 trillion increase in the deficit has been the recession, when revenues plummeted from $2.567 trillion in 2007 to a projected $2.174 trillion for 2011. But that only accounts for $393 billion of the increased shortfall. The rest of it was $1.043 trillion in spending increases.
In other words, 72.6 percent of the problem is too much spending, meaning at least 72.6 percent of the solution must be dramatic spending reductions. The other 27.4 percent of the solution then must entail economic growth, job creation, and encouraging investment here in America.
Because there is no way the debt could ever be paid with tax increases. As Americans for Limited Government has previously reported, assuming a 30-year distribution of debt (treasuries are sold with up to 30 year maturities), if repayment were attempted today it would cost taxpayers about $900 billion a year in principal and interest.
If we waited until the debt rises to $26 trillion in 2021 to attempt repayment, when treasuries interest rates will likely have risen up to their 5 percent historical average, the annual cost to taxpayers would jump to $2 trillion. If we wait until the debt is $50 trillion? Then the tax burden, just for debt repayment, would rise to more than $4 trillion.
Now, a committed deficit-spender might counter that we never need to repay the debt. If so, then why even bother raising taxes to reduce the deficit?
In truth, why pay any taxes at all? If the debt never needs to be repaid, and we can seemingly borrow unlimited amounts of money from the Federal Reserve, then why not borrow the entire budget?
By insisting on tax increases, the Obama Administration must concede that the debt is in fact getting too large.
And now that Republicans have taken tax increases off the table, the White House has but one option: Cut spending. Because, if the debt is getting too large, it can only be because we have spent too much.
Honest negotiations can only proceed with a basis in facts about the cause of the debt crisis.
Cantor and Kyl deserve the thanks of the American people because they refused to accept a false premise, a delusion, really, that somehow the catastrophe was caused because we haven’t given enough of our income to the government.
Robert Romano is the Senior Editor of the Americans for Limited Government.