Tax Hikes Are Economically Destructive, Politically Poisonous, and Completely Ineffective at Reducing Red Ink – Daniel J. Mitchell – Townhall Finance

Tax Hikes Are Economically Destructive, Politically Poisonous, and Completely Ineffective at Reducing Red Ink – Daniel J. Mitchell – Townhall Finance

Back in April, I explained that I would accept a tax increase if “the net long-run effect is more freedom, liberty, and prosperity.”

I even outlined several specific scenarios where that might occur, including giving the politicians more money in exchange for a flat tax or giving them additional revenue in exchange for real entitlement reform.

But I then pointed out that all of those options are unrealistic. And I’ve expanded on that thesis in a new article. Here’s some of what I wrote for The Blaze.

The no-tax pledge of Americans for Tax Reform generates a lot of controversy. With record levels of red ink, the political elite incessantly proclaims that all options must be “on the table.” This sounds reasonable. And when some Republicans say no tax hikes under any circumstances, there’s a lot of criticism about dogmatism. Theoretically, I agree with the elitists.

So does that make me a squish, the fiscal equivalent of Chief Justice John Roberts?

Nope, because I’m tethered to the real world. I know that there is zero chance of getting a good agreement. Once you put taxes “on the table,” any impetus for spending restraint evaporates.

But even though I’m theoretically open to a tax hike, I am a de facto opponent of tax increases for the simple reason that we will never get a good deal. We won’t get sustainable spending cuts. Not even in our dreams. We won’t get real entitlement reforms. Even if we hold our breath ‘til we turn blue. And we won’t get the “Simpson-Bowles” tax reform swap, where taxpayers give up $2 of deductions in exchange for $1 of lower tax rates. Let’s not kid ourselves. In other words, reality trumps theory. Yes, there are tax-hike deals that would be good, but they’re about as realistic as me speculating on whether I’d be willing to play for the New York Yankees, but only if they guarantee me $5 million per year.

I then point out that a budget deal inevitably would lead to bad policy – just as we saw in 1982 and 1990.

Here’s the bottom line: There is no practical way to get a good deal from either the Democrats in the Senate or the Obama Administration. Notwithstanding the good intentions of some people, any grand bargain would be a failure that leads to higher spending and more red ink, just as we saw after the 1982 and 1990 budget deals. The tax increases would not be relatively benign loophole closers. Instead, the economy would be hit by higher marginal tax rates on work, savings, investment, and entrepreneurship. And the entitlement reform would be unsustainable gimmicks rather than structural changes to fix the underlying programs. Ironically, when a columnist for the New York Times complained that Republicans were being unreasonable for opposing tax hikes, she inadvertently revealed that the only successful budget deal was the one in 1997 – the one that had no tax hikes!

The last sentence is worth some additional commentary. As I explained in a previous post, the only bipartisan budget agreement that generated a balanced budget was the 1997 pact – and that deal lowered taxes rather than increasing them.

Some people try to argue that Bill Clinton’s 1993 tax hike deserves some of the credit, but I previously showed that the Administration’s Office of Management and Budget admitted – 18 months later! – that the nation would have triple-digit budget deficits for the foreseeable future.

What changed (and this is where Bill Clinton deserves credit) is that the nation enjoyed a multi-year period of spending restraint in the mid-1990s.

And when policy makers addressed the underlying disease of too much government spending, they solved the symptom of red ink.

Forward Democrats! Union Sets Record for Biggest City Bankruptcy – John Ransom – Townhall.com

Official seal of City of Stockton

Official seal of City of Stockton (Photo credit: Wikipedia)

Forward Democrats! Union Sets Record for Biggest City Bankruptcy – John Ransom – Townhall.com.

Forward! Stockton, California; move on forward, right to bankruptcy.

Can you take the Democrats with you? Oh, that’s right: They are already there.   

Stockton, California will seek bankruptcy protection after negotiations with unions over benefits and worker’s pay failed to avert insolvency by the city. But because of laws passed by California liberals aimed at entitling government union workers to inflated pay and benefits under most circumstances, look for more cities in California to seek the same remedy.

If you weren’t horrified by the case in made in Madison, Wisconsin over union wages and benefits causing massive state and local budget deficits, you should be scared by the example in Stockton.

For more on this story, see Mike Shedlock’s  Stockton Bankrupt; Unions Pension Death Trap for Cities to Blame

Because California isn’t Wisconsin. It’s bigger than that.  California, as measured by GDP, ranks as the 8th largest economy in the world. At $1.9 trillion it dwarfs Greece and is ranked above Spain. It economy is larger than the economy of Russia.   

From the Washington Post:

“The city is fiscally insolvent and must seek chapter 9 bankruptcy protection,” Stockton said in a statement released yesterday after its council voted 6-1 to adopt a spending plan for operating under bankruptcy protection. “In addition to the bankruptcy petition, the city will file a motion with the courts to share information from the confidential mediation.”

The Post said that a bankruptcy by Stockton will make it the largest city to file for bankruptcy protection in U.S. history.

Thank God for the unions and Democrats protecting the middle class.

Without them, we might have something outrageous like fiscal solvency breaking out.

Stockton, an agricultural city of about 300,000 residents in California’s Central Valley, voted to pare the year’s budget by reducing benefits, pay and debt service on bonds.

“The new budget will suspend debt payments,” reports the New York Times, “cut employee pay and reduce retiree benefits, allowing this city of about 292,000 residents to continue providing essential services through the bankruptcy process.”

The liberal California Supreme Court ruled in 2011 that union pension, healthcare and other benefits are protected under the law, even when benefits aren’t promised in contracts. Instead, benefits in some cases are considered implied contracts, leaving cities with few options when it comes to negotiating during tough fiscal times, says Steven Greenhut, vice president of journalism at the Franklin Center for Government and Public Integrity. Increasingly, union benefits are forcing cities, especially in California, to consider bankruptcy as their only option to restore the fiscal health of cities.

Unions, of course, won’t take pay or benefit cuts unless forced to.

“Yet many state governments such as California struggle with endless budget deficits,” wrote Greenhut at UnionWatch.org. “Unfunded liabilities to pay for pension promises for state and local public employees hit an estimated $3 trillion nationwide. Then there are the debts for the health-care promises that municipalities have made to their employees. Much of this is not honestly accounted for, so the real numbers are worse than the official ones.”

To put those numbers in perspective, the whole country of Greece is underwater on about $420 billion in debt, or only 14 percent of just our unfunded pension promises for state and local workers are. 

Hence the need for bankruptcy protection from the courts in order to keep vital services running at the state and local level. In the fight between benefits that you and I will never be entitled to but have to pay for and keeping the garbage picked up and the police cars rolling, get which side the unions pick?

Indeed, some are arguing that state’s like Illinois and California have no choice but to consider asking Congress for an enabling law that would allow states to file bankruptcy in order to void the union contracts.

Greenhut cites an op-ed from former Florida Gov. Jeb Bush and former Speaker of the House Newt Gingrich who say that union contracts are the problem for states wrestling with budget deficits.

“[A]s with municipal bankruptcy,” writes Bush and Gingrich in the LA Times, “a new bankruptcy law would allow states in default or in danger of default to reorganize their finances free from their union contractual obligations. In such a reorganization, a state could propose to terminate some, all or none of its government employee union contracts and establish new compensation rates, work rules, etc. The new law could also allow states an opportunity to reform their bloated, broken and underfunded pension systems for current and future workers. The lucrative pay and benefits packages that government employee unions have received from obliging politicians over the years are perhaps the most significant hurdles for many states trying to restore fiscal health.”

And instead of politicizing the process by allowing the federal government to play favorites with their union buddies and federal bailout money, we ought to let taxpayers and elected officials in the state wrest back control from unelected union hot shots who use your tax money to buy favors from Democrats.