A modest proposal
Let tax cuts expire, stop spending and pay off our deficit
by Barbara Anderson

The Salem News
Wednesday, August 11, 2010

For some reason the Bush tax cuts of 2001 and 2003 were passed with an expiration date of Dec. 31, 2010, as if they were a carton of milk or a bottle of aspirin.

If the federal government tries to use them after this date, either they'll be sour, or they'll no longer cure a headache. This is how the government does tax policy, minus the legitimate need of grocers to guaranteed freshness.

If you don't understand why certain income tax rates were a good idea this year, but not next year; or why grandpa would be doing the family a huge favor by dying on New Year's Eve; you have apparently never studied economics.

I myself never got around to it during my two years at college. I've read some books, but often was confused by the terms they seemed to think I'd understand, like supply-side, demand-side.

Could never figure out what good it did to have supply if there was no demand, and vice versa. Seemed to me you needed both.

So I became a taxpayer activist with only the basic economics my father taught me when he sent me off to college with a checkbook: When you've spent it all, it's gone.

By way of example, my parents taught me never to borrow money for anything but a very big essential that I couldn't save up for, like a house; and even then, not to borrow more than I figured I could pay back.

Over the years I picked up a few other things like the Libertarian TANSTAAFL ("there ain't no such thing as a free lunch") and the conservatives' "what you tax you get less of, what you subsidize you get more of." Through experience, I discovered that both these things are true.

I was told that supply-side economics simply focuses on the productive sector of the economy, figuring that if that sector creates supply, demand will follow. Well, maybe. If they have a good advertising budget. But if the demanders borrow to buy the supplied items, this is not a good thing, unless the items are very big essentials like homes. Many individuals, like government, get caught up in the addictive "more."

So I also never really "got" the economic policies that urged "growth." I always wondered: Where exactly are we growing to?

Though lost in the economic assumptions, often contradictory, that so many "experts" and politicians reference, I'll still address the Bush tax cuts.

The big questions are: Should taxes stay lower to help the private sector create jobs, or be increased to give the government more money to create jobs? Do tax cuts increase the deficit or create economic activity to reduce the deficit? What time shall we meet for lunch?

Not-economists like me ask: Where did the jobs we had go? Did they disappear because taxes were too high, or too low, or despite either? And shouldn't we know the answer to that question before we do more job-related tax policy?

Since I'm not an economist, my solution on the deficit issue will probably not be taken seriously. But here it is: Let the tax cuts expire, all of them, on both rich and middle-class taxpayers, and apply the money directly to reducing the deficit and then the national debt.

Here is how that would work. If the expiration date is honored, those who make roughly a little over $34,000 a year will see their marginal rate increase from 25 percent to 28 percent next year. Take the 3 percent in extra taxes, send them directly to whomever the government owes, and the debt drops by that amount. Then do the same with the new higher taxes on "the rich" and their heirs. Keep doing this until the $13-trillion national debt is paid off, then have a mortgage-on-our-children's-future burning.

Of course, this only works if the government isn't at the same time borrowing even more money to increase its spending, which is what it usually does after it gets a tax hike. Government is like an addict: give it the addictive substance, and it will use it and then want more.

Someone told me once that for every $1 in new taxes the government raises, it spends $1.38. That makes sense to me because I've watched government in action; it gets all excited about the new taxes and goes looking for new things to spend them on.

So the second part of my plan: No new federal spending. In fact, no federal spending at all until those economists sit down for lunch with some accountants, visualize a zero-based budget, then determine what actually must be spent next year. The list should include protection of citizens from foreign and local criminals, preferably on our own soil; infrastructure maintenance (no ribbon-cutting for new things); contractual obligations (no new ones added); and care for some seriously disadvantaged American citizens.

Flaw in my plan: There's no place in it for politicians who need to buy votes from people who want a free lunch, and the special-interest groups that service them.

Regardless of what happens with the Bush tax cuts, voters must elect some new politicians who grasp common sense economic principles like TANSTAAFL.

The comments made and opinions expressed in her columns are those of Barbara Anderson
and do not necessarily reflect those of Citizens for Limited Taxation.

Barbara Anderson is executive director of Citizens for Limited Taxation. Her column appears weekly in the Salem News and other Eagle Tribune newspapers; bi-weekly in the Tinytown Gazette; and occasionally in the Lowell Sun, Providence (RI) Journal and other newspapers.

More of Barbara's Columns