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Grover Norquist Vetoes Both Deficit Reduction and Tax Reform

22 Mar 2011
Posted by Bruce Bartlett

According to a report in The Hill newspaper, Americans for Tax Reform president Grover Norquist has received assurances from Republican leaders in Congress that under no circumstances will they vote for any tax increase, either as part of deficit reduction or tax reform. Apparently, the only permissable deficit reduction is spending cuts and the only permissable tax reform is tax cuts. Given that Grover has succeeded in getting all but a small handful of Republicans to sign his no-new-taxes pledge, he essentially controls tax policy by being the sole arbiter of what constitutes a violation of the pledge and what does not. And given the power of the Tea Party to upset incumbent Republicans in primaries when they are viewed as insufficiently loyal to its agenda, it would take a very confident and courageous Republican to risk being accused of violating Grover's pledge whether he or she signed it or not, since it would guarantee primary opposition from a well financed Tea Party candidate -- the Club for Growth will see to that.

Whatever one thinks about the best way to achieve deficit reduction or tax reform, such rigidity is not conducive to action on either front. Indeed, the idea that every provision of the tax code that lowers revenues must be preserved is the opposite of tax reform. But this appears to be Grover's position. I questioned him myself on this point a few weeks ago. I asked him if he would name a single provision of the tax code that is unjustified and deserving of abolition as part of a revenue-neutral tax reform that would also lower tax rates. Grover was unwilling to name one. He said it was solely the responsibility of the Democrats to come up with revenue-raisers. The only job Republicans had was to cut rates, period. I also questioned a number of other Republican tax experts who were involved in tax reform in the 1980s, and not one would endorse any actual reforms beyond rate cuts.

This is, of course, not the way Ronald Reagan did it. He proposed actual reforms in 1985 that raised revenues to offset tax rate cuts. So did Jack Kemp and Bob Kasten, whose tax reform legislation got the ball rolling. Although ATR was established for the purpose of continuing this work, in practice it would oppose legislation identical to the 1986 tax reform because every actual reform would be condemned as an impermisable tax increase, a violation of the pledge, and grounds for a primary challenge.

Ticking off your advertisers...

Best part about this post was that, for me at least, it ran next to a banner ad for the Tea Party. Happy to know they're supporting your fine work with their advertising dollars. At least they're doing *something* worthwhile...


Ads...

I did not notice the Tea Party ads because I use the Adblock plugin.

The wonders of the free market and innovation. I'm sure Mr. Bartlett would agree.


Who loses first?

Will this destroy the GOP or America first?


Apparently "running the

Apparently "running the government like a household" (the strategy the teabaggers and the GOP love to cheer for) only includes letting the kids starve if money's tight, not cutting into prime Beck-watching time with a second job...


The '12 Vise

Obama is going to put the GOP in a vise in the '12 campaign. Polls show the public already opposed to spending cuts rather than tax increases on the wealthy. Obama announced that '12 is going to be over extending the Bush tax cuts for the wealthy. The GOP is going to get creamed on this one if the polling is correct. About 70% of the people polled favor increasing taxes on the wealthy.


It just amuses me all these

It just amuses me all these conservatives who keep saying Obama will be gone after the next election. Maybe if the conservatives stop electing idiots, and start electing more people like Ron and Rand Paul, they might stand a chance. It is just funny to watch, hmmm what would happen if we cut every social program? The majority of people, the poor, will be pissed and vote against the people who enacted it. Every economist I listen to or read supports raising aggregate demand(Stimulus packages), while the Republicans are completely against it. Take a cue from history all ready and learn from the great depression.


Blame the Republicans

One can blame the Bush Administration for the current problems. Instead of controlling spending during better economic times, the Bush Administration went on a spending sprees and ran up the debt. The government has shown a total inability to control spending. Raising taxes just gives politicaians more money to spend and causes more programs to start.

Until the politicains can honest say that there is nothing left to cut and every government program is vitally important and must be maintain. As long as unneeded government programs exist, there is no reason to raise taxes.


Grover Norquist is an American hero

Grover Norquist is an American hero.
Taxed enough already.
Cut spending - that's the solution.


Grover Norquist is an American hero

Does that kool-ade you're drinking come in grape and cherry?


re: Does that kool-ade you're drinking come in grape and cherry?

Does YOUR inability to understand the Constitution come naturally or do you work at it?

Stop the spending...

Can you show me anywhere in the Constitution or the Bill of Rights the word, "entitlement" is?


re: entitlement

The word God is not in the Constitution either. Would you like to remove all references to God from our pledge and our coins?


The Constitution was written

The Constitution was written to increase Federal power, not decrease it.

Opening paragraph "... to promote Domestic Tranquility..."

we found out, in the late 1800's early 1900's that inequitable distributions of wealth lead to unTranquility.. to put it midly. YOu know, those socialist agitators and the like.

We decided that killing them was depressing and expensive, and wasn't working. So we redistributed wealth.

Can you show me in the Constitution were it has a tax rate of gov't spending level?


Wes, my husband and I are

Wes, my husband and I are lucky enough (some hard work, some good decisions, and some sheer luck) to make more than $250K per year. If the top marginal rate was allowed to return to pre-Bush level, my husband and I would be looking at a bit more than $100 per paycheck in additional taxes. If you have an income of $30K or $40K per year, then sure that would indeed seem like a lot of money. However, to us it just wouldn't matter. It would not be noticeable. It would not affect my lifestyle even the tiniest bit. Zilch. Zero. Nada. I appreciate your concern, but well, perhaps you could find something more important to worry about?

It's funny, I've had other tea partiers look me in the eye and tell me that the state raises its taxes "every year" even though poor California hasn't been able to raise taxes for decades.


Congratulations! I hope your

Congratulations!

I hope your measure of sanity prevails


Glad to know that you are doing well.

Glad to know that you are doing well. And I appreciate your calm response. I am not doing too bad either, although I am not rich.
But your math does not add up. $100 per paycheck would not do it. The current gap between what the feds take as taxes and their spending is something like 40% of GDP. Look it up if you do not believe me. Taxes under Bush were able to stay at that level due to housing bubble, stock bubble and increasing consumer debt.

In biblical times taxes of 20% were justly called punitive taxation. Now upper middle class people and higher pay cumulative taxes of 30-40%. This is insane. And 45% of people pay no federal income tax at all.
The welfare state has run amok. Time to cut it down to size. Wide appeal of the tea party is explained mainly by this - the issue came to prominence.
No more taxes. Cut spending instead.


In Biblical times, interest

In Biblical times, interest rates were also considered usury and a violation of the Covenant. Yet, laws banning excessive interest are derided at by the tea party as "big government regulation." You can't have your cake and eat it too.


Several wrong projections here

Several wrong projections here.
1. Taxes are enforced by the government, you can be thrown in jail for not paying. You do not have to pay interest to anyone unless you willingly sign on the dotted line. I, for example, did not take any loans and thus pay no interest.

2. You changed the subject. The discussion was about taxes. "You can't have your cake and eat it too" - what does this have to do with anything?


But what if you needed a

But what if you needed a loan?

Don't like income tax? Don't have an income. Does the government take you at gunpoint to your job?


Wes, marginal tax rates are

Wes, marginal tax rates are difficult to understand, but my math truly is correct. If the Bush tax cuts are allowed to expire, I would be paying an additional 3% on everything we earn over $250K. That's all.

My husband came from a very poor family, his father spent most of his life in a VA psychiatric hospital due to schizophrenia. My husband was hospitalized at state expense several times as a child because of asthma. He went on to become high school valedictorian, receive an Ivy League scholarship, and become a contributing member of society rather than a statistic in a coffin. I'm from a well-off family, but went to public school my whole life. I worked first in the defense industry as an engineer, then went to medical school where my training was at the expense of the feds, and now take care of mostly seniors who pay for my services through Medicare. We live in a nice neighborhood protected by police and fire services, we drive on roads maintained by the city and state, we have state and federal disibility and retirement insurance, we use any number of other state and federal services that we pay for with our tax dollars. Honestly, I think that we get pretty good value for our investment in our community. Wes, taxes are not punitive, they are simply the cost of living in a civilized society.

I don't want to live in Somalia and neither do you. You and I both receive a lot of value for our taxes, it's just that you deny it.


> I don't want to live in

> I don't want to live in Somalia and neither do you.
Agreed. However:

> I would be paying an additional 3% on everything we earn...
No, sorry, your math still does not work. How do you plan to close 40% gap between fed. revenue and spending with a 3% increase in taxes? And BTW, 3% increase that YOU pay (upper middle class), not everyone. This won't work.

Currently this gap is being closed by federal borrowing to the tune of 1.6 TRILLION bucks a year. This is not sustainable for long.

When you add up federal, state, local taxes, and the sales taxes, it adds up to punitive taxation.


40% of GDP?

GDP in the US right now is about $15 trillion. Is it really your contention that the gap between federal spending and revenue is $6 trillion? In fact that is a bit over 50% larger than the federal budget.

Perhaps it would be a good idea if you familiarized yourself with the facts of the situation before you express an opinion about it.


No.

You wrote:
> GDP in the US right now is about $15 trillion. Is it really your
> contention that the gap between federal spending and revenue is $6 trillion?

No, of course not. I said in another message that the gap between federal spending and taxation stream is 1.6 trillion.
This represents a 40% gap.
It was wrong of me to say that this is 40% of GDP. My bad, I misspoke.


What would you cut?

Please list the spending that you would cut and the effect of those cuts on the budget deficit. Please be specific.


No problem.

No problem. I don't even have to do it myself - just point to published specific plans and papers by others that I mostly agree with.
Rand Paul had a article in WSJ recently with a specific plan to cut 500 billion. David Petraitis @ Reuters a few months ago proposed a specific plan - again, hundreds of billions in cuts.
Stop the wars. End the mortgage deduction. End the HUD department or at least subsidized housing. Look it up how much they spend.
I would keep Soc. Sec. in present form.
I would reform "end of life" care - that's what is ruining Medicare currently.
I would impose some limits for taxpayer money here. No one can deny you care - but above a certain limit you have to pay for it yourself.
Yes, "death panels" - if we use propaganda language.

You may notice that taken together this is not a "republican" position. And I am not a Republican.


I'm sure foreign aid would be

I'm sure foreign aid would be at the top of Wes' list. ;)


Wasn't 1986 tax deal revenue-neutral?

"in practice it would oppose legislation identical to the 1986 tax reform because every actual reform would be condemned as an impermissible tax increase, a violation of the pledge, and grounds for a primary challenge."

Actually the 1986 tax reform bill wouldn't violate the pledge since it was revenue-neutral. Tax breaks were zeroed out and the new revenue used to cut rates. But this whole exercise misses the point, the last time the budget was balanced was at the end of the Clinton Administration and the time before that, at the end of the Johnson Administration. What was the common denominator? Unemployment was under 4.0%.

We already have too much fiscal drag to ever get to full employment, "deficit reduction" would just make it worse. Okun's Law says 1% reduction of unemployment equals 2% increase in GDP. We have a $15 trillion GDP and we're 5 points north of full employment, why on Earth would we raise taxes (or cut net spending) when we have a $1.5 trillion output gap? A third of the output gap is due to our trade deficit, so we'll need to either fill in that demand leakage with tariff revenue or continue to borrow at least that amount (off-budget public investment bank bonds would do nicely).

So what Congress and the White House should be debating is whether to annually spend a trillion more or tax a trillion less. I guess I'm on Team Grover since tax cuts are adjustable (say, with Larry Seidman's "automatic fiscal policy") and can be tapered down as the economy moves towards full employment. Its not hard to pick which tax to cut (and perhaps replace with a carbon tax). As Jamie Galbraith told the Senate Finance Committee last month, “payroll tax is a nasty piece of work, should be eliminated.”
http://www.advisorone.com/article/tax-reform-panel-tells-senate-consider...


45% of people pay no taxes at all

WES...
While I generally disagree that 40% taxes are punitive (the Laffer curve indicates that only marginal rates above 70% have any effect on ambition and productivity), you are correct about 45% of income earners pay no taxes at all. The problem is that the reason then don't pay taxes is because of all of the rebate, refunds, loopholes, and other special tax modifications passed by the Republicans in the name of tax cuts.

How can you get say tax cuts are the only solution to our economic problems and then turn around and criticize the direct effects of the policy you supported?

Correct me if I'm wrong, but the real theory you subscribe to is not that all tax cuts are good, its that all tax cuts which personally benefit those who already own most of the wealth are good.

That being said, you're still wrong. Ask any business owner if his personal income tax rate has anything to do with his hiring practices. 95% of the time, the answer will be no. Corporate tax cuts MIGHT help if the economy was strong (and if American corporations actually paid their taxes), but the reality is that only more demand for a product or service will cause a business owner to hire.

Also, I would gladly trade our 35% corporate tax rate, which hardly any large corporations pay, for a 18% rate which is enforced on all corporations. So I'm not against all tax cuts, even though I'm a serious lefty.


You are reasoning on a wrong assumption

You are reasoning on a wrong assumption.
> "only marginal rates above 70% have any effect on ambition and productivity"

You seem to believe that as long as you do not kill the goose that lays golden eggs all is good. It is a matter of "optimizing efficiency". And yes, some economists and political scientists work on this assumption.

I think this is extremely cynical and immoral. Humans do not exist to be milked for the benefit of the state with the best possible efficiency. US constitution acknowledges as much.

Several years ago there was a widely published poll result from one of the "majors" - most Americans agreed than no one has to pay more than a third of the income in taxes, no matter the income level.
And I agree with this too.


And one more thing

And one more thing.
> Ask any business owner if his personal income tax rate has anything to do

Over the last 1-2 decades exploring tax heavens and loopholes in the tax regimes in different countries had A LOT to do with how corporate America invested. To understand this one only has to know the difference between the "official" corporate tax rate in the US and the real one.
:)
How much does Google pay in taxes? Goldman Sachs? others?
You are not up to speed on this subject, sorry.


That 45% statistic is complete BS

The propaganda that the teabaggers were running with was that half of america pays no (federal income) taxes. It's complete crap. They purposely ignored FICA taxes that almost everyone pays as long as you make over $400 a year. FICA taxes are Federal income tax. It's a flat tax on income that goes to the federal government, only a liar would try to argue otherwise.

FICA taxes make up about 36% of total Federal revenues.
http://www.taxpolicycenter.org/briefing-book/background/numbers/revenue.cfm

It's flat out dishonest for Repubs and T-baggers to ignore FICA taxes paid. But they have no intention on having an honest debate, it's all about pandering to their ignorant base.

The most annoying thing about these hypocrites is that they not only don't count FICA taxes as income tax, they also talk about cutting Social Security to reduce the deficit. Social Security is self sufficient and has a current surplus of $2.6 trillion. The SS fund holds Treasury bonds that are just as legit as any other government debt.

It's sad just how ignorant most Americans are when it comes to finance, economics, and history.


Wes, you still aren't seeing

Wes, you still aren't seeing the big picture. In a $15T economy, a $1.9T gap isn't that horrible. If you look at various analyses of that spending gap, it can mostly be attributed to the Bush tax cuts, the cost of Medicare part D and the rising cost of health care in general, two wars (one necessary but botched and one unnecessary), and the economic down turn. The last three problems are going to go away sooner or later. The Bush tax cuts should be allowed to expire, even if my $5K isn't going to make much of a dent. That leaves Medicare as the problem and even would be repairable, if a certain political party would cut out the demagoguery and participate in the dialog to find a solution.

Beowulf,
Team Grover isn't talking about replacing one tax structure with some other better tax structure. GN wants only to eliminate taxes and the federal government to the greatest extent possible.


> ...you still aren't seeing

> ...you still aren't seeing the big picture. In a $15T economy,
> a $1.9T gap isn't that horrible.

You are comparing apples with oranges here : GDP with the difference between federal income and spending.
The latter is around 40%. But for the numbers that you mentioned the difference is of course much smaller.
But this is only because they are not directly comparable.
US taxation level was 20-22% of GDP for many decades.


Bruce

Bruce your writing is hysterical. John Maynard Keynes reincarnated!


Another thing to keep in mind

Another thing to keep in mind with the Medicare Part D costs and Medicare funding problems in general is that the tax rates for Medicare (employer and employee percentages) have not changed since 1986. This period represents most of my working life. In other words, we've been "starving the beast" with regard to Medicare and it's not working out for us very well. I was surprised during the healthcare reform debates in 2009 that our own Congressional representative was not aware of that fact. I'm sure our current Tea Party rep doesn't know it, either.


How much is enough spending, enough tax/GDP?

I come from Sweden now living in the US. During 1968-1993 Sweden went from a ratio of taxes/GDP from 35 % to 70%. 

My question to Bruce Bartlett is the following how much taxes/GDP do you think optimal? How much government spending/GDP do you think optimal? Today the US government spends 42% of GDP, is that to much or to little? (2008 it was 35%)

Sweden had an unbroken GDP growth between 1870-1970 and we entered what in Sweden is called the Crazy Quarter Century 1968-1993. Taxes and government spending went as a portion of GDP to 70 %. Sweden went from being the 4th richest country to 17th. We lost GDP PPP 40% compared to Switzerland as a consequence of the control and regulation socialism policies aka what I call functional socialism.   Medium sized businesses were eradicated (Sweden has the least medium sized business in the OECD). Marginal taxation for small business owners reached 102%. My mother as an employee paid 92%. 

Sweden went bankrupt during our banking crisis of 1993. All of our entitlement systems were insolvent. 

Sweden did a dramatic austerity in the 90s. 

- Federal marginal  taxation was halved from 50 to 25 %

- Corporate taxes was cut in half to 21% effective 

- Capital gains taxes was  no longer seem as regular income, taxed at a fixed rate of 30%

- Estate and gift taxes was abolished, went from 70 % to 0

- Wealth taxes was abolished, cut from 3% to  0

- Massive privatization of public utilities 

- School vouchers instituted 

- Massive deregulation 

- Social Security became privatized and cut, I lost 30% of my already earned pension. That said I'd rather take 70 cents on the dollar than the current US system which will give me 10 cents on the dollar. 

As a result government downing was cut by 1/3. Sweden as a result of the harsh austerity measures, pure neoliberal Friedmanite policies the first economy out of the recession with strong growth. 

Sweden has a fully stable Social Security system with automatic stabilizers outside political control, the sane goes for the economy. Politicians has no say when to cut or stimulate. It's automatic. If deficits are above 3% of GDP cuts and tax increases automatically are made, if surpluses are over 1 % of GDP taxes are automatically cut. 

So for me Grover Norquist is absolutely correct. There can be no raised taxes, the only thing that can be done is spending cuts espescially in the entitelment systems. 

I moved to the US to get away from the high tax nanny state of the 70-80s. To see the the Swedish Crazy 25 Years being made into policy makes me sick to my stomach. Even worse so by being defended by a supposedly fiscal conservative like Bruce Bartlett. 

Shame on you for criticizing the Tea Party and Grover Norquist! 

-----------------------------------------

Sent from my iPhone


Bravo

> So for me Grover Norquist is absolutely correct...
> I moved to the US to get away from the high tax nanny state

I hear you! I spent half of my life in a socialist country too.
Perhaps my story was a bit different...
But I had my fill of socialism.
Most people commenting here did not have this experience.
All that bleeding heart liberals want to do is to raise taxes.
"It's for the children!"
Yeah, right.
I wish you had some experience living in a "worker's paradise" country.
I hope we would not have to go through this so that you could get a clue.


Debt and deficits

Mr. Norquist claims that he is a small government conservative and here is what a real conservative would do:

1. Raise taxes and use all excess revenues to reduce debt
2. Take the setting of interest rates on federal debt out of the federal reserve's hands - they screwed it up in the 1970's and they are screwing it up today. Instead have the U. S. treasury set the interest rates on federal debt at auction to ALWAYS yield a positive inflation adjusted return. In effect this raises the real cost of capital in the public (government sector) and increases private sector real disposable income - Milton Friedman permanent income hypothesis.
3. Have the U. S. treasury sell tax breaks (also with a positive real rate of return) to the private sector - instead of giving them away. This will lower the after tax cost of capital in the private sector AND it will reduce the amount of debt the federal government must sell. With taxes and capital cost being two of the costs of production, this lowers two of the costs of production - permanent production hypothesis.

Now some Great Depression stuff - here is the whole flaw in Republican thinking, and why the Keynesian led Democrats have dominated economic theory for the last 80 years. The primary cause of the Great Depression was debt deflation. The private sector had fixed term liabilities (debt) and floating term assets (stocks, farmland, etc.). When the value of the assets crashed (dust bowl in farmland country, stock market crash), the real value of the liabilities increases. And so 3% nominal interest rates can become 13% in real terms. The Republican ideology borrowed from the Austrians is the federal government should do nothing in this scenario, which is why Republicans lost so many elections from the 1930's through the 1970's. What the federal government should do is sell a liability that lowers the cost of debt service in the private sector across the term structure of that debt. And the future value of that government liability can in fact exceed the future value of the private sector debt (negative private sector after tax cost of capital).


Thank you

Once again, Bartlett, you are the voice of reason in the wilderness of sophistry that is the economic debate in our political forum.




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