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The Hill newspaper demonstrated a keen knack for understatement today with its account of Senate Democrats’ $110 billion sequester replacement proposal: “The bill would appear to have little chance of reaching President Obama’s desk, however, given opposition from House and Senate Republicans to increasing any taxes to replace the sequester.”
Little chance? Try no chance—none. First of all, raising taxes is counterproductive policy, especially at a time when the President says he wants the economy to grow. Second, with tax hikes of nearly $55 billion—coming on the heels of the $618 billion tax increase President Obama pocketed in the fiscal cliff agreement—it’s simply not a serious proposal. That’s no surprise coming from a Senate that has been cavalier about its budgeting obligations for several years anyway.
Naturally, one of the key tax increases is the inevitable Buffett Rule. According to the Congressional Budget Office (CBO), the Buffett Rule is already largely in effect: The top 1 percent of income earners (above $400,000 for families) pay an effective rate on all federal taxes of 29 percent. That’s three times more than the 11 percent the middle class pays.
It’s also bad policy for the middle class. Raising tax rates, as the Buffett Rule would do, would put a greater drag on economic growth and job creation.
Even more curious is the chagrin of some Senate liberals that the proposal raises taxes too little—and their continuing redefinition of the word balance. The proposal, which would also cut spending by $55 billion, would have a one-to-one ratio of spending reductions and tax hikes. That’s not good enough for the liberals. They claim that spending cuts adopted previously—most of which have not yet taken effect—should be counted in the mix going forward.
The Hill quotes Senator Tom Udall (D–NM): “We’ve let it get really lopsided. I’m going to support a more balanced approach than what we have now.” Senator Tom Harkin (D–IA) wants a tax increase of $157 billion, nearly twice the amount needed to replace the sequester. Yes, that’s balance all right.
The government’s fundamental budget problem is excess spending, not insufficient revenue. CBO says current tax policies will push tax revenue to 19.1 percent of gross domestic product by 2015—exceeding the historical average of 18.5 percent. Spending will exceed revenue, however, causing continued chronic deficits.
The spending cuts in the proposal are also unbalanced, with half of them coming from national defense, which is less than one-fifth of the budget, while major entitlement programs—mainly Medicare, Medicare, and Social Security—are left untouched.
Moreover, the $85 billion sequestration scheduled to hit March 1 is entirely a reduction in spending. Any replacement should be entirely spending cuts as well. Only by gaining control of spending will Congress have any chance of controlling the budget. If they are serious, that should be the sole focus of lawmakers’ budget work.