By Robert Maynard
Leave it to the GOP leadership in Washington D.C. to lose the debate over the upcoming “fiscal cliff” by conceding the premise. Most of the talk about compromise is centered on how the raise revenue when the problem we are facing is a spending problem. We have seen budget compromises in the past over taxation and spending. The increases in taxes occur immediately, while the phantom spending cuts rarely ever occur. One would have to go all the way back to the Calvin Coolidge Administration to witness real spending cuts. The political leadership of both parties have been on a non-stop spending binge ever since. What passes for spending cuts is actually a slow down in the rate of planned spending growth. Even the so-called draconian budget “cuts” associated with the dreaded “sequestration”, are anemic at best. According to a November 15 article by the Cato Institute’s Christopher Preble “the cuts are modest: over the next decade, the federal government will spend about $44 trillion with sequestration, $45 trillion without.” Both side of the aisle are scrambling to avoid making any real cuts:
In truth, however, neither Democrats nor Republicans are committed to reducing government spending, and both sides have chosen to focus on possible cuts in the military to score political points. President Obama’s party hopes to convince Republicans to agree to higher taxes to spare the Pentagon’s budget. Such cuts, Secretary of Defense Leon Panetta has said, would be akin to “shooting ourselves in the head.” Members of the GOP, for their part, have attempted to protect the Pentagon by appealing for more cuts in domestic spending, although some have signaled a willingness to abandon the “no new taxes” pledge in order to keep the money flowing.
In short, the debate is largely being framed as a compromise on generating more “revenue” because neither side is serious about cutting spending. To get an idea about how ridiculous this discussion has become consider the following from the Cato Institute’s Michael Tanner in a November 21 National Review article:
You can’t hike taxes on the rich enough to balance the budget. President Obama has called for $1.6 trillion in tax hikes over the next ten years. While that is large enough to do serious damage to the economy, it would amount to just 16 percent of the combined deficits that we are projected to face over that period. In fact, the president’s proposed tax hike doesn’t even cover the $2.6 trillion in spending increases that he has called for over the next ten years. Obamacare alone will add $2.15 trillion in federal spending by 2022.
Worse, none of this accounts for the rapidly accumulating unfunded liabilities of Social Security and Medicare. Washington tends to focus on our $1.1 trillion budget deficit or our $16.2 trillion national debt, but our real debt, including those unfunded liabilities, is somewhere between $78.5 and $128.2 trillion. As I have pointed out before, you could confiscate — not tax but confiscate — every penny belonging to every millionaire and billionaire in America, and still not have anywhere near enough money to pay for all that we owe.
To make matters worse, not only does the current debate shrink from considering real spending cuts, its talk of raising revenue is questionable at best. According to Tanner:
Of course, even these estimates assume that hiking taxes will actually generate more revenue. It is worth noting, for instance, that Great Britain hiked its top tax rate from 40 to 50 percent in 2010 as part of a deficit-reduction package. The tax hike was supposed to raise an additional £2.4 billion in 2010–11, but actually brought in £5 billion less than was expected without the rate rise (Britain cut tax rates again in the 2012 budget). This should be no surprise. Not all tax cuts pay for themselves (as some Republicans mistakenly believe), but there is a limit to how much taxes can be raised before they begin to create disincentives for work, saving, and investment that prove counterproductive. For example, Veronique de Rugy, a senior research fellow at the Mercatus Center and an NRO contributor, has pointed out that revenue as a percentage of GDP has held relatively constant over the past 80 years regardless of the top marginal tax rate.
There is a better way to raise revenue, but it would involve freeing up government imposed restrictions on extracting domestic energy sources from federally owned land. Bruce Walker wrote about this in the May 22 edition of the American Thinker:
Anu Mittal, director of natural resources and the environment for the General Accounting Office, recently testified before Congress that the oil reserves in the Green River Formation, spanning much of the Rocky Mountain Region, are greater than all the rest of the world’s reserves combined — perhaps three trillion barrels, with about half the oil on federal land and with half of the oil extractable at current prices. The federal royalty by a rough estimate would be over $9 trillion.
As I pointed out last October, Harold Hamm, a billionaire who made his fortune finding where oil can be profitably extracted, believes that the federal royalties from the Bakken Fields in North Dakota and Montana could equal $18 trillion, which could also pay off the national debt. Of course, tapping the United States’ natural resources is the opposite of what Obama is doing. Oil and gas production on federal lands has dropped by 40% under the dreary marriage of environmentalism, puerile elitism, and Marxism which is Obamanomics.
What is true of oil is also true of coal. The price of coal is about $40 per ton, and actively promoting coal production could generate $300 billion in potential royalties to the federal government from coal mined on federal lands. West Virginians were so disgusted with the impoverishment caused to their state by Obama’s overregulation that they gave a federal convict 41% of the vote in their Democrat primary.
In sum, if it means giving up government control of over business activity, the political leadership of neither party seems to be very interested in a real discussion on either cutting spending or raising revenue. Such a discussion seems to be limited to how the government can best confiscate more of the hard earned income of the American public. To distract us from the absolute intellectual dishonesty of the whole debate, we are assured that the revenue raising schemes will result in the “wealthy” paying more. How is that going to help average Americans if the policies of the political class end up bankrupting the whole country?