The debate over the debt ceiling extension dominates the news cycle and political discussions. Indeed it seems the only political concern on the Right these days is spending restraint, while the only issue on the political Left is whether this debate presents an opportunity to yet again target “the rich” for an even greater share of tax revenue.
Certainly the spiraling national debt caused by chronic large budget deficits is a serious problem, threatening to swamp the federal budget with interest payments in excess of what our economy can service. So we think it’s right to extract spending cuts and budget restrictions from Congress and the president in exchange for an increase in the debt ceiling, and we hope Republican negotiators stick to their guns and cut spending to the greatest degree possible.
But America is facing two major economic problems, not just one. And it’s possible that a deal struck to solve one problem may actually worsen the other.
The other problem is economic growth; or specifically, our lack of economic growth. Our economy is simply not growing nearly fast enough. Economic growth is the magic elixir that helps us grow our way out of debt and deficits. Economic growth solves the unemployment problem, helps our trade balance, raises personal incomes, creates new opportunities and new taxpayers.
Our policy makers need to be at least as fixated on stimulating economic growth as they are on solving the debt problem. We fear that they are not. It’s obviously true that Obama administration policies have failed to get the economy growing. So we should finally start implementing policies proven to stimulate economic growth, such as strategic tax cuts and an immediate moratorium on all new federal regulations.
Which brings us to the matter of “revenue increases.” Put simply, higher tax rates thought to help solve the debt problem will more likely backfire by placing additional restraints on an already growth-challenged economy.
This is why the deficit problem must be solved through spending cuts, not tax increases.
We have two problems, not one. It’s urgent that our policy makers in Washington not conflate the two problems, or they may, with the best of intentions, make things even worse.
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Today's TaxByte was written by IPI President Tom Giovanetti.
July 25, 2011