Economy & Budget

Give Democrats tax hikes, good and hard

Give Democrats tax hikes, good and hard

With all due respect to Grover Norquist, my former boss, Saxby Chambliss (I was a speechwriter in his office for one short year) is right. Republicans should consider raising taxes. But they have to do it intelligently. Simply raising taxes in return for solemn promises by Democrats to cut spending, the way George H. W. Bush did, is a recipe for disaster. The elder Bush had as much success as someone who gives an alcoholic a six pack in return for a promise to cut down on drinking. The Democrats took the tax hikes and then continued spending wildly.

It doesn’t take a political genius to recognize that promising tax cuts, or even a tax freeze, no longer holds the same allure for voters that it once did. As much as the mainstream media pilloried Mitt Romney’s comment that 47 percent of Americans receive more from the government than they pay in, he was right. The bottom fifty percent of American earners pay only 2.5 percent of U.S. income taxes. That means that many of them don’t care whether taxes go up, or even whether taxes are cut. They have no stake in the game, which is why many are unconcerned about whether the government borrows itself into financial oblivion. This is short-sighted. When countries become insolvent, they are hit by the great reality tax — rampant inflation — which destroys savings and lowers the standard of living for all. In that scenario the poor suffer most.

Unfortunately, the Republicans get little traction in the debate over taxation. Their hard-line stance puts them in the position where many Americans believe they refuse to force the wealthy to “pay their fair share.” Actually, the top five percent of earners pay nearly 60 percent of all income taxes and history has also shown us that tax cuts have resulted in greater economic activity which both creates jobs and generates higher tax revenue. However, just because the Republican argument is true does not mean it is good politics, and this was borne out in the recent election.

So it is time for Republicans to consider raising taxes, but this should only be done if they use the “targeted” approach so favored by Democrats. Glenn Reynolds of Instapundit suggests two items. First he recommends a tax on windfall earnings collected by former elected officials who waltz onto corporate boards and into lobbying firms after leaving office. Since they get these plush jobs solely because of their previous tenure as elected officials, it makes sense for them to share some of those windfall earnings with the people who elected them in the first place.

Reynolds also suggests reinstating the World War II entertainment tax. The entertainment industry is filled with wealthy producers, directors, actors, and musicians who fly private jets, own fleets of cars and gigantic homes, yet lecture the rest of us about our greed, over-consumption and lack of compassion. A five percent tax on pro sports, movie tickets, DVDs, video games, and music sales won’t significantly depress the earnings of professional athletes, rock musicians, or big-name movie stars, so they surely will support this kind of a tax hike. Besides, if the Democrats want to let the Bush-era tax cuts lapse, why not repeal yet another tax cut signed into law by a Republican president (Eisenhower)?

I would add another proposal: the windfall legal settlement tax, which would not be levied on the awards made to plaintiffs, but on the lawyers who put together the class action suits. Peter Angelos of Maryland won a reported $100 million from asbestos litigation and stood ready to extract an additional $1 billion from Maryland for his work on the Tobacco settlement but settled for “only” $150 million. Mr. Angelos is only one of many wealthy trial lawyers whose exertions provide minimal benefits to the actual litigants but provide the attorneys themselves with huge fees. To cite a recent example, Honda faced a class action lawsuit because its hybrid cars did not achieve the mileage estimates provided by the EPA. A settlement was hammered out to award each owner of a 2003-2008 Civic hybrid a paltry $100 plus a $1,000 rebate coupon good on a new Honda. In the meantime, the agreement awarded the trial lawyers $8.5 million. Is that fair?

We Republicans might also want to reconsider our blind opposition to estate taxes. Presently there are many huge trusts, including the Ford Foundation, Pew Charitable Trusts, the MacArthur Foundation, and multi-billion dollar college endowments. Many of these organizations do good work, but most now bankroll left-wing groups and causes while they pay their executives huge salaries. Ordinarily, the Democrats would loudly oppose allowing the wealthy to continue influencing U.S. policy even after they are in the grave, but they fall silent because so many of these foundations may have started as conservative organizations but now firmly veer to the Left. Thus, it might behoove Republicans to see whether these foundations, which frequently support bigger and more expensive government, might want to support larger government by paying their fair share of taxes as well.

In addition, if Warren Buffet is so adamant about paying higher taxes, Republicans should stop being such spoilsports and give him what he wants. But when they do, they should structure the law so it primarily hits those in Buffet’s stratospheric income bracket. The bill should also limit Buffet’s ability to shelter his income using tax reduction strategies he decries but effectively employs. This particular tax bill should also have a fairly short sunset provision, of, say, five years, so this kind of legislation won’t remain on the books forever.

Many conservatives argue that Republicans must maintain their pledges against tax increases because lower taxes will keep government smaller by “starving the beast.” The reply should be that this strategy has, so far, been a notable failure not only on the national level, but state level as well. Look at California. How good a job has Proposition 13 done in keeping that state solvent? Yes, it could well be that without Prop 13, California would be in even worse shape, but it is just as likely that starving the beast is a strategy that does not work, or at least, does not work very well.

It is high time for Republicans to take a new tack on tax policy. This does not mean that tax hikes will solve the problem of gross over-spending by the government. They won’t. Spending is a battle that must also be fought.

The problem is that the blanket refusal to consider any tax hikes is interfering with the debate and political contest over spending and taxation. This is why Republicans could benefit from using a little creativity in looking for revenue enhancements (a tax hike euphemism). The Democrats would find themselves in the awkward position of protecting core donors by defending outrageous trial lawyer fees, extravagant entertainment personalities, and congressmen-turned-lobbyists. Republicans, in turn, would be freed from taking the position of opposing any and all tax increases, even when those hikes might actually make some sense. The American people will notice, and this might spur them to participate more fully in the vitally important national discussion about spending and taxation. That would be a good thing, not just for Republicans, but the nation as a whole.

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