As tax cut legislation enters a critical stretch in Congress, Fix the Debt co-founders Senator Alan Simpson and Erskine Bowles speak out on it in a Washington Post op-ed.
They begin by lamenting the fact that the tax debate in Congress is ignoring the large and growing fiscal challenge:
Seven years and almost $7 trillion in new debt ago, we released a bipartisan package of tax and spending reforms as co-chairs of the National Commission on Fiscal Responsibility and Reform. At the time, we declared that the era of deficit denial was over. Sadly, the debate on tax reform in the House and Senate suggests deficit denial is not only back but also stronger than ever. Yet the fundamental fiscal challenges we identified in 2010 remain.
Unfortunately, the tax plan currently under discussion in Congress ignores nearly all the hard choices we proposed — incorporating only the “goodies.” It reads as if it were developed for a country whose debt problems have been solved, when in reality debt is the highest it has ever been other than around World War II.
Simpson and Bowles go on to warn about the tax cuts worsening an already dire national debt situation. And they offer a better approach:
And the actual bills in the House and Senate are even worse than the $1.5 trillion sticker price — because both include about a half-trillion dollars in phony savings from artificial “sunsets” and other gimmicks. With interest, that means these tax cuts could add $2.2 trillion to the debt.
When we released our fiscal commission report, we were worried about keeping deficits below $500 billion per year and debt below 70 percent of gross domestic product. But if the tax cuts in the current bill are adopted, deficits would exceed $1 trillion by 2020 and debt would exceed 99 percent of GDP by 2027.
Economic growth isn’t going to wash away this debt. Real tax reform can provide a boost to the economy, but higher debt works in the opposite direction. According to the dynamic models from the Wharton School at the University of Pennsylvania, the House and Senate tax bills will increase the growth rate by only 0.03 to 0.09 percentage points per year — and that growth will cut their costs by only one-eighth or less.
This country cannot afford another debt-busting tax cut. Luckily, there is another way. The current tax code will give away roughly $18 trillion of tax breaks over the next decade. Our commission called for repealing most of them to pay for lower rates and reduce deficits, adding back only the most-needed ones and only in the most efficient way. By comparison, the latest Senate bill cuts only $3.7 trillion of tax breaks. Most of the largest tax expenditures — including the tax-free treatment of employer-sponsored health care, the mortgage-interest deduction and tax-free bonds — are virtually untouched.
This country critically needs tax reform to improve economic growth. But higher levels of debt will crowd out productive investment, slow wage growth and ultimately undo any gains from reform.
Bringing our debt under control will require reforming and slowing the growth of health and retirement entitlements. Enacting debt-financed tax cuts will make that harder, both substantively and politically. Substantively, because by worsening the debt situation, it will entail more painful changes; politically, because Democrats will be less likely to agree to entitlement reforms if Republicans won’t allow for sufficient revenue.
Real tax reform will grow the economy, not the debt. Lawmakers who bemoan the growing debt should not vote to increase it. As Simpson and Bowles conclude:
This is the moment of truth for lawmakers who share our concern about our nation’s fiscal future. They can return to the era of deficit denial, or they can stand up for future generations.
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