Taxpayer Protection Pledge: Sound fiscal policy or folly?

Moderated by Rick Badie

The anti-tax pledge often agreed to by incumbents and candidates for political office has figured prominently in talks regarding the so-called fiscal cliff. Georgia, a red state, is home to dozens of lawmakers who have signed the Taxpayer Protection Pledge. Today’s guest columnists debate whether a no-tax pledge reflects sound fiscal policy or folly.

Cuts-only approach fails

By Alan Essig

If any good has come from the nation being perched on a “fiscal cliff,” it is the light being shed on a crippling pledge signed by nearly half the members of Congress, including most of Georgia’s delegation.

The “Taxpayer Protection Pledge,” invented by a Washington lobbyist, binds signers to oppose “any and all efforts” to raise taxes. It’s not hard to see the potential political benefits of putting your name to that. But something more important than politics is at stake today. Unless significant new revenue is part of a long-term budget deal being negotiated by President Barack Obama and congressional leaders, Georgians and the state’s economy will pay a steep price.

That’s because any deficit reduction package that doesn’t include new revenue from the wealthiest Americans will bring devastating cuts to federal support for schools, roads, law enforcement, health care and dozens of other services that Georgians rely on every day. The state will either have to pick up the tab for those services or drastically scale them back, even as it is still reeling from a recession-driven drop in its own revenue and other massive spending cuts.

In 2012, Georgia received $2.6 billion in federal grants, including $1.1 billion for elementary and high schools, $93 million for child care assistance and $51 million for clean water. Federal assistance also helped 304,000 expectant Georgia mothers and young children get adequate nutrition, and opened school rooms to 23,000 Georgia children participating in Head Start.

All of that, and more, is threatened. Support for state and local governments is likely to bear a disproportionate share of cuts unless Congress includes new revenue in a budget deal.

And that’s where the Taxpayer Protection Pledge comes in.

Though it is only some 60 words, the pledge has been a huge impediment to striking a fair, balanced and responsible agreement to get our deficit under control without doing irreparable harm to school kids, elderly and disabled Americans, and the underpinnings of our long-term economic health. Politicians who sign it adopt an inflexible position on taxes, no matter what the circumstances. They know that if they break the pledge, they will be the target of attack ads or primary election challenges funded by the interest group that peddles the pledge and is the sole arbiter of what constitutes a tax increase. In other words, they put their political future above their constituents’ quality of life.

It’s not just a problem at the federal level. Gov. Nathan Deal and about 20 percent of the Georgia Legislature have signed the pledge, which complicates issues ranging from the fate of a hospital fee that brings in money for health care to rewriting the state’s antiquated tax code. Just as members of Congress should not let the pledge interfere with doing what is right for the country on deficit reduction, neither should state policymakers allow it to continue dictating a cuts-only approach to dealing with Georgia’s failing effort to meet growing state needs.

Fortunately, there are signs that the pledge is losing its grip. Some signers, including Sen. Saxby Chambliss, are pointedly distancing themselves from it. They realize a workable solution to our nation’s problems is impossible without new revenue. About a dozen candidates in the last election who would normally fit the political profile of a pledge signer balked at it.

All of this is a good sign for the possibility that Congress will take a truly balanced approach to deficit reduction, one that realizes the necessity of significant new revenue instead of offering a cuts-only approach that would be devastating to Georgia and the nation.

 Alan Essig is executive director of the Georgia Budget and Policy Institute.

Tax pledge proves its worth

Fred L. Smith

Grover Norquist’s Tax Pledge isn’t perfect. But it successfully forces lawmakers and taxpayers to address America’s current fiscal path.

Opponents of the pledge say it is blocking the “reasonable” compromises needed to avert the dreaded fiscal cliff. They say we need a “balanced” approach that includes not just spending cuts — or, at least, reductions of the rate at which government spending increases — but also “revenue enhancements,” in essence, taxes. The pledge makes that hard and, opponents say, therefore must go.

But before we burn Grover and the pledge at the stake, let us consider what’s at the root of our fiscal difficulties. Nations run into deficit problems when economic growth stagnates and tax revenues fall. A primary cause of that stagnation is wealth transfers that stymie wealth creation. There is no shortage of entrepreneurial creativity in America, but our complex regulatory structure and tax code has favored wealth transfers at the expense of wealth creation in many ways.

Tax-favorable treatment and subsidies artificially encourage capital to flow into non-economic renewable energy ventures. More significantly, tax and regulatory arbitrage and a falling dollar encouraged excessive growth in the housing market, which inflated the bubble that, when it burst, led to a financial crisis.

Taxpayers have too long been told that if the rich are taxed a bit more, economic revival will be at hand. But promised spending cuts never materialize, and taxes continue to be exploited to favor certain companies and industries. Instead of being used to pay down debt, revenues go to further expanding government, and the reality is Americans are continually asked to pay more for Washington.

Grover Norquist’s organization, Americans for Tax Reform, has long promoted less-distorting tax policies. This is much needed. With the Tax Pledge, ATR has now placed a large STOP sign in the path of tax increases. Norquist’s genius has been to recognize politics can be disciplined only by qualitative rules, such as the “No Tax Increase” pledge.

Bureaucrats and politicians have proved far too creative at gaming quantitative disciplinary rules. Americans are rethinking the need for the qualitative restraints the Founding Fathers saw as far superior to the “parchment barriers” proposed by so many centrists today. Thanks to Grover, there at least is discipline on tax increases.

Now we need to place similar barriers before these other obstacles to wealth creation. The pledge doesn’t address the effects of government spending and regulation, which are slowing economic growth and wealth creation. Spending shifts capital from those who risk investing in wealth-creating enterprises to bureaucracies that allocate it in ways that reward special interests. Primary spending comes not from discretionary spending, not even from the military, but from demographically unsustainable entitlement promises, such as retirement and health benefits that have piled up over several decades.

Regulations — and the massive uncertainties their vagueness creates — further raise the risk of innovative investments.

The Tax Pledge is not perfect. It doesn’t address government spending. If the $10 in spending cuts for every $1 in tax increases deal mentioned in the Republican primaries were actually offered in an ironclad form, a tax increase might make sense for America.

Yet absent the pledge, there would be little consideration of a “balanced” discussion of how to address America’s true fiscal challenges. Anybody can oppose taxes on the stump as an abstraction. It is now, when increasing taxes is touted as the only possible solution, that the pledge proves its worth.

Fred L. Smith is president and founder of the Competitive Enterprise Institute.

9 comments Add your comment

Ray

December 20th, 2012
3:45 pm

We, the US and the world, have had a string of disasters since the Bush tax cuts were put into place.
No political parties, apparently wants to plan for the rainy day, that is sure to come. Katrina, the multi-billion dollar project to fix the levies, BP mess, Texas hurricanes, and now Hurricane Sandy’s destruction.

If we haven’t saved enough money to pay for weather disasters, then we are not taxing enough. Stopping the food stamp program and Medicare is not the answer. That is not the America most of us want to live in.

Fontaisha

December 20th, 2012
2:39 pm

The federal government does not have a revenue shortage problem, it has an out of control reckless spending problem.

Like giving a $382,900 grant to DeKalb County to send 184 school system employees to a conference…in Hollywood (Feb. 2010).

curious

December 20th, 2012
1:54 pm

My county government and local school board must have been away when Norquist came up with his pledge.

Even though this is a Federal issue, why don’t all our local government politicans (Democrat and Republican) try it?

Rockerbabe

December 20th, 2012
12:55 pm

The pledge is not workable because the legislators at the state and federal levels keep approving spending on all sorts of projects; whether we need the projects or not..

Why can’t Georgia pay its own way on education? Why can’t Georgia pay its own way on roads and their maintenance?

Why can’t Georgia pay for its share of the two immoral and unnecessary wars of choice started under the dear leader, George Bush?

Why can’t Georgia pay for its have of the Part D drug plan for our elders?

It seems republicans love to talk about cutting, but not here in Georgia and certainly not in their own districts.

Sound fiscal policy demands that people keep an open mind and get some steel in their spines; alas, none to be found in Georgia’s elected leaders.

SAWB

December 20th, 2012
12:51 pm

Candidates should take a pledge to adhere to the Constitution and practice fiscal responsibility, but not to take any specific tool totally off the table. Now, having said that I’m not sure what someone does who did make a commitment to their Constituents regardless of how unwise that promise may have been.

RedMudd

December 20th, 2012
12:25 pm

The self-anointed “no tax increases” are dangerous to America. They espouse that any change in the tax law is an increase. Have you noticed that fairness has not been mentioned in the fiscal cliff in-your-face comments? Why should elected members of legislative bodies have more allegiance to a non-elected person than to the oath of office they take? The Representatives and Senators need to take a look at history of the 1930’s. They seem to have a penchant for the methods and tactics of dictators. The same group espouses that it is OK for some to be parasites or freeloaders because they are so important to the economy. A major problem with the 2001 Bush tax give away is to get our support for tax cuts, we were deceived and double crossed by Trent Lott, Tom Delay and Dick. We were told that 45% of Americans were invested in the stock market and deserved to be rewarded for their contribution to the economy. The largest portion of these investors is in thrift plans such as IRAs, 401(k) and 403(b) and received no benefit: they are subject to ordinary income on gains and dividends. They are not included in the estate that can be passed tax free to heirs unlike stock that may have been received in a tax-advantaged payment for services. Also, we were told that to tax dividends was a double taxation and corporations should be allowed to deduct from their Federal tax bill. The law delivered by the Republican troika was nothing like the promised version. The dividends get preferential tax treatment even if the payer has paid no tax. The anti-tax change cadre has a caste system in place and they are intent on keeping at any cost to America. They will not come out and explain why long-term capital gains treatment is given to the entire transaction without regard to the portion of the issuer’s business subject to US tax; why capital gains treatment is given to fees received by some investors; why stock received for personal services is not ordinary income in period which issued. I am definitely not a fan of Saxby Chambliss, but I do think he is doing the correct thing is trying a reasonable approach to solving the problem and not acting like an out of control character on a reality pawn shop show on TV.

meno

December 20th, 2012
12:23 pm

So Grover hasn’t shown his creativity at gaming rules when he announces Plan B really isn’t a tax increase?

[...] As published in the Atlanta Journal-Constitution [...]

[...] GBPI Executive Director Alan Essig’s op-ed on the “Taxpayer Protection Pledge” is featured in the Atlanta Journal-Constitution; read full article here. [...]