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Three Steps to Lower Spending and Taxes

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Three Steps to Lower Spending and Taxes

April 18, 2017

It’s April 18, and you’ve finished the arduous task of assembling your papers and filing your taxes.  Although the economy is growing slowly and your paycheck isn’t as high as you need, you’ve scraped together the dollars to pay Uncle Sam his share. 

Just like you, millions of Americans have spent countless hours filling out their tax forms over the past several weeks.  They are no doubt frustrated by the loss of personal time and the extra amount of taxes they have had to pay. They are the real proponents of tax reform.  They want simpler taxes, and they want lower taxes.

We can only persuade Congress to get serious about tax reform by changing the scoring rules and reforming the budget process to bring control of spending back to the current members of Congress—rather than the retired or deceased members who have put their stamp on today’s spending. 

With luck, Congress will turn its attention to lowering your taxes when it returns from recess. But don’t count on it. Unfortunately, there’s a biannual ritual in Washington, beginning with the first year of a new Congress. Congress says it’s going to lower your taxes, but members are not really serious.

Over the past 40 years, major tax reform has only occurred three times—in 1981, 1986, and 2001.

Discussing tax reform is a lot easier than passing tax reform. Under congressional budgetary scoring rules, reducing one person’s taxes usually mean that someone else’s taxes have to be raised.  Practically all who pay taxes have friends in Congress who are determined not to see these taxes raised. The net result is political stalemate.

Congressional scoring rules do not allow Congress to fully calculate the benefits in terms of increased economic activity of reforming taxes. We now have the highest corporate tax rates in the industrialized world, and these rates are a substantial disincentive to economic growth.

Congress wanted to reform the Affordable Care Act before tax reform so as to have extra funds to lower taxes. However, it has taken longer than they expected to reform healthcare.

To cut the Gordian tax and spending knot, I propose three simple rules.

1. Congress should not be allowed to disburse funds without explicit authorization from the current Congress.  That would wipe out the entitlements that are a growing drag on the economy. Every dollar spent would have to be authorized, and programs could not be continued automatically year after year.

2. No funds may be appropriated in excess of federal receipts from two years prior.  That would cap the amount of federal spending.

3. The federal government is not liable for any debts, except in amounts as appropriated by Congress. This would prevent anyone from going to court and claiming that the government owes them money.

These three rules would lower spending and make it easier for Congress to reduce your taxes.

These three rules might sound extreme, but they are in practice how the federal government operated between 1789 and 1968, except for periods of national emergency. If Congress had the courage to pass them again, America’s fiscal mess would be mostly solved.

Paying for entitlement programs is why we have these spending and tax problems—and no one wants to address this.

President Trump campaigned on a platform of lowering individual and corporate taxes, and these tax cuts would increase economic growth and encourage employers to hire.

The president wants top individual income tax rates to decline from almost 40 percent to 33 percent, and the top corporate tax rate to decline from 35 percent to 15 percent. Lower taxes, whether now or in 2018, are exactly the right remedy to help America increase growth, because lower taxes stimulate growth.

Our primary objective should be to reduce spending, lower taxes, and put our economy back on track.  That’s why Congress should change government spending rules when it returns from recess—making tax reform far easier.

 

Diana Furchtgott-Roth is a senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter here.

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