How To Compromise On Taxes

Over at Forbes former Reagan and Bush Sr. economist Bruce Bartlett penned an op-ed today. Barlett also worked at think tanks including the Heritage Foundation and the Cato Institute. As a result, the underlying thesis of his piece might be surprising: the U.S. needs to raise taxes. As a tax-hater myself, I also, shockingly, agree. The trick is making that happen, despite partisan politics.

In his piece, Bartlett rightly criticizes the modern conservative movement for its expansion of spending while decreasing taxation. He says:

At some point, taxes have to be back on the table as the price that must be paid for profligate spending. Only then will the American people realize that they can't have their cake and eat it too, as Republicans have preached for the last decade. Only when the American people go back to believing that spending must be paid for will they stop demanding something for nothing and put the country back on the path to fiscal sanity.



I couldn't agree more. First, let me take a step back. I'm not saying taxes should be increased right now. That would be crazy given our current economic predicament. Only after we've had four to six quarters of stable, positive growth -- not induced through government stimulus -- can we actually raise taxes. But once you're able to do so, how does Washington get it done?

After all, there's still a problem here: conservatives still hate taxes. So how do you get Republicans to embrace a tax increase? I think the best way to do so would be through compromise.

Democrats and Republicans both need to give something up. Republicans need to concede a raise in taxes. But in order to do that, the Democrats need to cut spending. I would assert that, in order to be fair, those revenue measures should be approximately equal. In other words, if taxes are assumed to bring in an additional $200 billion per year in revenue, then spending needs to be cut $200 billion per year.

Not only does a compromise like this make political sense in actually getting a bipartisan bill passed, but it makes economic sense. I don't think we can purely tax our way out of the deficit and continue to let spending run wild. But toning down spending and ramping up taxation seems reasonable.

Finally, to sweeten the deal Democrats and Republicans should agree that future programs -- not meant for temporary stimulus -- should all be budget neutral. If you are going to create a program to spend more money, you need an increase in taxes or cut in another program. This should be a constitutional amendment.

For years Republicans have been proponents of the "starve the beast" strategy, where they believe if taxes are kept low, eventually spending will have to be cut. Obviously that isn't working, as Democrats don't particularly care how badly the beast starves, because the U.S. just writes more and more debt. That strategy needs to be abandoned and real tangible compromises need to be sought to regain our fiscal responsibility. The current path is not sustainable.