President Barack Obama recently proposed a new budget of $3.8 trillion, which includes tax increases as well as additional economic stimulus money. The Administration argues that the proposed budget will reduce the deficit by $4 trillion along with starting to put the nation on a path of fiscal restoration, while continuing the economic recovery. The proposal does not cut spending nor does it seriously address reform of the entitlement programs which are at the center of the fiscal crisis. In addition, it is projected that this budget plan, if enacted, would add at least $6 trillion to the national debt over a decade.
The national debt currently stands at over $15 trillion and the nation is currently running trillion dollar deficits. Congress has failed to pass a budget in over 1,000 days and it is uncertain whether a compromise can be reached between Republicans and Democrats over a budget because of the stark philosophical differences between them. Nevertheless, policymakers must seriously address the fiscal crisis facing the nation. The economy is still in a fragile recovery and the economic storm clouds over Europe may cross the Atlantic. In order to resolve the fiscal crisis policymakers must reduce spending, reform entitlement programs, and implement sound tax and regulatory policy reform in order to avoid further economic decline.
President Obama's budget largely reflects his class warfare view of taxation that the wealthy should "pay their fair share" as symbolized by the "Buffet Rule," but it is still unclear what percentage of taxation is considered a "fair share." In an editorial, Investor's Business Daily noted that "the proposed new 'Buffet Tax' will hit wealthy Americans with a marginal rate of 90 percent or higher." National Review wrote that the proposal calls for almost $2 trillion in new taxes and Grover Norquist, President of Americans for Tax Reform, described in Human Events that the nation "is now experiencing the quiet before the storm of the century" in regard to the looming tax increases. This also includes the expiration of the Bush-era tax cuts which will raise rates across-the-board.
Representative Paul Ryan (R-WI), Chair of the Budget Committee, offers an alternative approach. "The Path to Prosperity" plan calls for a reduction in both the corporate and individual income tax rates, as well as initiates reforms to entitlement programs, and calls for less government spending.
It is clear that in order to resolve the fiscal crisis, create a true economic recovery, and prevent further economic decline policymakers must begin to reduce government spending. This battle over government spending is between two philosophies of government, but it is important that constitutional, limited-government policies return or the republic will continue to decline.
The views expressed in this column are those of the author and not necessarily those of the Public Interest Institute. They are brought to you in the interest of a better informed citizenry.
John Hendrickson is a research analyst at the Public Interest Institute in Mount Pleasant.