The day after the election I found myself in a waiting room for television guests with Howard Dean, the former Democrat presidential candidate. \u00a0Passing the time, Dean talked and I listened. \u00a0The topic was the fiscal cliff. \u00a0Dean was for going over it and forcing the big increases in marginal tax rates that will go with such a move. \u00a0\u201cI am a deficit hawk,\u201d he said. \u00a0\u201cThat\u2019s the only way to get a deal.\u201d<\/p>\n
Well, there are deals and there are deals.<\/p>\n
From the Reagan through the Clinton years, Washington had a paradymic budget deal: lower tax rates to satisfy Republicans; promised decreases but actual increases, though not as much as they wanted, in domestic sending to satisfy Democrats. \u00a0It was a game, with set rules, the two sides starting with the same offers, year after year, and in most years coming out in roughly the same place. \u00a0When George H.W. Bush violated the rules and gave up on tax rate reductions with barely a fight or explanation, he lost the next election.<\/p>\n
But then came George W. Bush\u2019s tenure during which, despite a Republican Congress for six years, domestic spending shot up, followed by the early Obama years, when, with all Congress in Democrat hands, spending really took off. \u00a0One political result coming out of the 2010 elections was a GOP House of Representatives, which started trying to draw the spending line. Another was Democrats like Dean posing as deficits cutters while refusing to identify any significant spending reductions outside of national security that they would accept. Tax the rich is all they could say, which was all the media needed to hear to keep hailing them for their statesmanship.<\/p>\n
Now, the president and the media are pushing to end the old game for good \u2013 except that where they want to take us makes no sense, even in their own terms. \u00a0During the last election, Mr. Obama\u2019s position on our deficit crisis came down to 1) more domestic spending, even radically more, 2) don\u2019t touch entitlements, 3) tax the rich.<\/p>\n
And so, with spending now at 25% of GDP and, according to the Congressional Budget Office, headed to 46% of GDP by 2050 even if there is not a single addition to the list of government programs, the only action that the president has said we need is to up the very taxes that are most destructive to economic growth (see\u00a0http:\/\/tinyurl.com\/ctuk2o8).<\/a>\u00a0Maybe you can find someone who believes the deficit can be closed without strong economic growth. \u00a0I\u2019ve never found such a person.<\/p>\n Democrats answer that we need all that spending to stimulate the economy at a time of nearly zero growth. \u00a0But there is increasing scholarship that points to spending as part of our growth problem, with spending at the levels of GDP we are seeing now depressing growth (see\u00a0http:\/\/tinyurl.com\/cy7aag5<\/a>). The budget is simply \u201carithmetic\u201d Bill Clinton told the nation during his Democratic National Convention speech. \u00a0So here are the simple facts of current arithmetic. \u00a0You can\u2019t reduce the federal deficit unless you 1) cut current and future domestic spending, 2) cut unfunded liabilities in entitlements and 3) boost growth.<\/p>\n This is why House Republicans must hold the line on marginal tax rate increases. \u00a0Some say the administration has a mandate and the GOP must bend. \u00a0But House Republicans won their majority this year at least as convincingly as Mr. Obama won the presidency. \u00a0History is full of long thin lines that held in the heat of conflict and turned the tides of battles. \u00a0With federal spending now way over its historic level of 19% of GDP, is it plausible that domestic spending cannot be reduced?<\/p>\n
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\nBut even setting aside what will increase or depress growth, increasing top marginal tax rates is a futile budget strategy. \u00a0Since the end of the World War II, the top rate has been as high as 90% of income and as low as 28%, but high or low, the percent of GDP that the Federal government has collected has rarely deviated more than a percentage point of GDP over or under 19% (seehttp:\/\/tinyurl.com\/bof4h6g)<\/a>\u00a0.<\/p>\n