As Arthur C. Brooks reports, studies of nations that have tried to resolve their own debt crises have demonstrated that the successful countries relied more on spending cuts than on tax increases.
The government can learn from families. In fact, the data show that when countries are trying to find their way out of a debt crisis, the more they rely on tax increases as opposed to spending cuts, the more likely they are to fail. My colleagues Kevin Hassett, Andrew Biggs, and Matt Jensen studied 21 developed countries that have attempted fiscal consolidation over the last 37 years. Some succeeded and returned to economic health; -others failed.Even beyond the fact that relying on tax increases would fail to lower, there is a moral argument against the Democrats' plan for wealth redistribution.
On average, failed attempts to close budget gaps relied 53 percent on tax increases and 47 percent on spending cuts. Successful consolidations averaged 85 percent spending cuts and 15 percent tax increases. Some of the most successful financial comebacks—like Finland’s in the late 1990s—involved more than 100 percent spending cuts, so that taxes could be lowered. The spending cuts by the successful countries centered on entitlements and government personnel.
For the administration, it’s not about the money—as we have heard again and again, it’s about “fairness.” The president believes that we will be a better nation if we redistribute more money from those who have more to those who have less. How much more do we need to redistribute until our system is fair?These are arguments that need to be made over and over. The two parties have very different vision of the role of government in the economy. We can't win the debate if we don't make the argument. There is no reason to cede the higher ground to their class warfare arguments.
As you ponder this question, remember the facts: The wealthiest 5 percent of Americans already account for 59 percent of federal income taxes. Nearly half of our citizens pay no federal income taxes at all—yet two-thirds of us believe that everybody should at least pay something, even if just to remind ourselves that government isn’t free. The Tax Foundation reports that the percentage of Americans who are net takers from the tax system is nearing 70 percent.
If our system is not yet “fair,” what will make it so? If the top 5 percent paid 75 percent of the total? Or 95 percent? If they could, would it be ideal for the top 1 percent to carry all the rest of us so we could finally have a tax code that is “fair and balanced”?
This is not the America that our Founders believed in—nor a debate they would have conducted. They did not struggle to make America the nation of claimants we are rapidly becoming. They would not have recognized our current leaders’ definition of fairness in terms of forced redistribution. And they would most certainly not have agreed that the answer to rampant government overspending is to tax our citizens more.
To the Founders, fairness was a question of rewarding merit. Thomas Jefferson spoke of the need to guarantee to every citizen “a free exercise of his industry and the fruits acquired by it.” He even wrote to John Adams about their shared belief in “a natural aristocracy among men.” The basis of this hierarchy was not nobleness of birth but “virtue and talents.” Alexander Hamilton praised a community in which “each individual can find his proper element and call into activity the whole vigour of his nature.” And in the following century, Abraham Lincoln declared, “I don’t believe in a law to prevent a man from getting rich” but rather a law that will “allow the humblest man an equal chance to get rich with everybody else.”
Since the time of the Founders, America has not been a magnet for immigrants seeking a system that penalizes success to pay for largesse. Letters from my great-grandparents who came through Ellis Island suggest they were desperate to get to America to earn their success, not to get great government programs like “cash for clunkers.”
In the coming weeks and months, as the debt ceiling debate rages and new budget battles arise, we will hear more and more class-warfare rhetoric about corporate jets, miserly rich people, and the need for higher taxes. Free-enterprise advocates must be ready to make a three-part case. First, it is bad economics to tax our way out of the hole our government has dug for us. Second and more important, it betrays a lack of national moral fiber to say, in effect, “We are too weak to control our spending.” Third and most important of all, it is not “fair” in any traditional American understanding of the word to tax our way out of a spending problem.