USA Today: Romney: Why Tax Cut is a Bad Deal
The deal has several key features. It reduces payroll taxes, extends unemployment benefits and keeps current tax rates intact. So far, so good. But intermixed with the benefits are considerable costs of consequence. Given the unambiguous message that the American people sent to Washington in November, it is difficult to understand how our political leaders could have reached such a disappointing agreement. The new, more conservative Congress should reach a better solution.
Of course, delay now is better than an immediate tax hike. But because the extension is only temporary, a large portion of the investment and job growth that characteristically accompanies low taxes will be lost. When entrepreneurs and employers make decisions to start or expand an enterprise, uncertainty about tax rates translates directly into a reduced propensity to invest and to hire. With only a two-year extension, investors know that before their returns are realized, tax rates may be jacked up to the levels favored by President Obama. So while the tax deal will succeed in temporarily putting more money in the hands of consumers, it will fail to deliver its full potential for creating lasting growth.
It will also add to the deficit. In many cases, lowering taxes can actually increase government revenues. If new businesses, new investments and new hiring are spurred by the prospects of better after-tax returns, the taxes paid by these new or growing businesses and employees can more than make up for the lower rates of taxation. But once again, because the tax deal is temporary, a large portion of this beneficent effect is missing. What some are calling a grand compromise is not grand at all, except in its price tag. The total package will cost nearly $1 trillion, resulting in substantial new borrowing at a time when we are already drowning in red ink.
For those without jobs, the tax compromise extends unemployment benefits for 13 months. A decent and humane society must have a strong safety net for the unemployed. I served for 15 years as a lay pastor in my church and saw the heartbreak of joblessness up close; a shattering loss of faith in oneself is but only one of many forms the suffering can take. Nonetheless, the vital necessity of providing for those without work should not be used as an excuse to ignore the very real problems of our unemployment system … To remedy such problems we need a very different model, perhaps establishing individual unemployment savings accounts over which employees would exercise direct control when they lose their jobs, or putting in place financial incentives for employers to hire and train the long-term unemployed. One thing is certain: While we cannot rebuild our flawed system overnight, we are surely not required to borrow the funds to pay for it. In spending $56.5 billion to extend benefits, the deal is sacrificing the bedrock Republican principle that new expenditures be paid for with offsetting budget cuts.
I think Mitt Romney gets it.
In the meantime, I still don’t understand why the Republicans in this current Congress were so eager to deal. Yes, we supposedly have a new GOP headed to Congress in January, one that will be committed to conservative principles — but why not start early?
Romney is also correct in noting that the total cost of this “grand compromise” will be in the neighborhood of $1 trillion, rivaling the cost of the American Recovery and Reinvestment Act. And while Republicans who clamored for more tax cuts in the original Obama “stimulus” package may be getting that tax relief now, it should not take another trillion dollars to accomplish that.
While still technically in the minority, the GOP nonetheless holds all of the cards. They should have conducted themselves as such. By standing firm and making any response to pending tax increases specific to solving the tax increase–and thus keeping all of the unemployment extensions and extraneous nonsense out of the deal–the GOP would have given congressional Democrats two choices: either do the right thing and extend the tax cuts now, or come January the new GOP majority would do it right, do it permanently, and in the process characterize the Democratic Party as the party who dared increase taxes in the middle of an economic downturn.
The Republicans had nothing to lose by standing fast. America, too, would have come out better with permanent tax cuts done right. The Republicans, instead, had everything to lose by dealing with the Democrats. And, as Mitt Romney pointed out, so did America.