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We can't tax our way out of budget crisis

By William J. Bennett, CNN Contributor
  • William Bennett says President Obama signaled he plans to use deficit debate for political ends
  • He says Obama attacked Paul Ryan rather than join him in trying to find solutions
  • He says wealthy don't have enough money to solve budget problems
  • America's budget crisis is a result of too much spending, not too little taxation, he says

Editor's note: William J. Bennett is the Washington fellow of the Claremont Institute. He was U.S. secretary of education from 1985 to 1988 and was director of the Office of National Drug Control Policy under President George H.W. Bush.

(CNN) -- The debate over tax reform picked up a lot of steam over the past week, ever since President Barack Obama's speech on April 13 at George Washington University.

The speech was meant as a second effort by the president to produce a budget for 2012 that took seriously the increasing debt and deficit attention disorder that has been building both in Washington and throughout the rest of the country. Unfortunately, however, the president's effort last week was riddled with problems.

The timing of the speech was necessary -- not only had Republicans produced their budget for 2012 but it was getting more attention and praise (even from those who disagreed with it) than the president's budget. But there were two things Obama said last week that will prove unhelpful to our deficit and debt problems, one political, the other on policy.

On the political: the high hopes of a post-partisan, open-minded, new kind of political leader in Barack Obama came to an end last week. Of all the statements he has made about his willingness to listen to others' ideas and his willingness to work past partisan gridlock, few were as relevant as this one he said last year, highlighted by ABC's Jake Tapper: "We're not going to be able to do anything about any of these entitlements if what we do is characterize whatever proposals are put out there as, 'Well, you know, that's -- the other party's being irresponsible. The other party is trying to hurt our senior citizens. That the other party is doing X, Y, Z.' "

That is, after all, just how Obama characterized the Republican plan in his speech last week when he said the Republican plan "is a vision that says up to 50 million Americans have to lose their health insurance in order for us to reduce the deficit. And who are those 50 million Americans? Many are someone's grandparents -- maybe one of yours -- who wouldn't be able afford nursing home care without Medicaid. Many are poor children. Some are middle-class families who have children with autism or Down syndrome. Some are kids with disabilities so severe that they require 24-hour care. These are the Americans we'd be telling to fend for themselves."

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But it went from bad to worse when Obama then took off on Republican House Budget Committee Chairman Paul Ryan at a political fundraiser, saying of Ryan: "This is the same guy that voted for two wars that were unpaid for, voted for the Bush tax cuts that were unpaid for, voted for the prescription drug bill that cost as much as my health care bill -- but wasn't paid for."

Each of those votes by Ryan can be defended, that is not the point. The point is the tone. Rather than speak seriously about Ryan's policy proposals and speak seriously about the budget, Obama chose, instead, to engage in hyper- and personal partisanship.

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On the policy: Obama's plan is to raise taxes on those making more than $250,000 a year -- what he claims is "one trillion in new tax breaks for the wealthy." This is the crux of the debate about tax reform that rarely gets bridged between the parties. Nevertheless, it is political rhetoric masked in a policy that will not work.

This entire debate begins with the assumption that the Bush tax cuts from 2001 and 2003 led to a ballooning of the deficit problem. But as Brian Riedl at the Heritage Foundation has shown, those cuts, at every level, are responsible for only 14% of our current deficit problem, with the tax cuts at the upper margins being responsible for only 4%.

Indeed, the bulk of our deficit problem is because of "above-average spending, not below-average revenues." And there is a serious question as to whether raising rates on the wealthy raises more revenue at all based on behavior, flexibility and numbers.

Recently, The Wall Street Journal editorial page analyzed what marginal tax rates would yield at the upper brackets even if 100% of income were taxed and assets were not moved around (a mighty assumption). The answer: There simply is not enough money to be taxed among the wealthy to solve our deficit and debt problems.

Even if we were to tax 100% of the income of the top 1% in America (using 2008 statistics, the most recent year for which IRS data is available) that would yield only $938 billion in revenue, which would not even pay for a quarter of President Obama's 2012 budget. Such revenue would still leave us short over $700 billion in covering just this year's deficit.

But the other problem is that $250,000 in income simply isn't what it used to be. Many making that kind of gross adjusted income (e.g., a public school official married to a pharmacist or a school principal married to a police officer) are simply not wealthy and never considered themselves to be or behaved as if they were.

We will not be able to tax ourselves out of our current budget woes. Not even Obama's bipartisan National Commission on Fiscal Responsibility suggested raising income taxes. It argued for lowering them while eliminating loopholes.

The fundamental issue is this: the government does not need to raise taxes, it needs to curb spending and honestly deal with entitlements that constitute the bulk of our budget deficits. But we will never begin to arrest our deficits and debts if we fall for the easy and tempting political rhetoric that attacks those sincerely trying to do so.

The opinions expressed in this commentary are solely those of Willliam J. Bennett.

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