The Failure of the Two Parties and the "T"-word

When Sisyphus catches up with the boulder, he can look back up the hill and know his plight is punishment for offending the gods. But when Congress looks back up that Capitol Hill, they can only blame themselves.
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You can see it happening again. Like Sisyphus struggling to push that giant boulder up the hill, the hard work of Congress cutting spending isn't going well. The effort by House Republicans to cut $61 billion in outlays is far short of their original promise to cut $100 billion this year. (It sure sounded easier a couple months ago.) But even that revised number -- just 1.7% of the overall budget -- is called "draconian" by leading Democrats. And both parties tiptoe around their respective sacred cows, whether defense spending, social security or Medicare.

Is it any wonder we have a massive deficit? If you made $22,000 a year, and spent $37,000 (multiply by a hundred million to get our actual budget), you'd probably be smart enough to know that cutting back on downloading apps to your iPhone wouldn't be enough to get your budget balanced again. You've got to make bigger changes.

There's talk now about "restructuring our tax system," by Kent Conrad, Chairman of the Senate Budget Committee. That's Beltway-talk for raising taxes without using the "T"-word, taxes. The problem with a movement to raise taxes is that once it starts, like Sisyphus's boulder, it's almost impossible to stop and the consequences are often unwanted and unpredictable. When the CBO announced that this year's federal deficit will be a record $1.5 trillion, New York Senator Chuck Schumer observed, "The approach can't just be spending cuts."

The boulder is starting to roll backward.

We can start with the assumption that neither Democrats nor Republicans would raise taxes -- any taxes -- if they thought it would actually take in less money than current taxes took in. After all, virtually everyone can agree that some taxes are necessary to establish a solid social foundation, such as a strong military to protect us abroad, a solid police force to keep us safe at home, good roads to get us where we need to go, and certain valid services for those who can't care, or otherwise fend, for themselves.

But when you raise federal taxes with the assumption that you're going to gain additional revenue, you may be ignoring the consequences of that action. Higher taxes hurt business activity related to the tax, which cuts profits in the industry affected, creating fewer jobs or resulting in workers losing their jobs.

The boulder picks up speed.

After taxes are raised, states are affected by stifled business activity, which can cause less revenue for them, resulting in deficits and possible layoffs in both the private and public sectors, all for the sake of that extra federal tax revenue.

The boulder is kicking up some dust now.

There are also costs associated with paying the taxes -- entire industries created to deal with them. There are CPA firms for corporate as well as individual clients; tax attorneys paid by the hour, but considered worth every penny; and tax preparation companies like H&R Block that exist because individuals and companies are willing to spend good money to make sure they don't give the government more than absolutely necessary.

You're not going to catch that boulder now.

On the other side of the transactions is the IRS itself. More than 90,000 employees -- enough people to fill up the Rose Bowl -- are being paid with federal tax dollars in order to collect the taxes from people who generally don't want to pay them. Complicated forms, necessary to account for tax deductions in favored industries -- an ever-changing list -- ensure their long term employment and entry as an expense item on the government's ledger.

The boulder is barreling down the hill now, out of control.

Then there are the long term consequences on behavior from taking in that extra federal revenue. Businesses that have just learned that their activities are going to be penalized with a tax may decide to get out of that business altogether -- and leave coveted jobs behind. Or they may decide to leave the country or open up new plants abroad -- and take the jobs with them.

Business owners who can't determine what future tax policy will be because of political indecision - sound familiar? - may not hire new workers or open new offices while they wait for guidance on what their costs are going to be. They may wait so long that they never open the new offices.

And what will happen when economic growth slows because of the higher taxes, and more workers lose their jobs? The government - federal, state and local -- will need more tax revenue to pay for the fallout. That could mean higher income taxes, property taxes, corporate taxes, payroll taxes, capital gains taxes, sales taxes, or an increase in tolls on the roads built with tax dollars.

In fact, the simple act of raising taxes makes the assumption that taxes revenues and outlays are just entries on a balance sheet. In between those two entries are human beings who change their behavior and their actions according to their own interests, which can alter those entries on the balance sheet in unanticipated ways.

When Sisyphus catches up with the boulder, he can look back up the hill and know that his plight is punishment for offending the gods. But when Congress looks back up that hill -- Capitol Hill -- they can only blame themselves. And they know that there's no easy way to get back up to the top without doing the hard work to get there. The hard work they don't want to do right now.

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