Tax troubles ahead

Author: Eli Lehrer

Published: September 1, 2004

Tax Troubles Ahead William Gale and Brennan Kelly, "The 'No New Taxes' Pledge," Brookings Institution and Tax Policy Center, June 4, 2004 (brookings.org)

As of the middle of 2004, 258 members of Congress (slightly less than a majority) and President Bush had signed a"Taxpayer Protection Pledge" proffered by Grover Norquist and Americans for Tax Reform. The pledge requires signers to oppose all income tax increases and cuts in deductions that are not offset by declines in marginal tax rates. In the House, clear majorities of the tax writing committees have signed the pledge. Senate committees are only one or two votes shy of a majority. The pledge, Brookings scholar William Gale and research assistant Brennan Kelly contend, adapts a "'starve the beast' approach to controlling federal finances--attempting to cut off revenue increases as a way of forcing reductions in spending."

Gale and Kelly argue the pledge is not fiscally responsible. First, they say there is no evidence that "starve the beast" policies work: Since 1980, expenditures have increased when revenues have fallen. Second, "budget rules and legislative agreements have proven effective in reducing spending and balancing the budget only when restrictions are placed on both tax cuts and spending increases at the same time." The pledge does not restrict spending increases. Finally, they contend pledge-signers have been fiscally irresponsible.

According to Gale and Kelly's calculations, the current tax-cut-and-spend policy could result in fiscal disaster. If President Bush's tax cuts and the new spending are maintained until 2014, balancing the budget would require overall spending cuts of close to 70 percent. "All of these findings suggest that the no new taxes pledge and its signers are a significant part of the fiscal problem, not the vanguard of a realistic solution."