ATR Letter to Senators: Oppose Tax Hike

You have today announced that you will support the Simpson-Bowles-Obama debt commission report on Friday. This report contains a ten-year net tax hike of over $1 trillion and increases tax revenues from their historical 18 percent of GDP to a record and permanent 21 percent. This report shifts the debate from where it properly should be — spending — and onto deficit reduction, and thereby tax increases.

This report opens the door to a third round of disastrous budget summits. In 1982, President Reagan agreed to $3 in spending cuts for every $1 in tax hikes. The tax hikes became law, but spending went up. President Reagan called this the worst mistake of his presidency. In 1990, President George H.W. Bush broke his “read my lips” Pledge when he agreed to $2 in spending cuts for every $1 in tax hikes at the infamous Andrews Air Force Base summit. He later lost re-election largely on the tax issue, and actual spending was higher than CBO predicted it would be before the deal.

All the tax hikes in Simpson-Bowles are real — they become law upon the bill being signed. Many of the spending cuts are simply promises to do better on appropriations bills, and have been historically-impossible to enforce.

The tax increase in question is not “tax reform” along the lines of the 1986 Tax Reform Act. That bill lowered marginal tax rates and broadened the tax base, just as the commission report does — but with one essential distinction. That 1986 bill was tax revenue-neutral, whereas the commission report is a massive, $1 trillion-plus net tax hike on the American people. It’s a tax increase that is merely disguising itself as tax reform. Real tax reform would lower the rates, broaden the base, and be at worst tax revenue-neutral. Again, this plan has a stated goal of raising tax revenue to 21 percent of GDP indefinitely, a record never hit in any one year, and higher than the historical level of 18 percent of GDP. The plan raises the gas tax and raises the Social Security payroll tax. Taxpayers may have lower marginal tax rates under this plan, but they will have a bigger tax bill to Uncle Sam.

I urge you to only support a plan that is tax revenue-neutral.