Op-ed: No New Taxes: Never Say Never

CNN Money | April 5, 2011

I have been thinking a lot about the many lawmakers who have sworn to never -- never ever -- raise taxes.

First, how on earth did Grover become a single-name celebrity? Cher, Madonna, Fabio ... Grover? I'm not talking about the little blue furry puppet. I'm talking about Grover Norquist. He's the leading anti-tax advocate in Washington. And his "Taxpayer Protection Pledge," to which many members of Congress have signed on, is playing an outsize role in the fiscal debate.

In general, I think it's totally fine to oppose tax increases.

However, an ironclad pledge leaves Congress without flexibility -- even when the situation changes, as it has as a result of the recession. It's like handcuffing yourself without having a spare key. Also, it's not like there is an abundance of plans to fix the fiscal mess we are in through spending cuts alone.

Still, let me defend those who don't want to raise taxes.

I understand the politics: "Let's raise taxes" is never a big winner at the ballot box. On the substance, tax increases are bad for the economy.

While I worry far more about the damaging economic effects of excessive debt levels, the no-new-taxers are right to worry about the damaging effects of higher taxes. Particularly since our largest taxes are on income, higher rates create disincentives for work and saving.

That said, our current income tax rates are not troublingly high. Yes, it would be preferable to switch to a different tax base, such as consumption or carbon. But even increasing income tax rates somewhat would not be terribly damaging.

A second point that anti-taxers make is that going forward, the problems we face are on the spending side of the budget. Again, they are right.

In the past, taxes have averaged about 18% of the economy and spending about 20% to 21%. Revenues are projected to rise to above their historical averages -- even assuming the Bush-Obama tax cuts are extended -- while spending is expected to grow to an astronomical 25% to 30% of GDP primarily because of aging and health care costs.

This is a spending problem indeed, and a whopping one to boot.

But the real problem here is retirement and health related entitlements: Social Security, Medicare and Medicaid.

The budget problems with these programs and the massive voting strength of retiring baby boomers mean there will be immense pressure to raise taxes significantly on everyone else to pay for these programs.

So the anti-tax crowd does not want to oblige and raise taxes a bit now without making major structural adjustments to these programs.

I get it.

But there are legitimate arguments on the other side as well.

No one actually wants to pull back completely from the country's promises to the elderly.

And it is not surprising that there will be some growth in government spending in the coming decades given the aging of the population. More of our resources will go to paying for retirement and health care benefits.

Should the growth be as large as current projections? Absolutely not; we already spend too much on the elderly compared to what we spend on the young. It would make more sense to devote those additional resources to investing in the next generation.

That said, political promises have been made, no politician appears willing to walk away from them, and thus, spending in these areas will have to grow.

Also, the disturbing trends in income inequality cannot be ignored. Part of dealing with these disparities will undoubtedly involve asking the well-off to pay more in taxes; they have, after all, received virtually all of economic gains over the past decade.

So there are legitimate arguments on both sides of this issue.

The bottom line: If we want to get a budget plan in place to avert fiscal disaster, there will have to be compromise.

Democrats are not even going to come to the table if taxes can't be part of the equation. Republicans digging in over tax issues means we risk running out of time. And if we end up fixing this situation after a fiscal crisis hits, taxes will have to go up far higher than they otherwise ever would have.

So here's the pledge I'd like to see: "I promise to act as a responsible fiscal steward for the United States of America and do my best to ensure that the economy remains strong and competitive and that standards of living continue to grow."