Freeze Taxes, Freeze Spending, and Go Home

Heritage Foundation
December 7th, 2010

Last night, President Barack Obama emerged from negotiations with Congressional Republicans and told the American people: “For the past few weeks there’s been a lot of talk around Washington about taxes and there’s been a lot of political positioning between the two parties. But around kitchen tables, Americans are asking just one question: Are we going to allow their taxes to go up on January 1st, or will we meet our responsibilities to resolve our differences and do what’s necessary to speed up the recovery and get people back to work?” President Obama spoke because he had come to an agreement on extending current tax rates for two more years, rather than impose a job-killing tax hike, falling short of a permanent extension needed for economic certainty. The President defended this compromise by finally stating the obvious: ”Make no mistake: Allowing taxes to go up on all Americans would have raised taxes by $3,000 for a typical American family. And that could cost our economy well over a million jobs.” It’s great that a leader of the progressive movement is willing to recognize the link between higher taxes and lost jobs.

But, as the President also said: “I have no doubt that everyone will find something in this compromise that they don’t like.” Specifically, in exchange for extending the current income tax rates, Republicans agreed to reinstate the death tax (at 35% with a $5 million threshold), 13 more months of non-offset unemployment benefits, and a temporary 2 percentage point reduction in the payroll tax to replace the failed “Make-Work-Pay” stimulus tax policy.

These are bad policies. Heritage has long opposed any return of the death tax, which is bad for small business and wrong on principle. The unemployment benefits are not only bad for job growth but increase spending at a time when we need to be reducing it, and, as economists have long recognized, perpetuate long-term unemployment. As for temporary tax holidays, they have proven to be completely ineffective.

To truly freeze taxes, Congress should completely abolish the death tax instead of raising taxes. And to truly freeze spending, Congress would need to offset the spending increases for unemployment benefits.

While the Republicans were busy negotiating with the President at the White House, Congressional Democrats were busy plotting a last-gasp massive spending surge back on Capitol Hill. Written by the Senate Democratic majority in backrooms, a draft omnibus spending is circulating that will fund all federal government agencies not just through fiscal year (FY) 2011 but into 2012 as well. Heritage Foundation Distinguished Fellow Ernest Istook details the spending spree:

* Handcuffs the ability of newly elected Representatives and Senators to de-fund Obamacare
* Restricts the new Congress’s leverage to rescind unused “stimulus” and TARP spending
* Has the outgoing Congress dictate spending for more than the usual one year
* Bypasses the normal appropriations process of public committee votes, floor debates, and the ability to offer amendments on the floor of the House and Senate.

Since the FY 2010 budget expired on September 30th, the federal government has been operating on a series of continuing resolutions (CR) with just the most recent one expiring December 18th. A responsible Congress would have passed a budget resolution and all the necessary appropriations bills months ago. But this 111th Congress is anything but responsible. For the first time in the history of the budget process this Congress failed to even vote on a budget for next year.

Now, after they have been thoroughly rejected by the American people at the polls, they want not only a second chance at setting spending level for next year … but the year after as well. Now that’s audacious. Conservatives should hold firm and reject any omnibus spending bill. This Congress has forfeited their right to spend. The next Congress should be as free as possible to set spending priorities. The 111th must pass something to keep the government running, but it should do so with as short-term a CR is possible.

Then after the 111th lame duck has frozen taxes and frozen spending, they should just go home. They have done enough damage already. Yesterday, Majority Leader Harry Reid (D-NV) filed for cloture on a brand new DREAM Act, the fifth version of amnesty introduced this year. This bill has not gone through committee or been scored by the Congressional Budget Office. Senate Environment and Public Works Chairwoman Barbara Boxer (D-CA) is demanding votes on over 100 environmental bills. And, thanks to Constitutional violations, Congress has to take up their expansion of the Food and Drug Administration again. The American people have no appetite for another round of progressive social legislation.

And then there is New START. Over the past two weeks we have learned that: 1) contrary to past statements, Russia moved tactical nukes closer to our NATO allies; and 2) contrary to past statements, the Obama administration did kill missile defense in Poland to appease Moscow. There is no good reason to rush New START through a lame duck session. If it is a good treaty (one that does not limit our missile defense, provides adequate verification, and does not limit conventional global strike capabilities) then the White House should be confident they can make the case to the next Senate.

Quick Hits:

* WikiLeaks founder Julian Assange was arrested by British police on a European warrant issued by Sweden over rape allegations.
* According to Taxpayers Against Earmarks, Members of Congress requested almost 40,000 earmarks worth $131 billion.
* Senate leaders have reached a tentative, one-year deal on the Medicare “doc-fix,” by partially defunding Obamacare.
* According to Gallup, former President George Bush’s approval rating is now one point higher than President Barack Obama’s.
* Syria’s nuclear program requires stronger international response.