In the incoming 113th Congress, 219 representatives and 39 senators—mostly Republicans—have signed the “TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. payer Protection Pledge” from Americans for Tax Reform (ATR), led by activist Grover Norquist. The Pledge states that the signer will (1) oppose any increase in marginal income tax rates and (2) oppose elimination of deductions and credits unless done in a revenue-neutral manner. The terms “increase” and “revenue-neutral” are relative to the status quo.
Some Pledge signers are publicly announcing second thoughts. Senator Saxby Chambliss (R-GA) said in a radio interview over the weekend that he “care[s] more about my country than I do about a 20-year old pledge. If we do it his [Norquist’s] way, then we’ll continue in debt, and I just have a disagreement with him about that.” Sen. Lindsey Graham (R-SC) and Rep. Peter King (R-NY) made similar comments on Sunday, and were joined today by Sen. Bob Corker (R-TN) and by House Republican majority leader Eric Cantor (R-VA), who said he considered the Pledge non-binding on his caucus. For his part, Norquist over the weekend ticked off a number of reasons to the Wall Street Journal’s Stephen Moore why he thinks Republicans ultimately won’t break the Pledge.
Are Chambliss and Corker leading a stampede or are they out on a lonely limb? Time will tell. What is becoming clear is that good tax policy means more than sticking to the status quo on tax rates or the amount of federal revenue. Adam Smith came up with a number of principles of good tax policy, which inform much tax policy analysis (including ours here at the Tax Foundation). So when we look at tax policy ideas, we analyze whether they are simpler, transparent, neutral, stable, and growth-promoting. Revenue is a part of this analysis but is not the beginning and the end.
Therefore, perhaps this is the time for ATR to fix their Pledge to include such missing considerations. As explained by a Washington Examiner editorial in 2011:
[W]hy has ATR succeeded at keeping rates low but unsuccessful at the rest of its mission? The problem comes not from the promises in the pledge, but from the promise left out. At the federal level, pledge signatories promise to: 1) oppose all marginal tax increases, and 2) oppose any elimination of tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. s unless matched by reduced taxes elsewhere.
The promises not to increase net tax rates are great, but where is the promise to oppose any new deductions or credits to the tax code? Raising rates is not the only way government can “control one’s life” through taxes. Credits for electric cars, solar panels, and first-time home buyers all use government power to influence citizen behavior. How are they any morally different than higher income tax rates? Worse, without a credit/deduction opposition plank, the pledge actually undermines real tax reform.
The New York Times suggests that Republicans could not violate the Pledge by letting the fiscal cliff happen, because reinstating some but not all of the tax cuts after January 1 would then be a tax cut, rather than a tax increase. I doubt Grover would bless such subterfuge, but that shows the problems of linking tax policy to a status quo perspective. If something is good or bad policy on December 31, it’s good or bad policy on January 1 too. It is incomplete analysis without looking at compliance costs and harm to the economy, rather than merely the dollar amount Uncle Sam gets or what the tax rate is.Share