It’s the Spending, Stupid

It’s the Spending, Stupid
By Orrin Hatch
10/30/2010

The Democratic operative, James Carville, coined one of the most legendary campaign catchphrases, “it’s the economy, stupid.” Close to two decades later with our federal deficits this year and last, the highest on record since World War II, that phrase should be changed to, “it’s the spending, stupid.”

On January 1st, every American will see their income taxes go up unless Congress acts. The White House and its Capitol Hill allies, who’ve irresponsibly refused to take action, say we can’t afford to stop the tax hikes on the top two tax rates. They make it sound like taxes are why our deficits are so high. But anyone who believes we don’t tax enough, well then I’ve got ocean front property in Nevada to sell you. The reality is that the driver of our deficits is runaway federal spending.

When Democrats took over Congress, our national debt stood at 36 percent of our Gross Domestic Product (GDP); today it’s roughly 61 percent. Over the same time period, federal spending has gone from 19 percent to almost 25 percent of GDP.

More and more spending has to be funded by more debt or higher taxes. And that’s the real reason the White House wants to raise taxes, because as President Obama declared, “there are a lot of better ways I’d spend that $700 billion,” from pushing through a tax hike of that magnitude. The Democrats are experts on spending.

But these levels of spending are unsustainable and will kill economic growth. The only people who don’t think that this kind of spending is harmful seem to be those who believe that government, and not hard-working Americans, should be in the economic driver’s seat. In fact, former Obama Administration Budget Chief Peter Orszag said that the “new normal” for federal spending is 25 percent. I completely disagree.

Last year, I introduced legislation capping federal spending as a percentage of GDP at roughly 20 percent. This would force the White House and Congress to make the tough decisions to get our fiscal house in order.

Regrettably, the White House and its liberal allies aren’t interested in containing spending. In the final hours before the Senate adjourned, the other side of the aisle blocked a common-sense amendment to reduce spending by 5 percent. Now, clearly more has to be done than that, but it was a start and the majority refused to support even that modest effort.

The left views higher taxes as a means of funding an ever-expanding government, intruding more and more into people’s lives. What they fail to understand is that keeping taxes low empowers the American people to invest their own money how they want - leading to more investment, more jobs and robust economic growth.

The reverse is also true – that higher taxes and more deficit spending kill the economy. According to the Congressional Budget Office, our GDP would take a whopping 1.4 percent hit if we let taxes go up on January 1. The President’s former lead economic advisor, Dr. Christina Romer, found that “tax increases are highly contractionary” and that there's “a powerful negative effect of tax increases on investment.” Her analysis concluded that $1 in tax cuts results in a $3 increase in GDP, demonstrating why lower taxes are key to investment and an economic recovery.

A recent poll of our nation’s job creators found that the single best thing that will get them growing and hiring again is to stop these tax hikes. And for good reason: if the President has his way then about 50 percent of all small business income impacting around 750,000 small businesses will face job-killing tax hikes.

Regrettably, the White House doesn’t seem to be listening. But that’s been a hallmark of this administration since coming into office. These businesses are holding tight to their cash reserves in anticipation that this administration will raise their taxes. Maybe that’s one reason why our unemployment rate is stuck at 9.6 percent with economists questioning how strongly our economy can recover.

Forestalling these massive tax hikes would send a green light to businesses large and small that it’s safe to invest, expand and hire once again. A clear signal of low taxes and restrained spending is just what America’s job creators need.

Orrin Hatch
Orrin Hatch is the United States Senator from Utah and serves on the Senate Committee on the Judiciary and the Senate Committee on Finance.