ROOT: Supercommittee sellout?

Timid GOP members may cave to avoid across-the-board cuts

By Wayne Allyn Root – The Washington Times

The congressional supercommittee tasked with cutting the debt is almost out of time. Good. Run out the clock. If its members do not come to an agreement, we’ll be forced to accept automatic across-the-board cuts to spending – including defense spending. That’s exactly what America needs.

But our GOP friends, the ones who supposedly are defending capitalism from President Obama, Nancy Pelosi and Harry Reid, are scared. They are shaking in their boots at the reality of across-the-board spending cuts. Despite all their bold talk about cutting spending, they lack the courage actually to do it.

Instead of running out the clock until we get those needed spending cuts, the Republicans made an offer to Democrats that doubled down on every mistake ever made by naive small-government negotiators. They offered to sell out every small-business owner, homeowner and GOP contributor in America. They agreed with Mr. Obama’s philosophy of punishing successful Americans for their hard work, sacrifice and financial risk-taking.

Supercommittee Republicans offered a deal to Democrats that includes almost equal dollars of spending cuts and tax increases. Guess where all the tax increases are aimed? At wealthy taxpayers. Even as GOP presidential contenders make dubious promises to our faces during televised debates, all agreeing they would not accept a deal of even 10-to-1 spending cuts to tax increases, GOP supercommittee members are attempting to sell out the entire conservative base for much, much less.

That is the reason I left the GOP during the Bush reign. Too many Republicans talk a good Tea Party game about smaller government, tax cuts and spending cuts, but as far as actually carrying it out? Not so much. Here is their chance to force automatic spending cuts across the board, but they can’t do it.

How quickly they forget history. Ronald Reagan is the all-time GOP hero. Yet even he fell victim to Democrats’ lies about spending cuts. Reagan raised taxes in return for vague promises of future spending cuts, then got nothing in return. There were no cuts in spending, only massive increases. Worse, Democrats use Reagan’s deal to malign him forever and paint him as a “tax raiser.” George H. W. Bush followed Reagan and made the exact same deal – and he was destroyed for it. He raised taxes in return for spending cuts that never happened. Once again, he was painted as a “tax raiser.” No conservative can ever win by raising taxes.

It is hard to understand how any Republican wouldn’t grasp this. Do Republicans not realize that their only edge for winning next November is to stand firm against any tax increases? Do they not realize that the “enthusiasm gap” in favor of Republicans is as large as the Grand Canyon? Why? Because of the Tea Party and the excitement of conservative anti-tax activists. If the GOP members of the supercommittee vote not only for “revenue increases” but for increases designed as punishment for wealthy taxpayers, the enthusiasm gap is gone. They’ve signed on to Mr. Obama’s philosophy with this deal. The difference between Republicans and Democrats is nullified. That is how you lose “can’t lose” elections.

Any loss of deductions is, in effect, a tax increase. It’s like Bill Clinton debating over the meaning of the word “is.” If you take away our deductions, you are dramatically raising our taxes. Take away the home-mortgage interest deduction, and you are condemning millions of small-business owners to losing their already underwater homes. The GOP will deliver the final blow to the housing market with an instant decline in real estate prices. By taking away our charitable deductions, you are damaging charities and churches beyond repair. By limiting the deductions of upper-income taxpayers, you are punishing your own supporters and contributors – exactly what Mr. Obama wants you to do.

Republicans will say they are limiting deductions in return for a flatter tax rate. Really? The last time I checked, the most successful economy in the world, Hong Kong, had a 16 percent flat rate that included deductions for mortgage interest and charity. Does the GOP think it’s a great deal to lower rates to 28 percent (almost double Hong Kong’s) but give away most deductions?

What gives the GOP a right to do that? Has there been a national debate or discussion about this offer?

Have you thought about the implications of this deal? First, you will lose millions of votes from homeowners, churchgoers and small-business owners crushed and angry at your betrayal. Second, you’re playing on Mr. Obama’s field. Why is the cut aimed only at successful taxpayers – those who already pay almost all the taxes and bear almost all the burden? When you agree to aim limitations and punishment only at successful Americans, aren’t you a socialist, just like Mr. Obama? Third, this deal is Mr. Obama’s dream. Eliminate deductions forever, and eventually Democrats will raise rates right back up – but this time, with no protections for the business owners and job creators.

Here’s my message, from a Tea Party American and small-business job creator: Kill the deal. Run out the clock. Force the automatic spending cuts across the board. Or face the mutiny of your own strongest supporters and contributors. Standing tall against any tax increase is the only choice you have. Compromising with Mr. Obama to wreck the finances of your own supporters is only going to get you defeated, just like George H.W. Bush.

Wayne Allyn Root is a former Libertarian vice-presidential nominee and is chairman of the Libertarian National Congressional Committee. He is author of “The Conscience of a Libertarian: Empowering the Citizen Revolution With God, Guns, Gold, Gambling & Tax Cuts” (Wiley, 2009). He writes at RootforAmerica.com.

38 thoughts on “ROOT: Supercommittee sellout?

  1. George Phillies

    IF the Republicans think they can run on ‘no tax increases’ they are trying to blow their brains out. Fortunately, most Republican politicians will run out of ammunition without hitting anything.

    One might propose that most members of Congress had the sense to realize that the purpose of the supercommittee was to kick the can down the road so they could pass a debt increase, and therefore the super committee was totally successful.

  2. Tom Blanton

    Take away the home-mortgage interest deduction, and you are condemning millions of small-business owners to losing their already underwater homes.

    Hyperbole!

    The owners of homes that are underwater either paid too much when the balloon was fully inflated or they refinanced every dime of equity they had at a time when lenders were willing to loan as much as 125% of appraised value.

    What ever happened to the much vaunted personal responsibility that many conservatives and libertarians prattle on about? Actions have consequences. Tough shit for those who borrowed too much because regardless of what their house is now worth, what they owe is what they themselves borrowed.

    Also, a lot of people don’t seem to realize that many middle-class homeowners don’t even take the mortgage interest deduction because they are better off if they take the standard deduction.

    It is almost as if Root is more concerned about his GOP friends winning elections and favorable tax treatment for the wealthy than budget cuts. Or perhaps he favors government intervention designed to re-inflate the real estate market and/or the stock market?

    Anyway, it looks like Wayne got what he wished for – no meaningful reduction in spending along with taxes that are already too high. Maybe his GOP friends will win big in 2012 and reduce his taxes on the backs of his children and grandchildren. They sure as hell won’t cut real spending if history is any guide.

    It would seem that the self-appointed spokesman for the LP could do better than counsel Republicans on strategies to invigorate their base.

  3. NewFederalist

    Perhaps a new and improved Ultra Super Committee of an odd number of honorable elected public servants could get the job done for the benefit of their adoring constituents. Rather like the great idea of an electoral commission of 1876 that did such a fine job of honestly and non-politically awarding disputed electoral votes. Yeah, THAT’S the ticket!

  4. Michael H. Wilson

    Let’s see Wayne wants to keep a couple of deductions, but the Libertarian movement ( I’m not sure about the party) wants to get rid of the income tax. How does that work?

    How do ya focus on keeping deductions while at the same time arguing that the tax should be abolished?

  5. Robert Capozzi

    wr: Any loss of deductions is, in effect, a tax increase. It’s like Bill Clinton debating over the meaning of the word “is.” Take away the home-mortgage interest deduction, and you are condemning millions of small-business owners to losing their already underwater homes.

    me: I agree that — all else equal — ending deductions is an effective tax increase. But why does WR only specify “small-business owners”? How about BIG business owners? Owners of no business?

    Not everyone feels the call to own a business. Why fixate on that sliver of society?

  6. wolfefan

    FWIW, I think Wayne has been pretty clear that he’s not terribly interested in taxes on the middle class. He’s more interested in rewarding success, which by his definition excludes the middle class, and encouraging entrepreneurs. The total elimination of the estate tax works against those goals, but that’s another discussion. I also wonder how scalable places like Hong Kong are. If Hong Kong had to pay for it’s own defense, foreign policy, etc. instead of being part of Great Britain and communist China I suspect they would have a much higher tax rate.

    I also think that “socialist”, as used in this piece, is used incorrectly.

  7. Robert Capozzi

    6 mww: How do ya focus on keeping deductions while at the same time arguing that the tax should be abolished?

    me: Or focus on abolishing deductions for that matter.

    The question is: What’s one’s time horizon? “Radical” Ls might want to hold high the banner on a range of issues, including the income tax. Ls who wish to engage the public square where it is might engage in a range of trade offs that we believe shift the political center of gravity toward liberty.

  8. Thomas L. Knapp

    TB@3,

    Once again, I disagree.

    Cutting off the home mortgage interest deduction for EXISTING mortgages, absent other measures (such as simply repealing the income tax) would create a new wave of defaults and foreclosures while simultaneously further depressing home sales.

    The best solution is to abolish the state.

    The second best solution is to repeal the income tax.

    The third best solution is to introduce a UNIVERSALLY AVAILABLE deduction equal to the average mortgage interest deduction, and let each taxpayer take one or the other.

    The fourth best solution is to expire the mortgage interest deduction — no deduction for new mortgages or re-finances, existing mortgages keep it until they’re paid off.

    Just cutting it off cold isn’t the fifth best solution. It’s just a bad fucking idea.

  9. Wayne Root

    @10 Thomas is much smarter than the people we have in Congress.

    If you want to eliminate the home mortgage interest deduction there are 2 reasonable common sense ways to do it…

    #1) You move to a flat income tax so low (10% to 15%) that you eliminate all deductions but charitable.

    I support that.

    But cutting income taxes to 28% then taking away all deductions is insanity. Now taxpayers are helpless. As soon as tax rates go back up…and they will…you have no deductions to deflect the high rates. This is exactly what tax and spend socialists want. Any Libertarian who doesn’t understand the long term game plan is playing right into the hands of progressives.

    Follow the dots.

    For first time in U.S. tax history…take away all deductions…then within 5 years…in response to a depression or massive debt crisis (or both) take rates to 50%, 60%, or even FDR days- 75% to 80%.

    You’ve now got a socialist society with massive income redistribution.

    This is where Obama is headed.

    Of course my goal is to check-mate him.

    Got to either keep the deductions in place…or go to a much lower flat tax than 28%.

    But back to Thomas Knapp.

    If you want to avoid destroying U.s. housing market…there is only one way to eliminate home mortgage interest deduction…

    You allow anyone already in a house to keep the deduction until they die or sell the home.

    Purchases of new homes would begin without the deduction.

    Or you allow anyone to choose between a new flat tax or stay with the old tax system for up to 10 years- giving homeowners time to phase out without panicking and selling their homes at fire sale prices.

    We desperately need homeowners to keep their wealth. Capitalism works based on accumulated wealth. How can Libertarians stand for wealth destruction?

    For all of you who keep talking about “middle class” and whether I care about them…the 2 things…and only 2 things that allow middle class people to move up in class…to become upper middle class or rich are…

    #1) Low tax rates. That is single most important thing that you can do to allow people to save money and start a business…thereby becoming upwardly mobile.

    #2) Create an economic environment where their home- their single biggest investment of their lives- can rise in value.

    I was born lower middle class. My family rose to middle class because of 2 things…

    #1) Our home went up in value- giving us an asset.

    #2) My father went from employee of butcher store to owning his own butcher store.

    That is how you make it in America. Your home and your small business.

    And I used that exact strategy to go from middle class to upper middle class.

  10. Bruce Cohen Post author

    I would say that for most Homeowners, the home is an investment, and a business.

    It’s just not unreasonable to say that the part of the payment that is an expense and not contributing to the paydown of the balance would be deductible.

    I understand both arguments.
    On the other hand, I like the idea of giving a homeowner an interest deduction. It’s really just not so far off of taking expenses for work or business related things.

    The taxpayer DID spend the money, after all. And it is a true and real expense, so why not allow it as a deduction *no matter how low Income Tax rates go*.

    We aren’t talking about a trip to Chuck E Cheese with the family, we are talking about a legit expense that a modern homeowner usually must bear.

  11. Robert Capozzi

    12 bc, any peaceful expense is “legit.” Why give preference to a mortgage expense over food? Clothes? Cell phone? Rent?

  12. Wayne Root

    @13

    Robert,

    These are typical Libertarian questions…

    I understand all of them.

    But all that matters is they were done. We have this mortgage interest deduction.

    And now millions of people bought their homes based on that “contract” with the government.

    Their payments are based on that mortgage interest deduction.

    In the end…

    A) You cannot just take it away. That’s breaking a contract.

    B) You can take it away…but at risk of destroying the entire housing market…and hurting U.S. economy even further.

    C) The Libertarian answer is to drop to a much lower flat tax with few or no deductions…

    But in the meantime any deduction that allows people to keep more of their own money is a good thing. Libertarians should applaud.

    P.S. The most successful free market economy in world today…Hong Kong has…

    16% flat tax, and 2 deductions…for home mortgage interest up to $1,000,000 and charitable donations.

    I still believe that to be the most perfect system in the world.

    Or go to 10% flat tax with no deductions.

    Why any Libertarian would argue against any deductions is beyond me. Instead of arguing against it…use it to lower your taxes and keep more of your own money.

    Don’t fall for the lies…any attempt to eliminate the mortgage deduction is simply a thinly disguised attempt to dramatically raise most Americans taxes.

    It’s an attempt to take away the last legal tax shelter for middle class and upper middle class taxpayers.

    It has nothing to do with being “fair.”

  13. Wayne Root

    Now to the why question. Why was home ownership encouraged?

    Simple- the very foundation of a good society it was argued is homeownership.

    Take a look at neighborhoods where people own…beautiful, clean, well kept, well mannered children, high church attendence, high marriage success rate, every homeowner votes, low crime rates, no graffiti, no drug dealers in the street, thereby very little problem or cost for government.

    Oh…and billions in property taxes.

    So homeownership equals very little cost to government…combined with tremendous influx of revenues.

    A double winner for every government, every country, every society.

    Now go look at neighborhoods where people rent. Opposite in every way. No pride of ownership. High crime rates. Drugs. Drinking. Prostitution. Gangs. Graffiti. Huge costs for police and fire.

    And those neighborhoods produce low property tax dollars.

    Homeownership is the bedrock of our capitalist society.

    Anyone here on IPR is free to argue thats none of the government’s business to “social engineer.”

    I understand that argument very well.

    I’m not arguing with it.

    I’m just stating the reasons homeownership has been encouraged since the first days of the income tax.

    Homeownership absolutely leads to a better and more stable society.

    It leads to assets being accumulated by taxpayers. Which leads to happiness of the citizenry. And leads to consumer spending…when you’re home goes up, you feel rich, so you spend more. If you spend more, govt collects sales taxes. Jobs are created. So govt collects income tax. Everyone wins.

    The argument is should the government have a right to encourage it.

    But homeownership is a winner for everyone involved (historically). There is no argument over that.

  14. Thomas L. Knapp

    Or, to put it a different way, the idea that the home mortgage interest deduction is a “winner for everyone” is just an instance of the broken window fallacy.

    1) The government introduces a tax deduction — but only if you spend your money on what the government wants you to spend your money on. In this case, a house.

    2) You win — you pay less in taxes.

    3) The real estate and banking industries win — they sell more homes and collect more mortgage interest.

    4) The dealer who’s offering the car that you don’t buy, the restaurateur who sells the meals you don’t order, the toy store owner who sells you a cheap Barbie knock-off instead of an XBox, because you bought a house instead of those other things, because you can deduct the home mortgage but not car, food or Christmas present costs, lose.

  15. Robert Capozzi

    wr: Good. Run out the clock. If its members do not come to an agreement, we’ll be forced to accept automatic across-the-board cuts to spending – including defense spending. That’s exactly what America needs.

    me: Agree, assuming the across-the-board spending cuts actually happen. I’d strong encourage Ls to follow RP’s lead and re-label “defense” spending to be “military” spending, or “unnecessary military” spending.

    14 wr: We have this mortgage interest deduction. And now millions of people bought their homes based on that “contract” with the government.

    me: I hear your sentiment, WR, but it surely is not a “contract.” No tax preferences are. Nor are Social Security benefits.

    In terms of real-world, applied L-ism, ending the mortgage deduction is not something I think is a good idea on a LOT

  16. Robert Capozzi

    more…

    of levels. I think L candidates should experiment with resonant messages that attract voters to an L POV.

  17. Michael H. Wilson

    If Libertarians focus on abolishing the income tax the deductions will go away. To do that we need to cut spending or find another tax such as a vat, which I am not proposing.

  18. Thomas L. Knapp

    I don’t think Root is really on the wrong track here as such things go.

    If you don’t think you can sell eliminating the income tax entirely at this time, there are much worse incremental ideas than a low, flat rate with no, or very few, deductions and other gimmicks.

    I still think that one of the better ideas — specifically because it allows for universal tax cuts without antagonizing any of the special interests who will defend various deductions, etc., to the death — is just raising the personal exemption substantially each year.

    If you do it that way, everyone gets a tax cut, AND you don’t have AARP or the National Association of Home Builders or the Chamber of Commerce climbing up your ass about how it’s done.

  19. Michael H. Wilson

    To my little brain we need to reduce government to reduce taxes and that means cutting spending. Seriously cutting spending.

    Obama plans on putting a couple a thousand marines in Australia, but so far no word about how foolish this from anyone in the LP and apparently CentComm want to expand the military in the Persian Gulf. Again no comment.

  20. Thomas L. Knapp

    MHW@24,

    Yes, you’re correct — taxes can’t actually be cut unless spending also (deficit spending is just taxation, collection of which is deferred until later, with interest).

    That does not, however, mean that the particulars of tax cut types can’t be discussed without reference to what specific budget cuts would also be necessary.

  21. Tom Blanton

    The mortgage interest deduction is social engineering, a subsidy, and it distorts the market. Along with artificially low interest rates and other things, it helped create a huge real estate bubble.

    While abolishing the government and/or taxation would solve a number of problems, it isn’t going to happen anytime very soon. Real estate is still over-valued and interest rates are still artificially low. Attempts to re-inflate the bubble or slow down the unwinding process only prolongs the misery.

    The solution to the real estate problem is to get the government out of the real estate market entirely, from tax policy and monetary policy to zoning and arbitrary building codes.

    Tax law is not a contract with citizens anymore than any other law passed by politicians. The government should never be used to pick winners and losers or to reward winners and punish losers.

    I’m all for higher taxes on Americans at this point. Let ’em pay a damn head tax – that would be a fair tax. Let the rubes pay so much in taxes that they can’t afford to eat for all I care. Let the wealthy people who support politicians pay double. Maybe then Americans will decide they don’t need all the government they have been demanding all these years.

    Meanwhile, interest rates need to rise and real estate prices need to fall. Low interest rates are inflationary and punish saving. Backdoor tax subsidies only serve to keep prices high.

    There is no such thing as a tax cut without a spending cut and there is no justice in rewarding borrowers with tax cuts, whether they borrowed to buy a house or refinanced later to pay for hookers and booze – especially when there are no spending cuts and especially when the tax cuts distort the economy.

    Despite what your real estate agent told you, homes aren’t investments. They are places where you live. At best, they are hedges against inflation.

  22. Robert Capozzi

    26 tb: Meanwhile, interest rates need to rise and real estate prices need to fall. Low interest rates are inflationary and punish saving.

    me: While agree with much you say, THIS also sounds like social engineering. Who’s to say where interest rates “need” to be? Who’s to say where real estate prices “need” to fall?

  23. Thomas L. Knapp

    RC@27,

    “Who’s to say where interest rates ‘need’ to be? Who’s to say where real estate prices ‘need’ to fall?”

    It’s just another way of saying “if the government stops artificially holding down interest rates and artificially inflating real estate values, the former will rise and the latter will fall; that’s what the market would do, and what the market does makes more sense than what the government does.”

    That seems like a reasonable prediction and a reasonable principle.

    What I find more interesting is this claim: “homes aren’t investments. They are places where you live.”

    That certainly used to be the case for most people. I think a good case can be made that the “house as an investment” mania of the 1990s and early 2000s was a runaway effect of government policy.

  24. Tom Blanton

    Who’s to say where interest rates “need” to be? Who’s to say where real estate prices “need” to fall?

    Millions of regular people acting without interference from politicians, a/k/a the market.

  25. Tom Blanton

    I suppose letting people act freely could be considered social engineering, but at least the engineering is done freely by society as a whole instead of being done through coercion by the elite establishment.

    Perhaps the best term for this would be social self-engineering.

  26. Robert Capozzi

    tk and tb, the point is that if the government and Fed stepped out of the business of controlling money supply, interest rates, and housing, the market will tend toward equilibrium over time. Interest rates could fall in some cases (although given how low they are, I do agree they would likely increase.) Housing might fall in price but then again they might rise, at least in some desireable places. Of course, with transportation intervention, that has other effects.

    Ceteris paribus experiments are somewhat interesting, but I prefer to let the people (the market) set prices as they will.

  27. Robert Capozzi

    more to tb,

    So, no, for me, letting people be is not social engineering. Predicting what will happen when people are liberated is accepting the premise of the social engineers. Prices do what they do, and depend on a variety of variables, not just one.

  28. Tom Blanton

    Predicting what will happen when people are liberated is accepting the premise of the social engineers.

    Sometimes predictions are easy to make. It’s a safe bet to predict that home prices will not increase as long as there is a huge inventory of real estate for sale.

    It’s also a pretty safe bet that if interest rates go up, more people will save and lending will increase. Why save money if the rate of return is less than the rate of inflation? Why risk lending money when the rate of return is so low – especially without the government guaranteeing the loan?

  29. Thomas L. Knapp

    RC@31,

    I agree with you in general, but not on these specifics.

    That is:

    I agree with you that trying to predict the market effects of policy changes to any great degree of specificity is for the most part a fool’s errand.

    But when large-scale distortions have very obviously had large-scale effects, I don’t think it’s unreasonable to predict that removal of the distortions will cause corrections in particular general directions.

    Government policy has been to artificially hold down interest rates and to artificially inflate housing prices. Get rid of the policies, and it’s a good bet that interest rates will rise and housing prices will fall. How much? Who knows? Side effects? Almost certainly, and unpredictable in nature and scope.

  30. Robert Capozzi

    33 tb: It’s a safe bet to predict that home prices will not increase as long as there is a huge inventory of real estate for sale.

    me: All else equal, yes. Inventory is an aggregate number, so sometimes prices can go up for what is selling at the time if demand in a subset of the market is high while inventory in that segment is lower than the others. If the transactions in that segment are relatively high, you might see what appears to be price inflation even in a weak overall market. You have to look at the market in a more granular level to get a more accurate picture of what the trends are.

    tb: It’s also a pretty safe bet that if interest rates go up, more people will save and lending will increase.

    me: Maybe. That assumes that enough people have the money to save. Lending is a function of risk, uncertainty and return, so even if RETURNS are better, increased risk and uncertainty may lead to less lending, not more.

  31. Tom Blanton

    Capozzi, how much are you willing to bet that if interest rates go up, less people will save? I’m willing to bet more will save. The key word is “more”. That does not rely on “enough people” – even if higher interest rates caused one more person to save, I’d win the bet.

    I think my assumption is a safe bet, fully aware that the future is always uncertain. Fortunately, most people don’t think like you or they would take no risks. In life you must make many decisions and perhaps I am just plain ignorant, but I generally make decisions based on what I believe the outcome will be. What do you do Capozzi? Flip a coin? Base your decisions on what other people think? Maybe you just don’t act, frozen by the inherent risk of any action?

  32. Robert Capozzi

    36 tb: how much are you willing to bet that if interest rates go up, less people will save? I’m willing to bet more will save.

    me: Not sure where this is coming from, Brother B, but if I were to BET, I would bet more would save ALL ELSE EQUAL. And, yet, in the last few years, the savings rate has increased, despite very low interest rates.

    Seems counter intuitive, and yet, there it is!

    As for how I personally make decisions, it’s not especially relevant. But, I tend to play trends, sometimes play contrarian, sometimes flow with with what’s indicated.

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