By Walter Alarkon - 03/01/10 07:47 PM EST
Tax increases may be necessary to rein in $12 trillion in federal debt, House Majority Leader Steny Hoyer (D-Md.) said Monday.
Hoyer emphasized the need to reform Social Security and Medicare, but he also made it clear that raising taxes will have to be on the table.
“If need be, I am hopeful that both parties will agree to look at revenues as part of the solution — not as a gateway to higher spending, but as part of a compromise that cuts spending and balances the budget,” he added.
Hoyer, a voice for centrists in the House leadership, said reining in record debt requires a combination of spending cuts and tax increases.
“It seems to me that the only solution that can win the support of both parties is a balanced approach: one that cuts some spending and raises some revenue while avoiding extremes in either direction,” he said.
Tax and budget experts suggest enacting only tax increases or relying only on spending cuts just won’t work.
The White House projects this year’s deficit to hit $1.6 trillion, and it expects annual deficits to average $850 billion over the next decade. Deficits will rise after that.
“Barring major changes, we’re going to see deficits running at $1 trillion or higher and going on forever,” said Roberton Williams, a senior fellow at the nonpartisan Tax Policy Center and former tax analyst at the Congressional Budget Office. “And the question is, ‘How do you get rid of trillion-dollar deficits?’ ”
President Barack Obama has promised he will not raise taxes on families with incomes less than $250,000, which could further limit the government’s ability to deal with a fiscal crisis.
To get to the Obama administration’s fiscal target of a deficit equivalent to roughly 3 percent of the country’s economy without raising taxes, federal spending would have to be cut by a third, Williams said.
To hit the deficit target relying only on tax increases on the rich, as identified by Obama, the income tax rates for those earning more than $250,000 would have to be increased to more than 70 percent, Williams and his colleagues Rosanne Altshuler and Katherine Lim wrote in a Tax Policy Center paper released last month.
“There’s no way you can address the size of this magnitude of the problem we’re looking at here without talking about both spending and taxes,” said William Hoagland, a former Senate Republican budget aide and now the vice president of public policy at insurance company Cigna.
Anti-tax advocate Grover Norquist said spending is the problem and that Democrats should start to address it themselves by recalling money yet to be spent on the $787 billion stimulus, $700 billion bank bailout and other increases in annual discretionary spending.
For now, Obama and Hoyer’s answer to the deficit is a bipartisan commission of outside experts and lawmakers that will come up with fiscal reform proposals. Congress would be expected to vote up or down on the commission’s proposals.
Norquist has warned Republicans that the commission may provide cover for Democrats to raise taxes.
Norquist likened Democrats’ call for a bipartisan commission to a “drunk driver saying it’s everybody’s responsibility to clean the blood off the sidewalk.”
“The only proper response is to take away the liquor and the car keys and say it’s time to go away,” he said.
Voices on the left and right are worried the panel will propose unpopular fiscal austerity measures, but Hoyer called on the commission not to emphasize cuts on benefits to seniors, which the AARP has warned against.
“A balanced approach would spread the effects of change across American society, rather than concentrating them on seniors,” Hoyer said.
He also criticized congressional Republicans for not embracing Obama’s plan and suggesting that taxes and the nation’s debt could be cut at the same time.
He pointed to a budget-balancing proposal by Rep. Paul Ryan (Wis.), the top Republican on the House Budget Committee, that provides seniors with vouchers to buy private health insurance instead of putting them on Medicare. Ryan’s plan reduces federal costs but significantly changes Medicare, Hoyer said.
“That strikes me, as I think it would most Americans, as very much the wrong solution,” Hoyer said.
Democratic leaders in Congress, including Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry Reid (D-Nev.), have committed to bringing up the commission’s recommendations for a vote, Hoyer said.
“Along with Speaker Pelosi and Majority Leader Reid, I’ve pledged that its recommendations will get an up-or-down vote in Congress,” Hoyer said.
“Given the seriousness of our situation, the commission must come to a consensus and Congress must act on its proposals at the end of the year.”
Hoagland said any entitlement reforms should be linked with tax policy.
One way to balance the two sources of revenue would be to tax employer-provided health insurance benefits either to find revenue from increasing health costs or to put pressure on health costs to go down, Hoagland said. The Obama administration and Senate Democrats have proposed a similar tax on high-cost healthcare plans in their health reform bills.