The 2011 Tax Tsunami

The midterm elections are over, and the results can be summed up in one word: change. The Obama agenda has been rejected, as has government-run health care. Also turned back was any effort to fundamentally transform the United States. Americans witnessed a total rejection of fiscal recklessness and sent a clear message to Washington: handle our finances just like everyday Americans handle their own finances. Also big losers on November 2 were big government and the divisive two Americas approach -- haves vs. have-nots, rich vs. poor, white vs. black. The American voter reminded the White House and the Democratic Party that we are all Americans.

A gain of more than 60 seats in the House represents the biggest such gain since 1948. Yet the gravest of dangers here is for Republicans to read the election tea leaves as a pat on the back for them. It wasn't. November 2 was a simple bipartisan message sent by voters along a wide political spectrum: Stop spending and keep government out of our lives. Keep taxes low. Get government out of the way of job creation. Lest we forget, the election of 2008 spanked Republicans for precisely the same misdemeanor: spending money we don't have. Budgets transcend politics; they either balance or they don't.

Conservatives now have a daunting task ahead of them, and very few tools with which to accomplish it. With a Democrat-controlled Senate and a lame-duck president in the Oval Office, Republicans are heading to a knife fight wielding a spoon. In less than three months, the largest tax increases in U.S. history will take effect, and most people don’t even realize it. These massive tax increases will take effect on January 1, 2011, and the same folks who can’t understand why spending a trillion dollars on pork-laden government projects, union dole-outs, and ACORN doesn’t create private sector jobs are clueless as to the devastating effect these historic tax increases will have on our economy in 2011. Despite the midterm victories we enjoyed, the tax tsunami is coming.

Instead of freezing government employment, freezing growth in discretionary spending, vetoing every spending bill choked with earmarks, working to regain an effective line-item veto, and extinguishing wasteful government programs, the White House has the veto power and will undoubtedly use it. Our president's strongly held political religion firmly believes that the new taxes and even more government spending is necessary to fix a $1.4 trillion deficit which the White House itself created and to reduce a national debt which the White House itself worsened.

We'll undoubtedly be treated to more of the Bush blame game. Forget for a moment that Bush held average unemployment at 5.3%, saw the strongest productivity growth in four decades, and witnessed robust GDP growth. Set aside the fact that he oversaw this growth despite an inherited recession, 9/11, Hurricane Katrina, and wars in Afghanistan and Iraq. Focus instead on the simple fact that the last budget that a Republican Congress had control over had a deficit of approximately $162 billion dollars -- a large number to be sure, but not so large that the Democrats and our “progressive” president couldn’t expand it in under two years by nearly a factor of ten. Under the Obama administration and with the Democrats in complete and total control, we have record debt, record deficits, record unemployment, record underemployed, record foreclosures, record bankruptcies, and soon, record tax increases.

Thinking Americans will recall that the Bush tax cuts of 2001 were in response to the recession of 2001 and helped pull the country out of its morass in only eight short months. The cuts now being blamed by our president for our predicament were George Bush's version of Barack Obama's stimulus plan, with one important distinction. Instead of creating a handful of temporary government jobs and subsidizing the expansion of unions and government, Bush slashed tax rates, boosted the child tax credit, increased the standard deduction for married couples, and increased contribution caps for a variety of savings programs. Thinking Americans will also recall that it was Democrats who made these tax cuts possible.

On May 26, 2001, Sen. Ben Nelson (D-NE) was one of a dozen Democrats to rally behind President George W. Bush's Economic Growth and Tax Relief Reconciliation Act of 2001, the tax cut package that underscored the administration's plans for job growth. It received the support of 58 senators. Without the Democrats who recognized the economic and revenue boost value of the tax cuts, the cuts would not have passed. Two short years later, Bush again cut taxes with the help of some of the same Democrats now trying to blame the cuts for our economic woes. The Jobs and Growth Tax Relief Reconciliation Act of 2003 passed with precisely the 50 votes it needed to become law (Vice President Dick Cheney cast the deciding vote). That too was passed with the help of Democrats.

The cause and effect phenomenon of tax cuts resulting in increased federal tax revenues is difficult to figure out only for those who have never run a business, met a payroll, or read a balance sheet. It was, in fact, one of the most famous Democrats in history who memorialized why this is. In the January 1963 Economic Report of the President, John F. Kennedy set into motion the "Soak-the-Rich Catch-22" currently frustrating the Obama regime when he said:

Tax reduction thus sets off a process that can bring gains for everyone, gains won by marshalling resources that would otherwise stand idle -- workers without jobs and farm and factory capacity without markets. Yet many taxpayers seemed prepared to deny the nation the fruits of tax reduction because they question the financial soundness of reducing taxes when the federal budget is already in deficit. Let me make clear why, in today's economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarged the federal deficit -- why reducing taxes is the best way open to us to increase revenues.