Democrats are flexing their muscles. On the fiscal front, they promise to fulfill their mandate for change by prudent fiscal management and looking out for the middle class. They never provided much detail to war-weary voters during the campaign. But now its time to get down to business and make good on their promises.
The tax cuts enacted in President Bush's first term will be a front-burner issue, because they will expire without reauthorization within the next few years. Incoming U.S. House Speaker Nancy Pelosi has been vehement in her opposition. None of these tax cuts is affordable. None of them creates jobs and they are not fair. All of them do damage to our long-term economic growth and contribute to the national deficit was her response in 2003 to the tax cuts.
If Pelosi's predictions had come true, the policy decision would be simple. We would be relieved to see tax rates on income, estates and investments revert to their previous higher levels so our economy could start to grow again and our deficit shrink.
But none of her dire projections proved out. Nonfarm employment, declining before the tax cuts, is now on the rise with 6.6 million new jobs. The unemployment rate has dropped from 6.2 percent to 4.7 percent. The deficit has fallen. too. It was over $450 billion annually just after the tax cuts were enacted. Today it is less than $250 billion, according to the American Shareholders Association. Were middle-class taxpayers really harmed? Upper-income taxpayers shoulder a higher portion of the income taxes paid now than they did before the tax cuts for the rich.
A fair point can be made that its not appropriate to finance the expenses of war on top of business as usual. Were running a deficit and spending taxes intended for the Social Security trust fund instead of requiring some sacrifice by the American people. But why not cut domestic spending instead of raising taxes if we need more revenue?
The out-of-control earmarks process would be a good place to start. Reps. Rahm Emanuel, D-Ill., and Charles Van Hollen, D-Md., in September introduced a bill to drastically reduce the ability of members of Congress to procure anonymous slices of pork for their districts. Pelosi even advocated eliminating earmarks entirely. Hopefully they weren't just playing political games. Now that they have the power, failure to act on earmarks would reveal massive hypocrisy.
Other proposals are a mixed bag. Pelosi proposes to end subsidies for oil exploration and refining. This makes sense. But mandating higher subsidies for fuel sources like biodiesel and ethanol seems like just more political pandering to interest groups. Meanwhile the middle class pays, through taxes and higher prices, for this micro-managing.
Democrats propose spending cuts of just over $1 billion to end wasteful giveaways to drug companies. But they also call for a fix to the Medicare prescription drug program that would cost $29.5 billion annually, according to the National Taxpayers Union not very rational therapy for a program already burdened with literally trillions in unfunded liabilities.
Back in Arizona, Gov. Janet Napolitano has been characteristically uncommunicative about her plans for the upcoming legislative session. She seems disinclined toward broad-based tax reductions, even though she touted the tax cuts (and economic growth) of her first term during the campaign.
But theres reason for the governor to get on board with tax reductions if she sincerely wants to move Arizona forward. Evidence continues to mount that states with low personal and corporate income taxes are the healthiest economically.
Two new studies from the Tax Foundation and the Maine Heritage Policy Center drive the point home. The Maine study showed the ten states with the lowest taxes between 1994 and 2004 experienced 32 percent higher personal income growth and 79 percent higher employment growth than the ten states with the highest tax burden. (Arizona was 28th highest.) The Tax Foundation compared the data among states from 2000-05 and found personal income growth 44 percent higher in the 10 states with the best business tax climate compared to the 10 worst. The evidence is overwhelming that low, fair taxes are a key component of competitiveness and economic growth.
Democrats in the campaign scoffed at their tax-and-spend reputation and insisted they could manage the economy better than profligate Republicans. Well be watching.