U.S. has tax-cut its way into debt-Revenue problem!!-Mitt Romney says that on his first day in office he would introduce tax cuts

Fareed Zakaria

The Obama campaign’s attack ad about
Bain Capital presented a simplistic picture of a complicated reality.
Private-equity firms can play a crucial role in keeping companies
competitive. And although some firms have engaged in some bad practices,
on the whole the industry has grown so large because it performs a
useful function. But the worst part about the ad was that it had little
to do with America’s challenges or Obama’s policies.

By contrast, Mitt Romney’s first
major ad is substantive — and wrong. He tells us that on his first day
in office — after approving the Keystone XL pipeline — he will introduce
tax cuts “that reward job creators not punish them.” The one idea that
is almost certain not to jump-start this economy is a tax cut.

Why can we be sure of this? Because
this is what we have done for the past three years. For those who think
President Obama’s policies have done little to produce growth, keep in
mind that the single largest piece of his policies — in dollar terms —
has been tax cuts. They actually began before Obama took office, with
the tax cut passed under the George W. Bush administration in response
to the financial crisis in 2008. Then came the stimulus bill, of which
tax cuts were the largest chunk by far — one-third of the total. The
Department of Transportation, by contrast, got 6 per cent of the total
to fix infrastructure.

This wasn’t the end of it. There was
the payroll tax cut, the small-business tax cut, the extension of the
payroll tax cut, and so on. The president’s Twitter feed boasted:
“President Obama has signed 21 tax cuts to support middle class
families.” And how has that worked out?

In the wake of a financial crisis
caused by excessive debt, tax cuts are highly unlikely to lead to
increased economic activity. People use the money to pay down their
debts rather than shop for cars, houses and appliances. As for the idea
that employers are not creating jobs because their taxes are too high,
think about it: Would Mitt Romney invest more of his money in American
factories if only he had paid less than the 13.9 per cent rate he paid
last year? Please!

The Wall Street Journal invoked
Milton Friedman to say that the problem with all of these tax cuts is
that they are temporary. If only we had across-the-board cuts in rates.
Except that these were tried as well. The 2001 Bush tax cuts were
designed precisely along those lines. They were, in dollar terms, the
largest tax cuts in U.S. history.

And the non-partisan Congressional
Research Service concluded in 2010 that “by almost any economic
indicator, the economy performed better in the period before the (Bush)
tax cuts than after the tax cuts were enacted. . . . GDP growth, median
real household income growth, weekly hours worked, the
employment-population ratio, personal saving, and business investment
growth were all lower in the period after the tax cuts were enacted.”
The years 2000 to 2007 were the period of the weakest job growth in the
United States since the Great Depression. The one certain effect of tax
cuts would be to balloon the deficit. Bruce Bartlett, a former economic
official under Ronald Reagan, points out that the aggregate revenue loss
of the Bush tax cuts was the largest in U.S. history: “Both Harry
Truman and Ronald Reagan passed larger individual tax cuts, but both
took back about half of them with subsequent tax increases.”

When pressed, Romney and his advisers sometimes say that they are just for tax reform; other times, they cite the Simpson-Bowles
plan. I’ve long argued that reforming the nation’s bloated and corrupt
tax code is vital and that Simpson-Bowles is a superb framework for
deficit reduction. But neither would cut taxes. Simpson-Bowles raises
them by more than a trillion dollars. You can use euphemisms such as
“ending tax expenditures” and “closing loopholes,” but when you do that,
someone’s taxes will go up. And when you close big loopholes such as
the deduction of mortgage interest — which is the only way to get real
revenue — tens of millions of people’s taxes will rise.

Tax cuts have been a central cause of
America’s deficit problems. For four decades, Washington politicians
have bought popularity by cutting taxes, always saying that spending
cuts or growth will make up for lost revenue. That rarely happened, and
the result is $11 trillion in federal debt held by the public. To
perpetuate this pandering one more time is not just dishonest — it is
dangerous.

Fareed Zakaria is editor-at-large of Time magazine and a Washington Post columnist. comments@fareedzakaria.com