Raising Tax Rates During Jobs Crisis is "Last Thing We Want to Do'


By:  Mitch McConnell
Date: Nov. 29, 2012
Location: Washington, DC

U.S. Senate Republican Leader Mitch McConnell made the following remarks on the Senate floor today regarding the need for the President to shelve his campaign talking points and present a specific economic plan to prevent the country from going over the Fiscal Cliff:

"Throughout the week, I've raised questions about the President's level of seriousness and engagement when it comes to resolving the short and long-term fiscal challenges we face. I've done this because, as I've said repeatedly, the President is the key to success in all this.

"So I'm hoping that when Secretary Geithner comes up to the Capitol today, he brings a specific plan from the President that the two parties could agree to for the good of the country.

"I hope to hear the administration's specific plans for protecting jobs and promoting economic growth for middle class Americans while reducing the debt by strengthening entitlements, reducing Washington spending, and preventing a tax hike on every American taxpayer.

"Until now, the White House has preferred talking points and an appeal to the hard-Left to a serious discussion about how we fix the economy, reduce the federal debt, and return the country to a path of growth and prosperity for all. They're stuck on the same tired slogans.

"And it's totally counterproductive. So this morning, I'd like to address one of these recurring talking points in a little more detail, in the hope that the White House puts it aside, and starts talking in a way that suggests they're actually serious over there about finding a solution.

"I'm referring to the oft-repeated assertion by the White House and reporters alike that those of us who insist on not raising income tax rates on anybody are doing so to "protect the rich'. I assure you: that has nothing to do with it.

"Check the polling data: the super-rich vote for Democrats. We're not insisting on keeping tax rates where they are to protect some sliver of the electorate. We're insisting on keeping tax rates where they are, first and foremost, to protect jobs. And because we don't think government needs the money.

"The problem, as I've said, isn't that Washington taxes too little but that it spends too much. But if more revenue is the price that Democrats want to exact for supporting other necessary reforms, then we should at least agree that we do it in a way that doesn't cost jobs and dis-incentivize work, as we all know raising rates would do.

"A lot of people around here seem to have forgotten that we're still in the middle of a jobs crisis. I can tell you a lot of folks are hurting in Kentucky. National unemployment's still just a hair below eight percent, and millions of Americans are still looking for work. So if it's an iron law of economics that you get less of what you tax, why on earth would we want to raise taxes on work?

"Rates matter because they affect behavior. The higher the tax rate, the higher the disincentive to work.

"This isn't just Republican orthodoxy. It's basic economics. As the non-partisan Congressional Budget Office recently put it:

"Increasing revenues by raising marginal tax rates on labor would reduce people's incentive to work and therefore reduce the amount of labor supplied to the economy' which would, they go on to say, by itself "decrease output in the medium and long term.'

"In the middle of a jobs crisis, that's the last thing we want to do. Shouldn't we all agree on that?

"The negative effect that raising rates has on labor is so widely acknowledged that the Joint Committee on Taxation actually has models that incorporate the effects of doing it. They also know that higher rates increase the incentive to shelter income from taxation. When rates are higher the people paying them try even harder to keep government from taking what they earn.

"In short, raising rates means less labor, less investment, and more incentive for the wealthy to waste money in an attempt to shelter what they've earned. We can quibble about the magnitude of these effects, but everyone agrees they exist. The problem is particularly acute for those thinking about taking a second job in a household, which in many cases unfairly targets married women looking to supplement the family income, or someone considering a promotion or starting a new venture.

"Instead of raising rates, Republicans have proposed capping deductions through tax reform instead. If the only way to get Democrats to agree to pro-growth tax reform and meaningful entitlement reform is through more revenue, a smarter way to do it is by capping deductions. Capping deductions, or tax expenditures as some call them, is a far less painful, more economically sound way of closing deficits. And the Congressional Budget Office agrees.

"As the CBO recently put it:

"Increasing revenues … by broadening the tax base would probably have a smaller negative effect, or even a positive effect, on the amount of labor supplied.'

"The White House likes to say that you can't come up with a realistic plan to reduce the deficit without raising tax rates. It's just not true. Not only are there plenty of ways to do it, there are ways to do it that minimize the disincentive to work, and they can be found right in the President's own budget.

"In the President's own budget, he proposes three different ideas that, combined, dwarf the $442 billion revenue his own Treasury estimates he could grab from increasing the top two rates. All of them cap the amount that higher-income Americans can deduct from their income taxes, and all of them do it in a way that is far less damaging than raising those tax rates, while protecting middle-class taxpayers.

"Look: I don't like any of these ideas. They all hurt someone. The government spends way too much money as it is, and frankly, I don't think the Democrats are any more interested in using new revenue to lower the deficit now than they've ever been. But don't tell me you have to raise rates to do it. It's not true.

"And the longer Democrats keep saying it, the longer it's going to take to come up with an agreement.

"The only reason Democrats are insisting on raising rates is because raising rates on the so-called "rich' is the holy grail of liberalism. Their aim isn't job creation. They're interested in wealth destruction.

"But the President needs to realize he wasn't elected President of the hard-left wing of the Democratic Party. He was elected President of the United States. He's the steward of the nation's finances. He's got a responsibility to everybody to work out an agreement. And that means he's got to come up with something that can get through a Republican House.

"So, we're still waiting on the President. We can get there. But he's going to have to lead. And he can start by putting the campaign talking points on the shelf.

"I know that whacking the rich works politically. I get it. But the election's over. It's time to lead."

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