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Letter


An Open Letter to the United States Congress on the Debt Ceiling

May 16, 2011

Dear Member of Congress:

On behalf of the 362,000 members of the National Taxpayers Union (NTU), I write to express our views on the important debate surrounding America’s collision course with the $14.3 trillion federal debt limit. Decades of reckless spending have brought us to a defining moment for our nation’s fiscal future. We urge you to take this opportunity to enact several long-overdue structural reforms that will help prevent a crippling debt crisis. Without passage of these reforms, NTU will oppose increasing the debt ceiling.

First, Congress must pass a strong Balanced Budget Amendment (BBA) to our Constitution and send it to the states for ratification. The most prominent of these proposals is the “consensus” BBA introduced as S.J. Res. 10 by Senator Orrin Hatch (R-UT), along with every other Senate Republican) and as H.J. Res. 56 by Representative Joe Walsh (R-IL). This measure contains a three-pronged approach to protecting taxpayers: a simple balanced budget requirement, a supermajority requirement to enact any tax increase, and a limit to prevent spending from climbing above the post-war revenue average of 18 percent of Gross Domestic Product (GDP). This structure would prevent government from growing faster than its citizens’ ability to afford it, while spurring needed reforms to entitlement programs that threaten our solvency. Other BBAs with considerable support (and varying approaches to tax and expenditure control) include H.J. Res. 1 and H.J. Res. 2, both authored by Representative Bob Goodlatte (R-VA).

However, ratification of a BBA by the necessary 38 states may take several years. For that reason, it is also necessary to enact a durable statutory mandate that firmly moves expenditures downward to the 18 percent equilibrium point our economy can sustain. Senators Bob Corker (R-TN) and Claire McCaskill (D-MO) have introduced a laudable plan with somewhat similar aims – the “CAP Act” – which contains strong sequestration provisions that provide for automatic enforcement of a spending limitation. Considering that federal revenues have exceeded 20 percent of GDP in only three years since 1940, we recommend a set-point lower than the CAP Act’s 20.6 percent of GDP to facilitate the essential long-term goal of regularly balanced budgets.

One thing that absolutely must not be on the table is any form of tax hike on American families or businesses. The looming federal debt explosion does not stem from a lack of revenues. While receipts have been depressed substantially by the recent recession, Washington is still raking in about as much money from taxpayers as it did in 2003 (after adjusting for inflation). Furthermore, revenue will return to average levels by the end of this decade even after extension of the 2001 and 2003 taxpayer relief laws and permanently “patching” the Alternative Minimum Tax so its reach threatens fewer households. Meanwhile, if some in Congress continue to thwart entitlement reform and spending restraint, outlays will skyrocket to more than 34 percent of GDP, a level that would require nearly doubling tax rates across the board to reconcile solely through revenues. That huge tax increase would be futile, since boosting burdens to this degree would put the country’s economic performance in a negative feedback loop. In short, the path of spending restraint simply means maintaining a government as large as its average over the past six decades, while the path of tax hikes means an unsustainable expansion of Americans’ tax bills and failure to make the prudent structural changes that are essential to prevent huge growth in government programs. That is why NTU will vigorously oppose any kind of a “debt trigger” that includes or allows any tax increase requirement.

The fight for fiscal responsibility will not end with the debt ceiling vote. The debt limit problem requires squaring our long-term obligations with our ability to meet them, but Congress must not overlook the urgent need for near-term reforms as well. For example, the House Republican Study Committee (RSC) improved upon the solid foundation constructed by Representative Paul Ryan’s (R-WI) budget with a spending outline that would reform entitlements and achieve balance by the end of the decade without tax hikes. NTU recently joined with the liberal U.S. Public Interest Research Group to identify more than $600 billion of specific common-sense reductions in wasteful and inefficient spending that would help meet those goals. A key part of RSC’s proposal is the complete elimination of the Patient Protection and Affordable Care Act, last year’s misguided health “reform” bill that raised more than $500 billion in taxes and included a potentially unconstitutional mandate to purchase health insurance. Complete repeal of this law as a necessary part of sustainable reform of our entitlement system.

Because it is expenditures, and not revenues, that are likely to deviate harmfully from historical norms in the future, NTU is strongly opposed to increasing tax burdens on hard-working Americans. However, we strongly support responsible tax reform. As our annual report on tax complexity, “A Taxing Trend,” shows, our hopelessly complex and bloated Tax Code imposes over $250 billion in annual compliance costs and siphons away more than 7.6 billion hours of productivity from our economy. The need for fundamental tax reform has never been greater, which is why NTU has endorsed several specific approaches, such as a national retail sales tax completely replacing the current Tax Code (H.R. 25) or a flat rate income tax (H.R. 1040). To begin this vital task, Congress should promptly adopt procedural incentives such as Representative Goodlatte’s “Tax Code Termination Act” (H.R. 462). Lawmakers should also seriously consider the simplification proposals put forth by Representative Paul Ryan (R-WI) in his budget plan. Tax reform must be revenue-neutral at minimum to keep from adding to tax burdens, but the benefits of a stable and comprehensible Tax Code to our economy (and in turn the federal government) would be dramatic.

While some in Washington claim that not increasing the debt ceiling would be careless, the truth is that the most negligent action Congress can take would be to add trillions more in debt without adopting the robust, long-lasting protections that are needed to prevent a future calamity. If we fail in that mission, there is potential for a debt crisis that could unfold not in the span of years or months, but in days as investors in markets all over the world demand huge premiums for holding American debt or begin walking away from it altogether.

If Congress fails to pass a strong Balanced Budget Amendment and a strong, credible statutory spending cap to fundamentally alter our unsustainable fiscal path, NTU will vigorously oppose an increase in the debt ceiling as irresponsible in the extreme. We also urge that the necessary conditions for a debt ceiling increase include complete repeal of the Patient Protection and Affordable Care Act.

     Sincerely,

     Duane Parde
     President