Lost amid all the shouting and sound-bytes is the fact that there are actually two ways to increase government revenue. The first, espoused by most Democrats in Washington, is to raise tax rates. The second, and much less talked about way, promoted by most Republicans, is to grow the economy.
The idea is that rather than punish individuals with higher tax rates, the government should create an atmosphere that encourages entrepreneurs to grow, small businesses to hire, and investors to invest. As the economy grows so too will the amount of money flooding into the Treasury. In fact, a recent Office of Management and Budget report found that a 1 percentage point increase in gross domestic product (GDP) can reduce the deficit by as much as $3.2 trillion over ten years as a result of $2.8 trillion in higher revenues and $350 billion in lower welfare spending.
Unfortunately, the current administration is doing little to foster that growth.
That became all the more clear when the results of President Obama’s government-wide review of regulations were released yesterday. In an Wall Street Journal op-ed hyping the results, Cass Sunstein, the administrator of the Office of Information and Regulatory Affairs, said that the package of regulations that would be cut could save more than $10 billion over five years.
Reason Magazine summed up my feelings best with their headline, “Washington Is Eliminating Some Red Tape, Keeping Most of It.”
Sadly, “Adding to It,” may have been a more appropriate title. In another op-ed from yesterday, Sen. Barrasso (R-WY) pointed out that “since the start of the year, the administration has proposed more than 340 regulations at a cost of more than $65 billion to job creators.” That won’t be the end of things either. The health care reform bill created 183 new agencies, commissions, and panels that will be creating hundreds of new regulations to carry out the law’s provisions. On top of that, the Dodd-Frank financial reform bill imposes nearly 500 new regulatory rulemakings.
The impact of all this new red-tape on American businesses is yet to be seen, but it has the potential to be huge. The Small Business Administration estimates that the regulations we already have on the books impose annual compliance costs of $1.76 trillion. In the face of that huge sum, $10 billion is like change you find in the couch cushions – yea, you’re happy to have it, but it’s not going to change your financial life.
If Washington really wants to grow the American economy and cut the federal deficit they should forget raising taxes and instead cut red-tape.