Tax hikes to be subject of intense debate

It’s the T-word almost as dreaded in the United States of America as terrorism and the Taliban.

WASHINGTON — It’s the T-word almost as dreaded in the United States of America as terrorism and the Taliban.

Taxes.

And as U.S. President Barack Obama prepares for a White House summit of congressional leaders on Thursday aimed at resolving a bitter dispute about raising the government’s US$14.3 trillion debt ceiling, the notion of raising taxes to try to avoid fiscal catastrophe is once again agitating lawmakers.

Republicans have been demanding trillions in spending cuts without tax increases, saying to boost taxes during a time of recession will bring any fragile economic recovery to a screeching halt. Democrats have said they’ll support cuts but want some tax hikes to be included in any agreement, saying it’s impossible to make significant progress without a mix of both.

The U.S. runs out of borrowing capacity on Aug. 2.

Failure to raise the debt ceiling by then could cause the country to default on servicing its debt and could lead to cuts in pay and benefits to federal civilian employees, military members and veterans.

Obama told a Twitter town hall meeting on Wednesday that should the U.S. default, “our credit could be downgraded, interest rates could go drastically up, and it could cause a whole new spiral into a second recession or worse.”

Nonetheless John Boehner, the Republican speaker of the House of Representatives, was talking tough on the eve of the summit.

The meeting will prove “fruitless,” he said, if Obama continues to insist that tax hikes on oil and gas companies and the wealthy must be part of any agreement.

But modern-day presidents have successfully hiked taxes, including beloved conservative icon Ronald Reagan, who did so in the early 1980s to help pull the country out of a crippling recession.

“The American people simply won’t stand for it. And their elected representatives in Congress won’t vote for it,” he said in a statement.

But is it true?

American antipathy for taxes dates back to the American Revolution, when the War of Independence was sparked in part by a series of taxes levied on colonial settlers by Great Britain.

And even though U.S. taxes are relatively low compared to those in other industrialized nations, many Americans have remained vociferously anti-tax due partially to their historical distrust of those collecting the taxes.

To even suggest a would-be legislator might be secretly scheming to raise taxes, even those that would only be imposed on the wealthy, is often enough to stop a political career dead in its tracks.

There were major tax hikes in Reagan’s Tax Equity and Fiscal Responsibility Act in 1982, and further increases four more times during the remaining six years of his presidency. The tax hikes raised about US$190 billion in today’s dollars.

Amid the current fiscal crisis — and in the aftermath of the tax-cutting bonanza of the George W. Bush years — American attitudes about tax increases appear to be changing.

A Washington Post/ABC poll in June suggested that 61 per cent of Americans believe higher taxes are necessary to help reduce the deficit. A recent Pew Research Center poll also found that 66 per cent of Americans want to see those who make more than US$250,000 a year pay higher taxes.

David Walker, the former comptroller general of the United States under Bill Clinton and George W. Bush, says it’s simply untrue that Americans will not stand for tax increases, and accused Republicans of “playing with dynamite” by refusing to budge on the taxation front.

“Americans want to keep taxes as low as possible,” said Walker, who’s been travelling the U.S. to promote his Comeback America Initiative, a group that promotes fiscal responsibility.

“They do not have as high a tolerance for taxes as many OECD (Organization of Economic Co-operation and Development) countries … but they also know you can’t spend a lot more money than you make and charge it to a credit card indefinitely without facing a day of reckoning, and that day of reckoning is upon us.”

Even Bruce Bartlett, a one-time top financial adviser to Reagan, recently called for tax hikes, adding that “contrary to Republican dogma, polls show that the American people strongly support higher taxes to reduce the deficit.”

Walker says Republicans are out of touch on the issue of taxation.

“Washington is an island surrounded by a sea of reality, and some of these politicians are simply not hearing what a broad cross-section of Americans are telling them,” he said.

He adds those on Capitol Hill are failing to heed the lessons of politicians like Reagan and those from other countries, including their neighbour to the north, as they grapple with the debt crisis.

“America is a great country, and we are great people, but there are two things we are not very good at,” he said.

“The first is learning from history, and the second is learning from others, including Canada, a country that has dealt with serious fiscal challenges in ways we could learn from. There is an unfortunate tendency in the U.S. to think others have things to learn from us but we have nothing to learn from anyone else.”

There were signs later Wednesday, however, that Republicans might have opened the door a crack to compromise on tax increases. Leading Republican Eric Cantor said Republicans could back some tax hikes in exchange for tax cuts elsewhere.

“If the president wants to talk loopholes, we’ll be glad to talk loopholes,” Cantor said at a news conference. “Any type of discussion should be coupled with offsetting tax cuts somewhere else.”

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