Kentucky Sen. Rand Paul says tax hikes will stifle growth but tax and entitlement reforms and major spending cuts could go a long way to putting our fiscal house back in order.
Sen. Paul says both parties need to give up some “sacred cows” to make progress on reform. In the short term, however, he fears the Republicans will give in on raising taxes on wealthy Americans and small businesses to avoid the so-called fiscal cliff.
“The disconcerting thing is you’re now hearing Republicans who are saying, and even conservatives saying, ‘Well, if taxes are going to go up two trillion at the end of the year if we do nothing, anything less than two trillion is really a tax increase. It’s a tax reduction,'” said Paul. “We had someone at one of our caucus meetings just the other day say, ‘Why don’t we raise $750 billion in taxes but we’ll call it a tax cut because if we do nothing and all the tax cuts expire, taxes go up by two trillion.’ Now only in Washington can you come up with math that says, ‘We’re going to raise taxes by a trillion dollars over what they are now but we’re going to call it a trillion dollar tax cut.'”
In addition to the fuzzy math, Paul says the exchange shows that Republicans are already acting like the tax cuts the Obama administration wants are all but a done deal.
“My fear is the dam is cracking and that many people, once they accept the idea that any kind of tax increase short of the tax increase that will occur when the Bush-era rates expire is not really a tax increase – that sort of convoluted logic is going to lead us to a really bad outcome. The people who will suffer for this are the people trying to find work. It’s the people who are unemployed or underemployed, kids getting out of college. You want more money in the hands of those who create jobs. You do not want more money in the hands of your politicians. It will be wasted, squandered and counterproductive if you send it to Washington.”
Sen. Paul is a staunch opponent of raising marginal tax rates on anyone.
“I don’t think it’s good for the economy to squeeze more revenue out of it and send it to Washington,” he said. ” I think the best way to stimulate the economy is to leave more money in Kentucky, Ohio, Florida. Leave more money with the people who earned it. They will spend it more wisely.”
The senator says this debate boils down to simple economic truths.
“(Milton) Friedman often said that nobody spends somebody else’s money as wisely as they spend their own, or as frugally,” said Paul. “The private economy is the productive economy. That’s where jobs come from. Government jobs are paid for when the private economy is growing. The private economy is stagnant, so the last thing you’d want to do is squeeze more money out of the private economy. What you want to do is leave more money in. So it’s precisely the opposite of what we should do right now.”
Instead of tax increases, Sen. Paul believes much of the fiscal dysfunction in Washington can be addressed through intelligent spending cuts and tax reform. When it comes to spending, Paul says both sides have to be ready to give a little.
“I think the compromise is both Republicans and Democrats giving up on some of their sacred cows and admitting that spending could be reduced across the board,” said Paul. “That also means looking at entitlements. Entitlements are two-thirds of the budget and they’re squeezing out all other spending. You have to reform entitlements or you can’t balance the budget and you can’t live within your means. So we do need to look at ways to save Social Security and Medicare. That means there will be changes.”
If entitlements are the “sacred cows” of Democrats, Sen. Paul points to defense spending as an area where the GOP needs to give some ground.
“There is a certain bit of irony in that many of the folks that are running around caterwauling, their heads are exploding because the military spending might go down. They all voted for it,” said Paul. “I didn’t even vote for the military sequester, but the people who did vote for the military sequester are now the loudest ones saying we can’t cut the military.”
Sen. Paul reiterated he is not a supporter of the sequester but he contends the scheduled cuts would not be as devastating as some in his party allege.
“It’s $600 billion in cuts to proposed increases in spending,” said Paul. “If you look at spending in the military over the ten years, even with the sequester, military spending will be higher in ten years than it is now. I won’t argue that there’s not a pretty significant and steep cut in the first year. But would I would argue is that military spending has doubled in the last 10 years. Our military spending is greater than all of our NATO allies combined. Our military spending is greater than all of the next 14 in line combined. So really we are spending quite a bit.”
Sen. Paul takes a pretty aggressive path towards balancing the budget. His recent plan calls for the books to balance within five years, compared to a 28-40 year span in the House budget authored by Paul Ryan.
But as for the current standoff, Sen. Paul is not optimistic things will end in a way that benefits the country. In fact, he thinks it will be resolved the way most things are as a major deadline approaches – through a massive bill.
“I fully predict that some big, huge package, stuffed full with everything you can imagine that’s coming to the end,” he said. “It’s not just this. There’s probably ten other items. I believe they’ll all be stuffed into a very unsightly package and that it’ll pass.”
