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Heller: Congress Can’t Tax Its Way Out of a Recession

March 25, 2009

Economic recovery is the one issue that should bring Democrats and Republicans together. Nationwide the unemployment rate is over 8 percent. My home state of Nevada has over 10 percent unemployment and leads the country in home foreclosures. Yet, as American families struggle, the administration and the majority party are pursuing fiscal policies that penalize working Americans and small businesses.  Unfortunately, in our current climate, ideology takes priority over common sense. Congress is recklessly spending money at nearly $1 billion per hour without regard for future generations. My colleagues on the other side of the aisle often use the phrase “inherited debt” and point to past transgressions. However, two wrongs do not make a right.

The majority party’s unprecedented $4 trillion spending spree this year is creating a record deficit. This record spending amounts to 28.5 percent of our gross domestic product, the highest level since World War II. This in turn creates $1.8 trillion in deficit spending — more than three times the previous record — doubling the national debt over the next eight years.  On this current, fiscally irresponsible path, the administration and Congress will be forced to spend more than $1 billion a day in net interest alone by 2012. Unfortunately this new spending and massive government growth is being used to justify the largest tax increase in our nation’s history.

The administration’s budget includes $1.9 trillion in tax increases that will discourage the formation of new businesses, increase all energy bills, and impact economic growth across the nation. Small businesses, the economic engine of the United States, will have to pony up $637 billion. Small businesses have created three-quarters of all new jobs nationwide over the past decade and are the lifeblood of our economy. This massive small-business tax increase should be labeled the “innovation tax” in the Democrats’ budget. The budget stealthily penalizes entrepreneurship and stifles innovation. Small businesses develop more patents than larger businesses because these firms often specialize in high-tech, high-growth industries such as biotechnology, pharmaceuticals, and information technology. If you have a good idea, Democrats in Washington want to tax it.

Nevada is one of the most business-friendly states in the country. This was achieved through a favorable tax climate for businesses. The administration’s tax increase on small businesses will discourage entrepreneurs from investing in new enterprises and struggling businesses will find it too costly to operate. As small businesses have a harder time getting started, the long term economic productivity of our country will be stifled.  Making it more difficult to own, operate and grow business works against the very basic thing our nation needs most — jobs. Promoting innovation, instead of taxing it, will create jobs and have long-term benefits to our economy.

In addition to taxing small businesses, a much more onerous tax is included in the Democrats’ budget. What is being called a “cap-and-trade” system is simply a consumption tax on every form of energy we depend on. Generally, under cap-and-trade plans, individual emitters would be allotted a certain number of emission allowances based on their historical emissions. Emitters then would buy, sell or trade emission permits. However, according to the Environmental Protection Agency, electricity costs would rise between 44 percent and 79 percent. The cap-and-trade system in the president’s budget is expected to raise at least $646 billion from the new tax. Energy costs seep into every aspect of American life. The cap-and-trade system will increase gas prices, heating costs and natural gas, raising the cost of living for every American.

While the administration offers a new $800 “refundable tax credit” to offset the costs of the new tax, it is not nearly enough to cover the estimated $1,600-per-household costs to middle class and poor families. As we learned last summer, high fuel costs hurt family budgets, law enforcement, local governments, schools and small businesses. Our nation’s energy issues are still unresolved, and this new tax will only compound the problem.  Every time you turn on a light, buy a loaf of bread, or pick up your children from school, you will be paying higher taxes.

Instead of pursuing innovations to curb emissions, the majority party is taking the easy way out and making energy so expensive that it will influence consumer behavior to curb consumption. We can all agree that we need to increase our use of renewable energy, but energy policy cannot consist of only conservation and growing renewable energy. The policy of cap-and-trade will slow economic growth and make middle-class families work even harder to maintain their quality of life.

The first priority for Congress should be fiscal discipline, yet this $4 trillion spending spree loses sight of that fact. Justifying future spending based upon past mistakes is not fiscal discipline — it’s irresponsible. Washington does not have a revenue problem; it has a spending problem. Growing government, increasing taxes, and discouraging investment is the opposite of what our economy and working families need. Congress should instead pursue proposals that reduce spending, lower the deficit and provide permanent relief for all taxpayers.
Heller is a member of the House Ways and Means Committee.