There's an old joke about a boy who
complains to his mother that his little sister keeps pulling his hair.
"Oh," responds the mother,
"she doesn't know that it hurts."
A few minutes later, the mother hears the
girl scream and runs into the other room. "She knows now," the boy
explains.
There's a lesson for Republicans in that
old joke, if they're smart enough to absorb it.
For the past few
years, there has been a drumbeat in favor of increased taxes from Democrats of
all stripes. Make the rich pay their "fair share." Get rid of
"loopholes." Make the fat cats "chip in a little more."
Then Democrats hold up budgets and bills in an effort to extract some tax
increases from Republicans.
It's no coincidence that much of the
Democrats' base doesn't have to worry about taxes much, either because they
work for nonprofits and public entities that don't pay taxes, or because they
live off government benefits, or because they work in industries -- like the
motion picture and recording industries -- with a long history of shady
accounting and favorable tax treatment. Republicans, if they're smart, can
nonetheless teach them that tax increases do, in fact, hurt.
They should head into the next budget
battle with a list of proposals for tax increases that will sting Democratic
constituency groups, but which will seem eminently fair to voters.
The first such
proposal would be to restore the 20 percent excise tax on motion
picture theater gross revenues that existed between the end of World War II and
its repeal in the mid-1950s. The campaign to end the excise tax had studio
executives and movie stars talking like Art Laffer, as they noted that high taxes
reduced business income, hurt investment and cost jobs.
The movie excise tax was imposed in
response to the high deficits after World War Two. Deficits are high again, and
there's already historical precedent. Of course, to keep up with technology,
the tax should now apply to DVDs, downloadable movies, pay-per-view and the
like. But in these financially perilous times, why should movie stars and
studio moguls, with their yachts, swimming pools and private jets, not at least
shoulder the burden they carried back in Harry Truman's day -- when, to be
honest, movies were better anyway.
For extra fun, they could show pictures of
David Geffen's yacht and John Travolta's personal Boeing 707 on the Senate
floor. You want to tax fat cats? I gotcher "fat cats" right here!
Repeal the Hollywood Tax Cuts!
Another valuable proposal would limit the
ability of tax-exempt organizations to escape scrutiny and hoard funds. To
limit foundations' role as perpetual-employment agencies for cause-oriented
Lefties (and it's mostly Lefties), Congress might require them to spend at
least 10 percent of their endowment each year, with no wiggle room. Why should
rich people be able to go on influencing the culture, tax-free, for decades
after they die? (Or, perhaps more accurately, why should foundation
apparatchiks be free to pursue their own goals tax-free with other people's
money?)
Limits on the charitable deduction might be
worth considering: Perhaps a $50 million lifetime limit, which should surely be
enough for anyone; perhaps a $1 million to $5 million annual limit. Why should
fatcats like Warren Buffett be able to get millions in tax deductions that
average Americans can't?
Limiting the pay of nonprofit leaders (including
university presidents and foundation heads) to no more than the pay of a member
of Congress or a Supreme
Court justice might also be worthwhile. Who needs to make more money
than that, especially when it's coming from tax-deductible sources? At some
point, you've made enough money, as a great man once said.
Beyond this, if Democrats demand truly
serious tax increases, Republicans could propose capping the mortgage interest
deduction so that houses worth more than $250,000 are ineligible. (You say that
hits blue states harder? Darn!) Ending the deductibility of state property and
income taxes -- which would also hit residents of high-tax blue states harder
-- might also be worth it. These measures would be unpopular with a lot of
voters, but they'd mostly be Democratic voters.
I'm just a mild-mannered law professor, and
if I can think of these things, I suppose the tax experts and legislative
wizards in Congress could do much better. So why haven't they?
One reason -- as many observed when so many
Republicans were carrying water for Big Entertainment over various draconian
and corrupt intellectual property bills, from the DMCA all the way to SOPA and
PIPA -- is that too many Republicans can't bring themselves to go against big
business, even big businesses that are their sworn enemies. That hardly speaks
well of their perspicacity, or their public-spiritedness.
Another reason may be that they're so used
to attacking Democratic tax increase proposals that they're in a rut. But these
are desperate times, and they call for desperate measures. A little bit of
hair-pulling by the GOP, and Democrats may quickly lose their enthusiasm for
tax-increase grandstanding. If some of them wind up sounding like Art Laffer,
well, that's just a bonus.
Examiner Contributor Glenn Harlan
Reynolds is a University of Tennessee College of Law professor and founder and
editor of Instapundit.com.