‘Super committee’ Republican: Simplify taxes

Aug. 20, 2011, 9:00 a.m. EDT

‘Super committee’ Republican: Simplify taxes

More spending ‘very bad idea,’ tea-party favorite Sen. Toomey says

By Robert Schroeder, MarketWatch

WASHINGTON (MarketWatch) — The 12-member “super committee” tasked with cutting the U.S. budget deficit has a “great opportunity” to simplify the tax code, Sen. Pat Toomey says. What it won’t do, if the Pennsylvania Republican gets his way, is spend any government money in an attempt to boost economic growth.

Spending, the former Club for Growth president said in a phone interview with MarketWatch, is “an artificial way that the government tries to conjure up demand.” That philosophy puts the 49-year-old senator on a collision course with Democrats including President Barack Obama, who suggest that there should be more infrastructure investment. (Democrats are also angling for certain tax cuts, like an extended payroll-tax holiday.)

The bipartisan panel, set up by the deal to raise the U.S. debt ceiling, is charged with coming up with $1.5 trillion in spending cuts by Nov. 23. Toomey, who calls the tea-party movement “very, very constructive” in U.S. politics, said his goals for the committee are significant deficit reduction, and pro-growth policies.

The following is a condensed and edited interview with the freshman senator, a former investment banker who also represented the Keystone State’s fifteenth district in the House for three terms.

MarketWatch : I’d like to start off with a general question, about your priorities. How difficult will it be to compromise with the Democrats on the panel?

Sen. Toomey : Well, my priorities are to accomplish the most significant deficit reduction that we can, provided we do it in a fashion that is pro growth. This will not be a success if we were to do something that was harmful to the economy. We generally shouldn’t do that; don’t need to do that. So those are my twin goals: deficit reduction and pro-growth policy.

Q: Democrats have said that they want to strengthen entitlements, to use their word. Also to “modernize” Medicare, to use [Democratic] Congressman [Chris] Van Hollen’s word. In these talks are you going to push for something akin to the House Republican budget, where they use a voucher-style program [for Medicare]? Read interview with Rep. Van Hollen.

A: I don’t really want to get that specific this early on. Let’s see where these discussions lead. The one thing that we certainly know is that Medicare is in big trouble in its current form. It has been subject to this rationing down of reimbursements that’s already having an adverse impact on senior citizens, especially in terms of lesser access to health care. I know my parents seem to have to wait forever to get in to see a doctor. This is increasingly becoming problematic. So the structure is certainly unsustainable, we all know that.

It’s a very tall order to fundamentally redesign it, especially in a short period of time, so I understand that, but I hope we will be able to make some substantive improvements.

Q: That save money, I assume, as well.

A: Well, absolutely. We have a system that has many unintended and counter-productive incentives and is not at all economically efficient. Certainly there are opportunities to do that. But that’s a tough thing to accomplish and I think this committee is only going to be able to do so much.

Q: Since the downgrade by Standard & Poor’s, borrowing costs have actually gone down. You’ve seen what’s happened to yields. So as long as the Chinese and private investors are buying bonds, why not inject some stimulus like more spending, or tax cuts?

A: There’s a huge difference between lower taxes and increased spending. Lower taxes generate growth through the supply side. It makes it less expensive to launch a venture, to expand a venture, to hire workers and so it’s an incentive to increase production and ultimately it’s production that’s the source of wealth of a society. So my focus has always been on the supply side.

Spending doesn’t have any of those features. It’s an artificial way that the government tries to conjure up demand. As we’ve seen repeatedly in the United States and around the world, countries that attempt to borrow and spend their way to prosperity end up putting themselves in a worse position than they would be in with nothing at all.

So despite the, I think, very temporary and artificially low interest rates we have now, I think it’d be a very bad idea to go out and take on even more debt and spend that. The whole purpose of this committee is just the opposite, it seems to me: it’s to reduce the size of our deficit and begin to get our debt level under control.

Q: So I guess it’s safe to say you were discouraged by reports that President Obama may seek more infrastructure spending and stimulus.

A: I don’t want to comment on the president’s proposals until I’ve seen the specifics of it. But more deficit spending above and beyond the unsustainable levels that we’re already at, I think that’s not a good idea.

Q: You’ve said that “there are a lot of opportunities in the tax code to make it more sensible.” What does that mean specifically? Does it mean closing loopholes, or other things, and if it does mean loopholes, which ones?

A: I’m not going to attempt to negotiate some kind of deal here on the phone. But I think it’s very hard to dispute the premise that our tax code is absurdly complicated. It creates all kinds of distortions in our economy. It has all kinds of special interest loopholes and write-offs and deductions that in my view are counter-productive. I don’t think the government should be using the tax code to reward and punish people based on their behavior, or business, for that matter. I think the market ought to decide how to allocate capital. Unfortunately we’ve got a tax code that does a lot of the allocation by legislative fiat, which is very unproductive.

I think the general theme is, we could benefit enormously by simplification, reducing these special interest features, and having a corresponding reduction in marginal rates, so that we would increase the incentives to invest, to expand existing businesses, to attract foreign capital, all of those things are enhanced if we simplify the code, make it more fair, and lower marginal rates. That’s an area of great opportunity for us.

Q: Finally, you’ve been described as the tea-party representative to the group. Do you agree with that characterization? If so, do you feel any responsibility to the tea-party movement?

A: Well, people characterize people in a lot of different ways. Let me just say that I think the tea party has been a very, very constructive movement in American politics. As you know, it has no formal structure, there is no hierarchy, it’s a movement of people who believe in limited government and economic freedom and fiscal discipline.

I feel an obligation to the people of Pennsylvania and to the principles that I have articulated as the reason that I was running for the Senate. Those are the principles I’m going to honor: limited government, free enterprise system, reducing spending, getting our deficit under control, having pro-growth policies. Those have always been my focus; they’ll continue to be.

Q: Do you have any final thought about the super committee or the work you’re going to do?

A: I’m looking forward to it. We’ve got a tall order in front of us. This work’s going to be tough but it’s very, very important and I’m looking forward to it.

Robert Schroeder is a reporter for MarketWatch in Washington.



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