I had the good fortune to watch a budget debate on Meet the Press with David Gregory (Sunday, 2/20/2011). The debate featured Senators Dick Durbin (D-IL) and Lindsey Graham (R-SC) responding to questions from David Gregory. During the debate, the following exchange was presented (transcript courtesy of the Meet the Press website):
MR. GREGORY: Well, let me just hold that. I want to get Senator Graham's response on this question of whether the president is making good on his promise to lead on this issue.
SEN. GRAHAM: Well, it's clear to me that he, he did not lead in the State of the Union. This budget does nothing, his budget does nothing on entitlement spending, and we all know that's where the money's at. It's a politically timid budget, it's a fiscally timid budget. It goes nowhere near where the debt commission went. It was $4 trillion over a decade. It allows the debt to double in four years, then triple by 2019. It's just not the document we need to keep from becoming Greece. The debt commission, if given life, can change this country.
Mr. Graham has used what has become a tired refrain concerning the federal deficit, and that is that if we don’t get a handle on the budget deficit, we’ll become like Greece.
Either Mr. Graham lacks an accurate grasp of the history surrounding the financial crisis in Greece, or he is deliberately omitting the primary reason why Greece had a financial crisis in the first place. I’m going to go with the latter and say that he is omitting important information that could tell us why the government of Greece teetered on failure.
Prior to the economic crisis in Greece, tax cheating in Greece was widespread at nearly all income levels, especially the highest levels. According to the CIA Factbook, the size of the Greece economy is about $329 billion as of 2009. Tax cheating in Greece was estimated at $30 billion a year, or almost 10% of GDP. I think that would have gone a long way towards properly financing the government and preventing the crisis in the first place.
So where are the Republican priorities? According to HR 1, their priority is to cut funding to the IRS, particularly with respect to the Affordable Healthcare Act, but also with respect to enforcement. All told, out of a $12 billion budget, they want to cut at least $600 million from Obama’s proposed budget when Obama wanted to add 8%. Most of the cuts are squarely aimed at enforcement.
Most of the enforcement budget is aimed at small businesses and very wealthy tax cheats hiding their money offshore. These are the people most able to afford expensive representation and guidance to legally reduce their tax liability, yet they have to resort to offshore tax shelters? These are the top 1% who complain bitterly about the deficit yet, they are willing to buy tax-free government debt at historically low interest rates. Essentially, they want enforcement pointed at everyone besides the top 1% income earners.
There is also the matter of corporate taxation where many of the largest corporations manage to pay trivial if not zero taxes. These same corporations are sitting on a pile of about $2 trillion in cash as they wait for the economy to recover. Through a maze of loopholes, deductions and what amounts to legalized money laundering through offshore entities, the largest corporations can pay very little in taxes. All they need to do is pay for the expert tax guidance to button up their paperwork. Their thinking is that they’d rather pay the tax preparer and the tax attorney than pay the government.
Republicans have skillfully framed the debate as a spending issue when collecting taxes is just as important as spending the proceeds. If Republicans want to have an honest discussion about the budget deficit then they need to get committed to tax enforcement so that we don’t be come another Greece.
