ICYMI: McIntosh & Cass Debate Pro-Growth Vs. Populist Policies & The Deficit
Washington, D.C. – In case you missed it, David McIntosh, President of the free-market Club for Growth, debated populist economist and Executive Director of American Compass Oren Cass on Open To Debate. McIntosh and Cass discussed if higher taxes should be used to bring down the deficit. Cass supported raising taxes to close the deficit, while McIntosh argued that taxes are already too high, and America has a spending problem which should be cut instead of raising taxes which would devastate jobs and the middle-class. New York Magazine’s Nayeema Raza moderated the debate.
Click here to listen to the full debate.
DEBATE EXCERPTS:
Nayeema Raza: It is often said that there are only two guarantees in this life, death and taxes. But if we were to add a third in the 21st century, it might be that the Republican party will almost always refuse to raise those taxes. Indeed, we saw major tax cuts under President George W. Bush, and we saw more yet under President Donald Trump, many of which are set to expire next year. The 2024 elections will determine what happens to those expiring tax credits with Republicans overwhelmingly seeking to continue them. And Democrats proposing to only keep tax cuts for less wealthy Americans while adding new taxes for wealthy individuals and for corporations. It’s a difference that the Wall Street Journal has estimated is about $6 trillion in revenue over 10 years. And to put that in context, that’s almost 20% of our current national debt, which has reached a toll of $34 trillion and counting. So, all of this begs the question of whether the Republican Party’s refusal to raise taxes is fiscally irresponsible. And here to debate that I have two highly influential Republicans who do not see eye to eye. So, let’s meet our debaters. Arguing yes to the question is Oren Cass. Oren is the executive director of the Think Tank, American Compass, New York Magazine also dubbed him the nerd trying to turn the GOP populist. He’s a former senior fellow of the Manhattan Institute and a political advisor who has advised Senator Marco Rubio on economic policy and served as domestic policy director in MIT Romney’s 2012 Presidential campaign. Welcome Oren. Thanks for being here. Are you in fact, the nerd trying to turn the GOP populace?
Oren Cass: I am a nerd. We’d have to talk about the word populism a little more. Okay. But it’s not, not a bad description.
Raza: Not a bad description. Thank you for being here and arguing No to the question of is the Republican party’s refusal to raise taxes fiscally irresponsible is former US congressman from Indiana, David McIntosh. David is a co-founder of the Federalist Society for Law and Public Policy, and he is president of the Club for Growth, a conservative organization that advocates aggressively for free markets and against taxes. The New York Times calls it an anti-tax organization. And the Club for Growth’s political arm has backed the state races of influential Republicans like Texas Senator Ted Cruz and Florida Governor Ron DeSantis. Welcome, David.
David McIntosh: Thank you. It’s great to be here.
Raza: Are you an anti-tax organization?
McIntosh: I think that’s a fair description. Okay. We’re we’re called a lot of things, but I, I’ll take that one.
Raza: Yes. All right. Before we jump in, I just have two rapid fire questions for you. Why do you think the discussion is urgent now and which politician do you look at? Could be a Republican or a Democrat that’s the best exemplar of what Republicans should be doing tax wise.
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McIntosh: So, I think the question is misdirection from the problem we have or mentioned it, we’ve got a looming fiscal crisis, runaway spending and debt. And the problem really is the spending, not the tax structure. I think the leader who did best on tax policy was actually former Senator Pat Toomey, who did a large amount of the crafting of the Trump tax cuts.
Raza: I want to jump in now to opening arguments. We’ll dive right in. I want each of you to take a few minutes to just explain your position.
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McIntosh: My answer is emphatically no. Raising taxes would hurt the economy, hurt the American people, send us in the wrong direction. And to say, we’ve got a big spending problem and therefore we should raise taxes seems to me the exact wrong direction because it deflects from needing to gather the political force to actually get Washington to reduce spending. Since the 1990s, politicians in both parties have ignored any sense of responsibility about spending because they could borrow. And the new economic theory says, don’t worry about debt and deficits. It’s all gonna be fine. And they don’t tell you this, but the reason they think that is that we can shuffle the consequences off to the rest of the world because our currency is the reserve currency. That’s coming to an end. You see China and Russia and India, Brazil starting to form a coalition to challenge us as that reserve currency. And when that happens, then all of the inflation that comes from our debt comes back to us even worse and more dire consequences than we’re seeing now with inflation. So, the answer isn’t to say, okay, let’s belly up to the bar and raise everybody’s taxes because what we’ve seen in the past is lower taxes actually increase the economy, and that lets the government collect more revenue. Kennedy did it in the 1960s, and economic growth went from 2.5% to 4.5%. Reagan on the whole cut taxes, flattened taxes. And you saw tremendous economic growth. Clinton, and cut taxes when the Republican Congress came in with the Contract with America and his capital gains tax cut led to 1% higher GDP. That extra growth, particularly in the tech sector, brought in so much more revenue that by holding the line on spending, which was the last time Congress held the line on spending, we actually had a surplus for the first time in about 40 years. Again, the Bush tax cuts helped generate economy. The Trump tax cuts did too. They increased economic growth from 2.5% to 4.5% and greater investment.
Conversely, with the Biden tax increase recently, where the Congress did go along with a, about a less than half a trillion dollars of tax increases, they coupled that with multiple trillion dollars of deficit spending. So increasing taxes in the past has not been accompanied with tax, with spending cuts. It’s been accompanied with more spending. Reagan found that out. He thought he had a deal with the, the Democrat Congress where he would raise one of those tax increases or unmentioned, and in exchange they would reduce spending by two or three times the amount. Well, they took the tax increase, but the liberals in Congress went ahead and actually kept the spending. So, it’s not a recipe for dealing with the key problem, which is we have runaway spending. We have no political control on that. We’ve got leaders in the Republican party like Mitch McConnell saying it’s always good politics to spend more money. So, there isn’t that type of leadership in our party to actually do something about the spending. It’s hard. But if we raise taxes, typically that puts the burden of paying for all that spending in an ever-increasing amount on working families. The middle class has to carry the greater burden of tax increases. You can say tax the rich, you can say tax corporations, but inevitably they pass it on down to the consumers. And so, it’s the the little guy, the working man and his family who end up paying the bill. When we raise taxes, I would say there are three justifications for lowering taxes, and I’ll get into that in our back and forth.
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Raza: So, I wanna, I wanna start with this empirical fact. ’cause I feel like we have to close this argument or you’re saying effectively never have we seen these tax cuts deliver a reduction in in government spending. David is pointing to his particular point in time, the 1990s, and is arguing this idea of lowering taxes will grow the overall pie and therefore grow revenue. And he points to the 1990s as an example of that. Or how do you look at that? Was that an aberration? Was that proof of the policy? What, what, what do you think?
McIntosh: Yeah, I think it’s a false analogy to link tax cuts with spending decisions, particularly since 2000 after Bush H or W was elected. The spending decisions were separately made from the tax decisions and there was no sense that we had to reconcile them in balancing the budget. The decision was balanced budgets didn’t matter. We, it’s important that we spend the money and what we’ve tried various ways of getting to a balanced budget requirement almost past the balanced budget amendment in the nineties made a mistake of not accepting Gethard’s proposal, which would’ve been fine to include social security into that formula. And then we’ve tried automatic cuts, sequesters and other ways of forcing Congress to reduce the spending and the political will has not been there to keep those. In fact, you’re right, or Republicans have joined up with Democrats to break those type of balance budget limits. And so, the only real solution is to gain a political mandate to actually control spending. You look at the core of what Newt Gingrich put together in Contract with America. He and John Kasik, the budget chairman, were determined to get to a, a balanced budget. They had a lot of other programs within that, some defense spending increases, welfare reform tax cuts. But the political determination was we’ve we’re going to reduce or hold even spending so we can get to a balanced budget. I haven’t seen that momentum. Certainly, the Democrats don’t ever believe that they, they think more spending, larger government is the right policy. And now we’re seeing, as you point out, $34 trillion in debt, but a third of the Republicans join in with them. Hmm. And you see that it, I think of it as the Appropriator caucus of Democrats and Republicans who get political benefits by spending other people’s money.
Cass: Can I jump in right this? I think I, there were two important points there in my mind that, that I entirely agree with, but, and, but leads me to a very different conclusion. One is, as you, as you said, there is no link between the tax policy decision and the spending policy decision. That, that I think is exactly what I’m trying to say. That it is not the case that if you increase taxes, well then spending’s gonna run away, or if you cut taxes, well, that’s how we get spending down these, these are separate conversations in a sense. And then secondly, to your point, if we are going to make any progress on this, we are going to need a political mandate. We need to actually construct a political coalition that can make progress. And so in my mind, the, the, the key question is where is that political mandate going to come from? And this is where the, the $10 of spending cuts, $1 of spend increases, I think is such a useful construct, which is more likely as an agreement that could actually make progress politically $10 of spending cuts with $1 of SP tax increases, or $10 of spending cuts with $0 of tax increases. Which one do you think is a better chance of actually building momentum in the American political system?
McIntosh: So, if those tax $1 of tax increases are honest tax increases that the middle class is going to pay, I, I don’t think that builds the political coalition older guys like me that served with President Reagan view the policies that he had. I, I think correctly as the right vision for a good, good economy, good country, strong country. Oren’s part of their criticisms I hear is you guys just keep saying, we need to do Reagan, we need to think of policies, conservative policies.
Cass: That’s not what you’re saying.
McIntosh: I have stopped saying that and started arguing for the virtues of the policies that I believe in. And I think Oren challenging conservative leaders to do that and to reach out to a broader coalition that Donald Trump brought into the Republican party which includes a lot of middle-class working families that grew up voting, Democrat, felt the party left them and now will vote Republican. And so let me turn to why I think the tax increase part of it is a mistake.
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McIntosh: So my solution wouldn’t be to proportionally increase spending to GDP, it would be to hold it flat and grow GDP through a low tax policy. And because if you increase taxes, that decreases the growth of the economy, decreases wages, decreases the ability of people to invest and deploy their capital because the resources are coming to the government rather than staying in the hands of the private sector.
Raza: You believe that cutting taxes is sufficient to raise revenue because it will so stimulate the economy?
McIntosh: So, we have a relatively low tax environment now, which, which should assist us in growing the economy. You’ve got other policy questions like overregulation and government competition with the spending that are a problem. What I’m worried about is something Oren mentioned, the automatic tax increase that’s coming up in 2025… I think there are other policies that will accelerate that growth such as reducing the regulatory burden.
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Cass: The budget, it’s irrelevant or an interesting political argument is not doing anything about our spending problem. Got it. So, what you see happening now, and this goes exactly to this question of is it fiscally irresponsible? There’s no actual plan here to balance the budget. Instead, there’s a claim that if we keep taxes low enough, we’re gonna get enough growth that the budget sort of will magically balance over time. And so, I just think, I want to emphasize…
McIntosh: Let me interject. I do think we should actually have a tax spending cuts start with just returning pre-Covid spending because we don’t need all the spending that was added during covid.
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Raza: So, I wanna really go back to the principles. One of the principles that I think is really interesting is that spending, and taxes don’t seem to be related in, in many ways. We’ve seen two crises, a pandemic, and a recession, and 2008 and and 2020 obviously with a pandemic where we’ve needed massive stimulus bills. There’s also been wars, like we’ve been a nation that’s been at war for the last, you know, 20 years until the withdrawal from Afghanistan and now is supporting quite expensive foreign policy in the Ukraine and, and the Middle East. And so, these have been drivers of spending in addition to entitlements that are growing. Another driver of spending, of course, is rising inflation. The government, you know, when there was a $2 trillion deficit last year and 600 billion plus of that was driven by the fact that in 2022, that was, that was used to pay down the debt because interest rates are rising. So, I, I just wanna ask this question. Is any of this realistic? We are talking about a $34 trillion deficit. Is it, is it realistic to actually make a dent because that, you know, that deficit has just gone up year after year. It’s a, it’s an up into the right curve. So yeah. Oren, is this even possible what you’re laying out? I mean, is it a pipe dream? Is it possible? Tell us.
Cass: I, well, I’m very optimistic. For the first two centuries of the American Republic, we had no problem running a relatively balanced budget raising taxes commensurate with what we spent. You know, the 1980s and Reagan’s policies were very interesting in a lot of ways. I think on net they did a lot of good, there was obviously the foreign policy dimension of it as well. Then coming to the 1990s, and again, balance the budget and, and, and again, let’s just keep in mind Clinton tax environment much higher than today’s tax environment. If we went back to the Clinton tax environment, we would, we would cover the revenue raise side of any sort of deal easily. Now, David would say that would destroy wage growth.
Raza: What would you say, David?
McIntosh: The spending difference is huge.
Cass: No, that’s right. We have to bring the spending down too. But my point is that well, you know, somehow this is bad for the economy and growth will slow investment won’t happen. If we had, the Clinton tax environment is refuted by the Clinton tax environment. And so, the reason I’m going through this is to say what changed, and, and we agreed on this at the beginning, I think is one of the two political parties, decided we will never again accept raising taxes. We’ll just keep cutting them. And also, by the way, not be very responsible and spending.
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Raza: I want to just close with asking Oren which taxes would you suggest increasing?
Cass: Well, so one area is tariffs. I think, and this gets into trade policy also, but tariffs generate a huge amount of revenue. That’s one place. I think another is, we have a lot of tax expenditures, tax breaks in the code, especially for higher income households, mortgage interest deduction, health insurance deduction, these kinds of things. There’s, there’s literally hundreds of billions of dollars in those places. And then I would take marginal rates back to where they were in the Clinton administration, which as we saw, there is no conflict between that and the kind of investment, got economic growth we wanted.
Raza: David, are any of those increases you know, acceptable to you?
McIntosh: The one part I would agree with is to close a lot of the tax expenditures. I wouldn’t touch the interest rate deduction and I wouldn’t touch the charitable deduction. Because those are so fundamental to the way our society’s been built up in very good ways. But the rest of them, a lot of these corporate benefits and, and little deductions and, and exemptions they have, I, I agree with Oren, we should eliminate those. Get closer to a flat tax on tariffs. I think we have to acknowledge the people who pay those tariffs are the customers in this country, either business to business. So, if you put a tax of tariff on steel when it comes in, then a company that uses steel to make a car, to make a anything pays higher cost for their input and passes that on to their customers.
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Raza: With that I wanna get into our closing arguments. Oren, you’re gonna have the first first shot at the mic drop. So, you have two minutes to tell us why you are arguing. Yes. To the question. Is the Republican party’s refusal to raise taxes fiscally irresponsible?
Cass: Well, I think the definition of insanity is doing the same thing repeatedly at expecting a different result. We have now had 30 years of a Republican party that has insisted on signing Grover Norquist’s tax pledge and also begging the table and claiming that we are somehow going to get spending down and balance the budget. And things have only gotten worse regardless of who’s in power. The idea that if we just do that a little bit harder, it’s, it’s, it’s really gonna work now is totally implausible. And, and, and would I think lead to exactly the pessimism you described, yet the three 4 trillion is just gonna keep going up if we keep doing that. And it will keep going up until the system truly breaks. And, and that is the definition of fiscal irresponsibility. What are the alternatives? I guess one alternative would be betting that somehow, you’re going to claim some super majority and have a totally different set of leaders and all the world’s incentives are going to change. And magically this approach that has never worked at all is going to work. Or we could look at the thing that worked repeatedly and consistently throughout American history. And by the way, is common sense, which is that people have to compromise. We have to pay for the spending we do. And if we want people, the voters to care about spending and think about bringing it down, they have to understand that they have to pay for the spending that we do. And so, what does that look like? That looks like an actual deal where both sides come to the table and make real commitments. The idea that like, well, but we’re never gonna get the spending cuts just isn’t true. You can, that’s the entire premise of legislating. If you do a package, if all we did was say, hey, all of those expenditures that we were talking about, we want to actually put those on the table. And in return for which we actually want some serious legislative changes to things like farm subsidies, that could be a bill that actually moved with bipartisan support very quickly and was now a positive step. And that is entirely plausible except for the Republican party’s refusal to raise taxes, which is fiscally irresponsible.
McIntosh: Thank you. And it’s been great to be here with both of you. I firmly believe it would be a terrible mistake for the Republican party to embrace a tax increase agenda. I think it would first of all, hurt Americans who are working and trying to make a living for their families. It would hurt the investment in the economy, and it would grow the government, which would limit individual freedom. When government takes resources out of the economy for its spending priorities, it means people have fewer resources to pursue their dreams, their lives, their freedom to make choices for themselves. And the economic effect of that is to slow down the entire economy and to become more like a socialist country like there are in Europe, which the citizens end up suffering for that with a lower co benefit of living a lower life lifestyle and less, less benefits for them and their children. So, it would be a mistake for Republicans to embrace that. I also think it would be politically disastrous for Republicans to do that because they’re viewed now as the only thing that is holding back government. And as you pointed out in poll after poll shows, Americans no longer feel government is actually good for them. The government has lost the trust of the American people in part because of the dis disfunction we see, in part because of the self-interest that the elite who run government have shown in the way they deploy it. So, I think the best economic solution is to face the fact that there’s an automatic tax increase on the table. Oppose that, say we’re gonna extend the current tax cuts and then develop a program to grow the economy to get back to a robust competitive economy that isn’t micromanaged by the governor… And the commitment to debate, I think is even more important than tax policy, so thank you for sponsoring a program that just promotes that.