COLUMN-Pledging allegiance to Mr. Norquist: DCJohnston

Tue Jul 26, 2011 10:21am EDT

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The author is a Reuters columnist. The opinions expressed are his own.

By David Cay Johnston

July 26, (Reuters) - It looks increasingly as if a majority of House Republicans, their allegiance pledged to Grover Norquist, prefer default by the U.S. government over any increase in tax rates, even on people who make a million dollars a day and pay lower rates than middle-class Americans.

Many signers of the no-tax-rate-hikes pledge invented by Norquist, the anti-tax crusader who is president of Americans for Tax Reform, seem to have forgotten their greater duty to the U.S. Constitution.

No matter how many spending cuts President Barack Obama accepts, upsetting Capitol Hill Democrats, or how sternly the financier class warns about the consequences of default, many House Republicans believe the government levies too much, challenging House Speaker John Boehner's ability to muster the votes to pay the government's bills when they come due.

This is a curious stance given that President Obama's proposed fiscal 2012 budget anticipated a federal budget deficit one-third smaller than this year's. And that was before all the additional cuts he accepted.

It is an even stranger stance given that fiscal year 2011 is 80 percent over and the federal debt is growing 30 percent slower than it did in fiscal 2010. Indeed, this calendar year the debt has grown by just $317.6 billion though last Thursday, the latest data available. That is only about a third of the rate for the same period a year earlier, when the debt grew by more than $926 billion.

GROWTH THE KEY

Thank goodness these same Norquistians were not in office in 1945. That year the government spent more than $2 for each dollar it took in. It was, of course, a year spent partly at war, but then today we are engaged in wars in Iraq, Afghanistan and Libya (and, some would argue, in Pakistan).

In 1946, a year of peace, the gross federal debt was 121.7 percent of the gross domestic product, the official federal data show. So what happened? Did this mountain of debt burden the children and grandchildren and great-grandchildren of those on Capitol Hill that year? No.

Even though the federal government spent more than it levied in 26 of the next 34 years, when President Jimmy Carter left office it was down to just 33.4 percent of GDP and the next year under President Ronald Reagan it shrank a bit more to equal 32.5 percent of the economy.

Then, as now, economic growth was the key to making debt shrink relative to the economy. Since 1946 real growth per person has tripled.

As to the reasons our debt, which was shrinking at the end of the Clinton administration, has exploded, there are the well-known causes: the George W. Bush temporary tax cuts that President Obama agreed to extend for two years and those wars.

But there is another huge factor that we can now begin to measure, as noted in testimony to Congress the other day by Simon Johnson, the Ronald A. Kurtz Professor of Entrepreneurship at MIT's Sloan School of Management.

In January 2008 the Congressional Budget Office estimated that publicly traded debt would total $5.1 trillion in 2018. Its report two years later, in January 2010, put the figure at $13.7 trillion.

That $8.6 trillion increase in traded federal debt shows how much the collapse on Wall Street added to our debt as it caused the worst job market since the Great Depression with banks propped up by tax dollars when they should have been allowed to fail, as one would expect of badly run enterprises in a capitalist system.

ROLLING OVER DEBTS

Then there is the news that many banks small enough to fail have repaid their bailout loans, producing a $10 billion profit for the government so far from the Bush administration's Troubled Assets Relief Program or TARP.

Not quite, it turns out. Daniel Gross at Yahoo Finance read through the report to footnotes 49 and 50, which reveal that the banks paid back their TARP loans with money borrowed from the Small Business Jobs Act passed in 2010 with one Republican vote in the House.

That is, just like our federal government, many of the banks simply rolled over their debts. Congress created a way for them to avoid default by making them new loans. Should taxpayers be treated with the same regard as banks when it comes to refinancing?

This brings us back to the congressmen who have pledged allegiance to Norquist. Their oath of office is to "bear true faith and allegiance" to the Constitution, an obligation each swears is taken "freely, without any mental reservation or purpose of evasion."

And perhaps they will heed the words of Emil Schram, president of the New York Stock Exchange in 1946, who described the federal debt after World War Two as a grave problem, but who also understood the need to look to the country's best interests, not those of any particular group like, say, Norquist's.

To Norquist the tax system today is the standard, even though that standard was enacted as a temporary tax reduction amid visions of budget surpluses as far as the eye could see that proved to be wishful thinking.

The problem of the federal debt, Schram said, "must be faced courageously without any single group, whether government or private, to impose its views or wishes regardless of the consequences to the economy as a whole." (Editing by Howard Goller)

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