Skip to comments.CBO Figures Once Again Prove Tax Hikes Unnecessary to Fix Budget
Posted on 06/26/2011 12:10:09 PM PDT by Nachum
The Congressional Budget Office (CBO) just released its long-term outlook for the federal budget. As expected, we are going broke slightly faster than we were a few months ago.
No doubt the usual bigger-government types will use this news to repeat the mantra that we need to both cut spending and enhance revenues (a thinly veiled euphemism for tax hikes). Treasury Secretary Timothy Geithner used this oft-repeated line just this week.
But their argument is exactly backwards. The CBO report actually once again proves that no tax hikes are necessary to fix our budget woes.
The CBO calculates that if Congress leaves the tax code as it is todaywhich would include permanently extending the 2001/2003 tax cuts for all taxpayers (even those greedy, job-producing rich folks and small businesses), patching the alternative minimum tax so it does not impact middle-income families, and continuing a host of other tax-reducing provisions that regularly expiretax revenues would exceed their historical average of 18 percent of GDP in 2021. Revenue would continue growing thereafter absent any policy changes and soon surpass the all-time record high hit back in 2000 at the height of the Internet-tech boom.
Earlier CBO reports show (and this latest release confirms) that revenue would actually match the 18 percent of GDP mark by 2017 and could get there even sooner.
Renewed economic growthonce it finally takes holdis the reason tax revenues will shoot up in the coming years. Faster growth means that taxpayers earn more income and move into higher tax brackets. Faster growth also means that there are more taxpayers than before.
The impending rebound in tax revenues seen in the CBO data also rebuts the argument that taxes as a percentage of GDP are at their lowest levels since 1950. It has been repeated most recently by Fareed Zakaria.
These low tax receipts have nothing to do with changes in policy, like lower tax rates, as those making this argument would have us believe. Tax revenues are low compared to their historical averages, but that has everything to do with a terrible recession and a worse-than-anemic recovery that has repressed incomes and driven millions to the unemployment lines.
Conveyors of the wrongheaded wisdom about the necessity of tax hikes are trying to convince the American people that there is just no way to lower the deficit with spending cuts alone, that some tax hikes are necessary in any reasonable plan.
Higher taxes are not a mathematical necessity. They are a choice Washington politicians would make to expand the size of government. After all, history has shown us that Congress rarely if ever uses revenue from tax hikes to lower the deficit. Rather, it uses the money on new or expanded big-government programs. And tax hikes now would further harm job creation.
The reality is that hikes are not necessary to fix the budget. If Congress restrained spending to its historical level of 20 percent of GDP (rather than the bloated 25 percent that President Obamas budget aspires for), the deficit would fall to manageable levels as revenues climb, and the national debt would stabilize as a share of the economy.
It is all about the spending, and no amount of reiterating false claims about plunging tax revenue can change that. Washington has spent us into this budget hole and wants more of our money to fill the void theyve created. It is time they realize theyll be getting plenty of our money in the coming years, and the only way out of this mess is to cut spending.
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Nah, producers in our economy just continually break laws and never pay their fair share.
What is this spending thing that you speak of?
There is only investing in the future and only government can do that.
Don't misconstrue investing with spending.
Producers cheat, governments invest...
“leaves the tax code as it is todaywhich would include permanently extending the 2001/2003 tax cuts for all taxpayers (even those greedy, job-producing rich folks and small businesses), patching the alternative minimum tax so it does not impact middle-income families, and continuing a host of other tax-reducing provisions that regularly expire”
Most people consider letting tax cuts expire to be tax increases.
I should caution that they are looking at the "Extended-Baseline Scenario" in the CBO 2011 Long Term Budget Outlook document. That scenario makes some assumptions which are blatantly invalid.
It assumes that there will be no further "Doctor fixes" in Medicare (which is unlikely) and that the $500 Bilion in medicare cuts that were in the PPACA (aka Obamacare) will actually happen.
Also, the "point of stability" in that chart has our debt at about 75 percent of GDP. That's high no matter how you try to present it. I don't know if that's sustainable. Specifically, I think interest rates with the debt at that level will actually be higher and economic growth will be slower. I think CBO is overly optimistic about that.
But then again, I'm just some unidentified guy on the Internet. What do I know?
Sorry but I have one more point,
“Renewed economic growthonce it finally takes holdis the reason tax revenues will shoot up in the coming years.”
We’ve been waiting on that for fifteen years. Hasn’t happened. It’s up to us and there is no painless way to balance the budget.
The reality is that hikes are not necessary to fix the budget. If Congress restrained spending to its historical level of 20 percent of GDP (rather than the bloated 25 percent that President Obamas budget aspires for), the deficit would fall to manageable levels as revenues climb, and the national debt would stabilize as a share of the economy. [source: CBO]
And will the tax-and-spenders be convinced that this is true? No! Balanced-spending deniers will continue to trumpet the need to add more taxes to the mix. So I would like to propose a new tax that should do wonders:
All spending on behalf of a candidate or small group of same-party candidates -- advertising, banquet space, posters, buttons, T-shirts, sound trucks, billboards, land rental for signs, you-name-it, would be subject to a 15-percent sales tax, said tax to be paid to the US Debt Reduction Fund to be set up expressly for the purpose of retiring debt.
Exempt from this tax would be: (1) spending on behalf of candidates running for nonpartisan offices like judges, (2) spending on materials and services to promote issues, not candidates--think ballot questions, specific legislation, initiatives, and referendums, and (3) nonpartisan spending for groups of candidates--think debates, get out the vote not performed for a specific candidate or party.
Every time I hear "tax the rich" I hear an echo: "...except ME, the politician." Isn't it time for the politicians to pay their fair share, too? Particularly since many of those "donations" are better described by other, less acceptable, words.
Rational and constitutionality: the marketing of a politician as a product exits the realm of unqualified free speech and enters into the realm of commerce. In other words, a political advertising campaign is exactly like a campaign to sell cigarettes, and can be subject to regulation and taxation for exactly the same reasons. A citizen politician doesn't need to be treated like toothpaste to win an election, and doesn't need to spend a dime -- or have a dime spent for him -- in order to be recognized for how he/she is...although where have we heard the phrase "buying an election"? We voters should be making our choices based on the person's qualifications, and for legislative positions the views on the issues held by the person running for office, That information is easily gleaned from newspaper, radio, television, and Internet reporting, reporting which is not supposed to be influenced by "ad buys" or other conflicts of interest.
If someone wants to buy influence, this tax will raise the price a little bit, and help solve a BIG problem in the USA.
Resurrecting an old tagline ...
1. You get a single flat income tax rate of 17.5%.
2. There is only one exemption, a very generous household exemption (about US$44,000 for a family of two adults and two children). All other exemptions, credits and deductions are removed.
3. Bank account interest, capital gains and stock dividen payments no longer count towards earned income.
The result is twofold:
1. Income tax compliance costs drop 70% or more because for almost everyone, the tax form would make the IRS 1040-EZ look complicated in comparison. This means we could free up over US$200 billion per year for other economic activity.
2. It encourages American residents and businesses to keep as much of their savings and capital investments in the USA as possible. This ends the practice of offshoring millions of jobs, thousands of factories, hundreds of corporate headquarters and around US$14 TRILLION in American-owned liquid assets income tax avoidance measures.
So what are we waiting for?
Well, maybe they do, but not at the expense of losing all the leverage they [legislators] currently have over their constituents that results in the flood of campaign contributions [tribute] they've become dependent on and feel entitled to.
To a statist, taxes are not about revenue. To them, taxes are about social engineering or, in this case, a political tactic (i.e. getting the Republicans to agree to any tax hike whatsoever to use as a club in the election campaign). Statists just don’t care about revenue - they will spend what they want regardless of revenue, debt or currency debasement.
Every government paycheck takes a twenty percent decline and that person stays home one day per week to pay for it.
That scenario seems to be aimed in the right direction. It might not be painless but across the board cuts are the only way to insure the least amount of actual job loss.
What could be more fair?
2011 costs in millions,
Department of Defense-Military $723,703
Department of Health and Human Services $926,236
Interest on Treasury Debt Securities (Gross) $464,706
Social Security Administration $789,034
Comes to $2,903,679 million. A $477,954 millon deficit. Note this does not even count necessary programs like Federal Prisons and the like.