Sunday, April 13, 2008
Tax Increases Coming
"By historical standards, federal revenues relative to GDP, at 18.8% last year, are high. In the past 25 years, this level was only exceeded during the five years from 1996 to 2000. ... Proponents of bigger government invariably argue that allowing all or some of President Bush's tax cuts to expire is necessary in the near term to balance the federal budget, and necessary in the longer term to finance the retirement and health-care promises to the baby-boom generation. ... As has so often been true in the past, the economic damage caused by the tax increases and tax avoidance behavior will prevent the promised revenues from being realized. At the same time, the promise of higher revenues will encourage Congress to continue its profligate spending. As a result, a tax increase won't lower the budget deficit. ... Balancing the federal budget without a tax increase will require strong fiscal restraint. ... The strategy of ratifying spending with higher taxes would require that all federal taxes rise by nearly 60%, bringing them to a European-level tax burden", my emphasis, John Cogan & Glen Hubbard (C&H) at the WSJ, 8 April 2008.
I disagree with one thing C&H wrote, "balancing the federal budget without a tax increase" assumes one could balance it. C&H write, "the promise of higher revenues will encourage Congress to continue its profligate spending". Indeed! Congress will spend more no matter what.