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Morning Bell: Higher Taxes Still Slow Economy

Posted By Conn Carroll On February 26, 2008 @ 9:11 am In Ongoing Priorities | Comments Disabled

When the next President takes offices in 2009, he or she will inherit a more than $400 billion deficit (almost half of which will come from the recently passed economic stimulus). Worse, as the National Taxpayers Union has calculated, a President Barack Obama will come to office with $287 billion in promised additional spending [1] while a President Clinton would bring $218 billion in similar promises. And it gets worse. A new federal study estimates that Government spending on health care could nearly double [2] to more than $2 trillion by 2017. The total present value costs of Social Security and Medicare over the next 75 years exceeds $41 trillion [3] (which comes out to a debt burden of $135,000 for every man, woman, and child in America).

Even assuming a very hasty withdrawal from Iraq that very few Americans outside the anti-war movement actually support [4], the federal government still would have limited options when it comes to paying for these programs: slow the growth of spending; raise taxes; or some combination of the two. Liberals will instinctively try and solve these shortfalls by raising taxes. Conservatives believe that higher taxes will shrink the economy and force American taxpayers to pay twice to close the funding gap – once in higher taxes and again through lower wages from a weaker economy.

Recently, some liberals have latched onto an entirely plausible argument that higher taxes can help the economy. Some evidence does suggest that higher taxes can lead to increased national saving which can lead to lower interest rates and ultimately to higher investment levels and output. But these arguments ignore the many other bad effects of taxation that overwhelm the narrow positive effect from higher taxes. The Heritage Foundation’s J.D. Foster has examined the literature on the relation between taxation and the economy and finds that [5]: “On balance, clear and compelling evidence shows that higher taxes reduce economic output.”

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URL to article: http://blog.heritage.org/2008/02/26/morning-bell-3/

URLs in this post:

[1] a President Barack Obama will come to office with $287 billion in promised additional spending: http://blogs.usatoday.com/oped/2008/02/democrats-promi.html

[2] Government spending on health care could nearly double: http://online.wsj.com/article/SB120399640594392887.html?mod=hpp_us_whats_news

[3] $41 trillion: http://www.heritage.org/Research/Budget/wp021908.cfm

[4] very few Americans outside the anti-war movement actually support: http://www.foundry.org/2008/02/21/support-for-surge-surging/

[5] finds that: http://www.heritage.org/Research/Taxes/bg2095.cfm

[6] 140,000 troops in Iraq by July: http://ap.google.com/article/ALeqM5hcWJu9bbzrJZ7uNHjvMn0BuTGqHQD8V1KDDO0

[7] not a spike in the number or power of hurricanes: http://www.insurancejournal.com/news/national/2008/02/25/87582.htm

[8] the most sweeping ethics reform since Watergate: http://www.barackobama.com/2007/02/10/remarks_of_senator_barack_obam_11.php

[9] helped enact narrowly tailored tax breaks sought by major campaign contributors: http://www.usatoday.com/news/politics/election2008/2008-02-25-tax-breaks_N.htm

[10] fleecing: http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2008/02/26/nhosi.xml

[11] The New York Times: http://www.nytimes.com/2008/02/26/us/26backlash.html?adxnnl=1&ref=todayspaper&adxnnlx=1204027501-1YbgbYaNzBZ4f8TNTvsgNw

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