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  • Tax Hikes Wrong Route to Take for Deficit Reduction Commission

    Entitlements Will Consume All Tax Revenues by 2052

    Earlier this year, after Congress passed an increase in the debt ceiling, was deliberating over a trillion plus health care package, and the President’s Budget promised new record deficits, the American people started to see a worrisome trend that pushed fiscal responsibility to the forefront of the public’s priorities.  President Obama responded by creating the National Commission on Fiscal Responsibility and Reform, a bipartisan commission tasked with submitting a solution to the nation’s fiscal woes by the end of the year.  Problem solved, right?

    Well, not quite.  The true success of the commission lies not in its very existence, nor in its ability to reduce the deficit, but rather in the very means by which it proposes to accomplish this.  An article in the New York Times today lists several ways in which the commission could propose to reduce the deficit that would cause more harm than good:

    • Allowing the Bush tax cuts to expire.  This is an insufficient proposal to reverse out-of-control federal spending.  As John Harwood writes, “…even Democratic economists sympathetic to the administration insist that raising taxes on affluent Americans alone “won’t work and isn’t a good idea”, as Leonard E. Burman, a public affairs professor at Syracuse University, puts it.” 
    • New gas or carbon taxes. Taxes on necessary items such as gas hurt the economy by not only increasing the cost of transit, but also the cost of goods that require transportation.  As Heritage analyst Karen Campbell writes, increased gas prices caused by a gas or carbon tax would result in the loss of 586,000 jobs and cause total disposable personal income to drop by $532 billion. 
    • A value-added tax on goods and services. Adding a value-added tax to the plethora of taxes Americans already pay would be disastrous for the economy.  Most countries in which this revenue raising device is employed show that the tax rises with time, and does not curb federal spending or borrowing.  85 Senators recently agreed that this tax would be detrimental for America’s low-income families and the economy at large. 

    If the President’s commission focuses only on tax increases, its proposal will not only fail to adequately address Washington’s major spending problem, but will also spell disaster for economic recovery and future prosperity.  To be successful, controlling the deficit should focus primarily on reforming the three big-ticket entitlement programs:  Medicare, Medicaid, and Social Security.

    Unfortunately, serious consideration of major entitlement reform is unlikely to happen. The President set a goal of reducing the deficit to 3 percent of Gross Domestic Product within a decade.  While entitlement reform is crucial, the benefits would be long-term, so pursuing this politically difficult path to reform would serve no political purpose for President Obama.

    A successful commission would propose systemic reforms to all three major entitlement programs, including sticking to a long-term sustainable budget.  Implementing serious budget process reform would require active participation by Congress in setting federal spending, putting more pressure on lawmakers to act responsibly.  Reining in federal spending can be done, but increasing taxes alone would not only be ineffective, but would also have major ramifications for the U.S. economy.

    Posted in Economics [slideshow_deploy]

    4 Responses to Tax Hikes Wrong Route to Take for Deficit Reduction Commission

    1. Paul Penrose says:

      The average consumer understands that just getting a second job (increasing income) is not the answer to solving their debt crisis. The expense side of the equation must be addressed (cut spending), and is usually the first, best option. Politicians of course know this, but they are so obsessed with getting reelected that they can't help themselves from buying our votes using our money. As an electorate we need to stop voting for the guy that promises the most "return" from their stint in Washington and instead vote for the candidate that promises the least. I don't expect this to happen any time soon though. It's just to easy to feel entitled to someone else's money when you don't have to take it from them face to face.

    2. Drew Page, IL says:

      What a stroke of genius! The government spends too much? Just increase taxes and give them more to spend. What’s the problem?

      Come on, show a little respect. The government wouldn’t spend money on anything that really wasn’t necessary, would they?

    3. Dennis Social Circle says:

      This is the way of obama and the dems, tax and spend, spread the wealth to all. Take from the ones that have the ability to increase jobs, open business, and are willing to work. People in this country have forgotten how to work, manage their money and plan for the future. America has become a welfare nation, the working person has become a minority and unless we the VOTER does something in NOVEMBER we will continue down the road to destruction and ruin.

    4. Zack says:

      so republicans and conservatives add over 8.5 trillion to the nation debt in just 8 years and you guys wanna talk about fiscal responsibility?

      Treasurydirect.gov. 5.5 trillion

      tax cuts 2.5 trillion

      unfunded military contracts- .5 trillion.

      let go of Heritage. They are misleading you.

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