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Treasury Secretary’s Bogus Claim: Failure to Raise Taxes Would Hurt the Economy

Posted By Kathryn Nix On August 6, 2010 @ 2:00 pm In Economics | Comments Disabled

Weak economy or not, a huge tax increase is just around the corner. Tax relief enacted nearly a decade ago is set to expire in January, raising taxes for middle-class families, slamming the economy with new burdens, and hurting Americans at every level.

The Obama Administration wants to raise taxes especially for high earners. Treasury Secretary Timothy Geithner recently defended [1] the Administration’s position by claiming that a failure to raise taxes “would hurt economic recovery by undermining confidence that we are prepared to make a commitment today to bring down our future deficits.”

The 2001/2003 tax cuts are often inaccurately targeted as the main culprit for skyrocketing federal deficits. But as Heritage budget expert Brian Riedl explains [2], these tax cuts account for only 14 percent of the swing from the $5.6 trillion budget surplus that the Congressional Budget Office predicted for 2002 through 2011 to the $6.1 trillion deficit that will replace it.

The Administration should decide what their argument in favor of increasing taxes is really all about. If it’s about the economy, then the best move is to leave current tax levels in place. It’s not just conservatives who think so; The Wall Street Journal [1] points out that this “position has been supported by some Democratic lawmakers as well as some mainstream economists, who favor extending all of the tax cuts at least while the economic recovery remains fragile.”

Even just raising taxes on the highest income brackets would hurt the economy. Heritage tax analyst Curtis Dubay recently argued on the Ed Schultz show (video here [3]) that although allowing current tax policy to continue into the New Year won’t necessarily create new jobs, it would certainly stop the U.S. economy from losing currently existing jobs. Stopping job loss is just as imperative as stimulating job creation.

If the issue, though, is deficit spending, as Geithner purports, then lawmakers need to attack the root cause of growing budget gaps.

Heritage expert J. D. Foster writes that [4] “under normal circumstances, at just over 18 percent [of GDP] the federal tax burden is already too high. … The excessive budget deficit for 2010 and in the following years is not the result of a shortfall in revenue but is due instead entirely to an attempt by Obama and friends to increase the size of government substantially and permanently. Whereas federal spending as a share of our economy is typically just above 20 percent, under Obama’s budget it hits 25.1 percent, according to his own numbers, and stays around 23 percent for the balance of the decade.”

The Obama Administration’s newfound emphasis on deficits is astounding given how fast federal spending has risen since the Administration took office. In fact, at the same time Geithner was preaching deficit reduction, the Administration was championing yet another $26 billion federal bailout to the states.

The problem isn’t that we aren’t collecting enough taxes—it’s that Washington is spending too much. The right message for lawmakers to send job creators is one of economic stability and fiscal responsibility—which can be done only by defeating the Obama tax hike and reducing federal spending.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2010/08/06/treasury-secretary%e2%80%99s-bogus-claim-failure-to-raise-taxes-would-hurt-the-economy/

URLs in this post:

[1] recently defended: http://online.wsj.com/article/SB10001424052748704017904575409513685644960.html?mod=WSJ_hpp_LEFTWhatsNewsCollection

[2] explains: http://www.heritage.org/Research/Commentary/2010/07/The-Bush-Tax-Cuts-and-the-Deficit-Myth

[3] video here: http://www.heritage.org/Multimedia/Video/2010/08/Dubay-MSNBC-8-2-10

[4] Heritage expert J. D. Foster writes that: http://www.foundry.org/2010/07/29/liberals-deficit-chicken-is-taxpayers-soaring-eagle

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