• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • CBO Once Again Proves Tax Hikes Unnecessary to Lower Deficit

    The Congressional Budget Office (CBO) released its outlook for the federal budget last week. According to the CBO’s “Alternative Fiscal Scenario,” tax receipts will match their historical average in 2017, when revenue will be 18 percent of gross domestic product (GDP). Receipts will continue growing after that.

    CBO’s alternative scenario assumes the following:

    • The Bush tax cuts remain in place for all taxpayers (even families making more than $250,000 a year);
    • Congress raises the income threshold for the Alternative Minimum Tax so it doesn’t hit millions of middle-income taxpayers it was never supposed to affect; and
    • Congress also retains a host of other expiring tax-reducing policies, such as the Research and Development credit and the optional deduction for state and local sales taxes.

    The CBO report throws water on President Obama’s oft-repeated argument that in order to lower the deficit, it is mathematical certainty that taxes must go up. If President Obama and Congress set spending to match its historical level of 20 percent of GDP and keep it at or below that level, the deficit would be at its historical level in 2017, and the debt would fall as a share of the economy over time. All that without raising taxes a dime. Deficits are unsustainably high because the government is spending too much, not because it is collecting too little revenue.

    As the CBO report makes clear, revenue is low right now relative to historical norms because the economy is still slow to recover after the Great Recession. Low receipts today have nothing to do with tax cuts “for the rich,” as President Obama often suggests, or because millionaires and billionaires pay an effective tax rate that is unfairly low.

    The CBO estimate includes higher receipts from the 18 different tax hikes contained in Obamacare. Several of these tax hikes are already in place, but the biggest, most economically damaging hikes—such as the 3.8 surtax on investment income—come on line in the next few years. A repeal of Obamacare, including its growth-slowing tax hikes, would reduce revenues below CBO’s estimates.

    Lower revenue from a repeal of Obamacare would not keep revenue below its historical norm, nor would it delay revenue meeting that level by 2017. Faster economic growth than CBO anticipates would raise receipts back to their historical norm before 2017 even without the extra Obamacare tax revenue.

    That faster growth would occur if the economy could break through the uncertainty caused by Obama policies such as Obamacare, the Dodd–Frank financial reform law, and daily reminders that President Obama wants to raise taxes drastically on job creators and investors that the economy needs to get back on track.

    Economic growth could also get a much needed boost from fundamental tax reform. Tax reform would clear the way for faster growth by lowering marginal tax rates and eliminating taxes on saving and investment. Congress and the President should focus on tax reform instead of unnecessary and growth-slowing tax hikes. If they do so this year, revenues will surge back to their historical average well before 2017.

    Posted in Featured [slideshow_deploy]

    5 Responses to CBO Once Again Proves Tax Hikes Unnecessary to Lower Deficit

    1. Bob says:

      It has become exceedingly apparent that no one divison or person is capable of speaking anything resembling the truth. These numbers are contrived and designed soling for the re-election of the anit-american. I do not capitolize thos words as he it not deserving and makes a Mockery of this country and our people. I do not nor will I believe one sylible steming from the CBO or any other faction of our current regime. Yes I said regime and exceptionally tolatiterian in nature by intent!

    2. steve h says:

      Sure, revenues will go up because of the improved economy. Are you saying that is all heritage wants to do? Lower the deficit? I thought you wanted to balance it?

      And it's great to recognize that Obamacare will lower the deficit by over 1 trillion dollars in the next 2 decades.

      • Fred says:

        Next 2 decades? We have 1.5 trillion per year deficit, and so in 20 years we reduce it by 1 trillion. That means we are just 29 trillion more in debt. Good deal!!! Not

    3. Stirling says:

      "3.8 surtax on investment income." – This wil have a major impact on the stock market since investors will see this as a dis-incentive to invest in our markets.. Typical progressive policy to treat those with money as ATM's. Want to see people start pulling money out, keep up the anti-capitalist policies.

    4. jadd says:

      Where exactly does the CBO prove that? Failure to let the Bush tax cuts expire in the Alternative Fiscal Scenario result in projected deficits being near if not over 1 trillion for most of the next 10 years and becoming a 10 trillion deficit in 2022. It appears to me it proves the exact opposite of your claim. But math is a funny thing I guess.

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.

    ×