Monday, November 22, 2010

Higher Taxes Won't Reduce the Deficit

An article in yesterday's Wall Street Journal explains why higher taxes will not reduce the deficit. The draft proposal of the President's Commission on the Deficit calls for various tax increases along with spending cuts to produce a balanced budget and to began the process of reducing the deficit. If the deficit is not reduced, simply paying interest on the debt will eat up a greater and greater share of tax revenues and the GDP. We are headed the way of Greece. Almost everyone agrees we must do something.

However, raising taxes may be worse than doing nothing. Raising taxes will likely make the deficit worse; not better. History has shown time and time again that every time taxes are raised so is spending and borrowing.

The article says that, "the only era in modern times that the budget has been in balance was in the late 1990s, when Republicans were in control of Congress. Taxes were not raised, and the capital gains tax rate was cut in 1997. The growth rate of federal spending was dramatically reduced from 1995-99, and the economy roared."

We need to cut spending and grow the economy. To grow the economy we need to cut taxes, especially the capital gains taxes and the corporate income tax.  Raising taxes curtails economic growth and feeds the beast. Raising taxes should be a nonstarter for Republicans.

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1 comment:

  1. Sir,

    I would argue that the booming economy in the late 90's had much more to do with a technological explosion and speculative bubble growth than anything Congress did.

    The reality of our fiscal situation is that 80% of federal spending is on the military, Medicare, Social Security, and interest on the debt. These items can be scaled back, but are all extremely politically entrenched and monolithic in scale. Considering the crushing amount of debt we are facing, if we want to dig ourselves out, some tax increases, coupled with spending cuts, will probably be necessary. Debates about earmarks and the federal employee salaries do deal with large quantities of money, but not at all on the scale of what we need to reverse our hurtling velocity towards bankruptcy.

    It's highly doubtful that the current crop of politicians will do anything significant to stop our fiscal wasting. Whose fault this is is an open question.