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January 1, 2013
Tax Increases vs. Spending Realities
With the fiscal cliff standoff having reached its disappointing conclusion, it is time for conservatives to once again make their case to the American people that spending reductions are key to a better America. Unfortunately, The New York Times' editorial page has already jumped to the defense of just the opposite -- tax increases that will be used for more "investment" by the federal government.
According to the Times, spending really isn't causing current deficits. The problem is a lack of tax revenue:
The main problem is that the current tax code is incapable of raising the revenue needed to pay for the goods and services of government. Over the last four years, federal revenue as a share of the economy has fallen to its lowest level in nearly 60 years, a result of the recession, the weak recovery and a decade's worth of serial tax cuts. Even with deep spending cuts, the chronic revenue shortfall is expected to continue, swelling the federal debt - unless taxes go up. To stabilize the debt over the next 10 years while financing more investment would require at least $1.5 trillion to $2 trillion in new revenue, above what could be raised by letting the top income tax rate revert to its pre-Bush-era level of 39.6 percent.
To a degree, the editorial is correct. As Times columnist Paul Krugman correctly pointed out, much of the current deficit is due to the drop in tax revenue because of the recession. However, this is where the editorial and Krugman end their visit to reality. Consider:
As was pointed out in the American Thinker nearly a year ago, interest rate payments and health care costs are continuing to increase, and look to begin growing precipitously in the next decade. Medicare and interest payments alone are about one-quarter of the federal budget this year, and this is before the Baby Boomers fully retire and when interest rates are at record lows. Throw in Social Security -- about 20% of the federal budget and growing -- and it's easy to see that Krugman and the Times have abandoned reality.
Second, basic math shows recession-related reduced tax revenue was responsible for far less than half of the 2011 deficit. From Hot Air:
A. According to [the Tax Policy Center], last year's revenues were 15.4% of GDP. If revenues hit 20% of GDP in 2011 (a percentage surpassed only three times since 1934, which is as far back as the TPC chart goes), this means revenues would be up by 30%.
B. 30% greater revenues is a significant amount of money -- about $690 billion.
C. However, $690 billion is barely more than half of the $1.3 trillion deficit the nation boasted in 2011.
D. To recap: if revenues hit near-record levels in 2011, we would still have had a deficit in 2011 of $610 billion.
Third, spending went up by about 60%, adjusting for inflation, between 2000 and 2010. With two recessions in those same 10 years, revenue was unlikely to be able to keep up with that rate, especially since the Clinton "surpluses" were assisted by the Internet bubble and corresponding record tax revenue levels.
Fourth, the Times claims that "serial tax cuts" hurt the amount of taxes coming into the federal government. Yet from 2004 to 2007, tax receipts went up. While liberals could sneer that this was solely due to the housing bubble, the same argument would obviously apply to the Clinton "surpluses."
Finally, over the last 60 years, tax revenue has gone up and down. Top tax rates have done the same. As charted by Just Facts, the liberal fascination with raising top rates to bring in more tax revenue is not based on a true analysis of history.
Unfortunately, conservative arguments on taxes and spending didn't work on November 6, and so in 2013 the nation will likely face the consequences of a weak House speaker negotiating with an empowered President Obama and Democratic-controlled Senate. We must get out ahead of the liberal arguments on tax increases and "investments" if we are to convince the American people of the validity of our positions. Given what happened in November, it's clear we need better tactics. It is hoped by many that the Heritage Foundation's new president, former senator Jim DeMint (R-SC) can help us do that, but all conservatives should be examining how best to present our solutions to the American people.
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