October 23, 2014

U.S. can not raise taxes enough to balance budget

Bill Wilson
Guest Columnist
In a campaign ad entitled “The Choice,” President Barack Obama reiterated his plan to raise taxes, saying he wants to ask “the wealthy to pay a little more so we can pay down our debt in a balanced way.”
There’s only one problem. If Obama gets his way, and tax rates increase at the end of the year on couples making $250,000, and individual filers making $200,000 and above, it would only raise an additional $42 billion of revenue in 2013 according to the Congressional Budget Office.
That would reduce the $1.2 trillion deficit by just 3.5 percent. We would come nowhere near balancing the budget, let alone being able to retire any portion of the $16.1 trillion national debt — which has grown every single year since 1957.
So, even if the Obama tax hike were implemented today, the debt would still grow at an exponential rate. In fact, even with all the current tax rates were to increase — as they are set to do at year’s end — the Office of Management and Budget (OMB) projects that by 2022 the national debt will still rise to $26 trillion.
And that’s assuming the government’s rosy economic projections over the next ten years come true, with average annual growth of 3 percent and tax receipts averaging $3.8 trillion a year.
But, right now, the economy is only growing at an annualized rate of 1.3 percent. Which puts us in a definite bind, as revenue growth is less dependent on higher tax rates than it is on robust economic growth.
If the government is wrong about growth this decade, and tax collections only average $3 trillion instead, the debt will rise to a gargantuan $34 trillion in 2022.
Moreover, if tax rates get too high, they will have a constricting effect on growth, in turn hurting revenue, a self-defeating proposition.
Still, OMB thinks the economy can take Obama’s tax hikes over the decade, projecting the economy will grow by 63 percent nominally this decade. It predicts tax receipts will outpace economic growth, with the former increasing by about 100 percent. That works out to economic expansion of about $9.9 trillion over the decade and revenues increasing by $12.4 trillion.
Now, revenue growth exceeding economic growth is not unprecedented — it happened in the 1930s, 1940s, 1950s, 1960s, and the 1990s. Also, since World War II, revenues have pretty much doubled every ten years.
But this does not take into account more recent history.
In 2000, receipts totaled $2 trillion, and rose through 2007, when they peaked at $2.56 trillion. But after the economic downturn, by 2010, they only totaled $2.1 trillion — just a 6.7 percent increase from 10 years earlier.
Yet tax rates have remained constant since 2003. Meanwhile since 2007, spending has increased by roughly $1 trillion.
Our trillion-dollar annual deficits did not come about because rates were too low, but because the economy fell off a cliff and afterward we spent ourselves into the grave.
Yet Obama persists with the fiction that more taxes will do a thing to correct our fiscal imbalances. At the Oct. 3 debate, he said he was, again, “asking those of us who have done very well in this country to contribute a little bit more to reduce the deficit.”
Obama’s tax-the-rich mantra may sound nice to those not in the crosshairs, but it will do nothing to reduce the deficit. There’s no getting around the obvious: We cannot raise taxes enough to balance the budget. We must cut spending, and that will not happen so long as Obama remains in the White House.
Bill Wilson is the President of Americans for Limited Government.

Comments

  1. Would you rather cut taxes, like Mr. Romney is suggesting that we do?

    With the end of fiscal year 2012, the Congressional Budget Office announced the 2012 federal budget deficit: $1.1 trillion. Taken purely at face value, this number is enormous. Yet every Democrat, and especially the Obama campaign, ought to be telling anyone who will listen: Not only has the president cut the deficit by $312 billion during his first term (so far), but he’s cut the deficit by $200 billion in the past year alone. And the CBO projected that the 2013 Obama budget, if enacted as is, would shrink the deficit to $977 billion — a four year total of nearly $500 billion in deficit reduction.

    Okay, yeah, I get it. It’s risky to mention the deficit, but not when you couch it in math and the facts.

    The CBO reported in January, 2009 that the federal budget deficit for that fiscal year, which began on October 1, 2008, was already $1.2 trillion. President Obama’s additional ’09 spending added another $200 billion to the deficit, bringing the total to $1.412 trillion. Unprecedented and huge, but given the enormity of the financial crisis and the depth of the recession, there weren’t many other options on the table. Add two wars into the mix and there you go.

    But since then, deficit spending has dropped precipitously. Why? Chiefly because President Obama signed the Statutory Pay-As-You-Go Act in February, 2010, which mandates that new spending be offset with spending cuts or new revenue. Yes, a Democratic president and a Democratic Congress passed this legislation. Guess how many congressional Republicans voted for the law. Zero. Not one.

    Consequently, the president is responsible for the lowest government spending growth in 60 years, according to the Wall Street Journal’s Market Watch.

    We are cutting spending, and raising marginal tax rates on income over $200,000 for individuals ($250,000 for joint filers) will help too. Remember, everyone’s federal taxes under $200,000 will not rise (and in fact have already decreased under Obama). Raising taxes on the rich — NOT small businesses, but the RICH — and therefore reducing the deficit by another 3.5% is not enough, but it is a start.

  2. George A Rifford IV says:

    What is not mentioned in this article is the fact that if both sides do not agree to renew the Social Security Payroll Tax Holiday before end of year a vast majority of all workers (regardless of salary) will see their taxes go up next year. This will reflect poorly on whichever candidate is in office in the years to come, and especially Obama.

    In my opinion, “The Choice” is nothing more than a slight-of-hand move by Obama. He’s going to raise taxes on everyone regardless of salary.

  3. Jerry L Kellogg Sr says:

    Well said, Brett. Although your figures agree with many reports I have read, I am sure there are others who would love to “fact-check” your comments to shreds. All too often, clarity of vision becomes fogged by political passion. Keep the faith, brother!

  4. Jerry L Kellogg Sr says:

    George, I posted my comment before reading yours. I tend to agree with what you say, too. There’s no easy way out of this mess.

  5. Judith Rogers says:

    Brett Limer as usual deals in FACTS which worthless politicians/bureaucrats dearly hate. I certainly won’t sit on the fence and will continue to speak out against cronyism government and certainly at the local level where all of the dirty politics really start and do so much damage to average citizens and where the politicians/bureaucrats continue to thumb their noses at the Open Meetings and Open Records Acts while they continue to do the people’s business in the closed door back rooms. I have already voted for Obama and to those who have or plan to vote for Romney then my question to them is: “WHICH Romney did you or plan to vote for?” Romney has changed his stance so many times on so many important issues that it is evident he is merely a WORTHLESS POLITICIAN who will tell you what you want to hear at any particular time in order to get elected – not a person with a strong moral compass in my opinion or respects the value of arithmitic. Time will tell whether citizens will also walk around with a red ball on their noses like clown politicians, especially local ones, do 24/7 along with a gun strapped to their legs. You get the government you enable and support and many people do so by being uneducated and uninformed on important issues and are just as useless and damaging as the worthless/morally corrupt politicians they vote for.

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