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.