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CBO Figures Once Again Prove Tax Hikes Unnecessary to Fix Budget

The Congressional Budget Office (CBO) just released its long-term outlook for the federal budget. As expected, we are going broke slightly faster than we were a few months ago.

No doubt the usual bigger-government types will use this news to repeat the mantra that we need to both cut spending and “enhance revenues” (a thinly veiled euphemism for tax hikes). Treasury Secretary Timothy Geithner used this oft-repeated line just this week.

But their argument is exactly backwards. The CBO report actually once again proves that no tax hikes are necessary to fix our budget woes.

The CBO calculates that if Congress leaves the tax code as it is today—which would include permanently extending the 2001/2003 tax cuts for all taxpayers (even those greedy, job-producing rich folks and small businesses), patching the alternative minimum tax so it does not impact middle-income families, and continuing a host of other tax-reducing provisions that regularly expire—tax revenues would exceed their historical average of 18 percent of GDP in 2021. Revenue would continue growing thereafter absent any policy changes and soon surpass the all-time record high hit back in 2000 at the height of the Internet-tech boom.

Earlier CBO reports show (and this latest release confirms) that revenue would actually match the 18 percent of GDP mark by 2017 and could get there even sooner.

Renewed economic growth—once it finally takes hold—is the reason tax revenues will shoot up in the coming years. Faster growth means that taxpayers earn more income and move into higher tax brackets. Faster growth also means that there are more taxpayers than before.

The impending rebound in tax revenues seen in the CBO data also rebuts the argument that “taxes as a percentage of GDP are at their lowest levels since 1950.” It has been repeated most recently by Fareed Zakaria.

These low tax receipts have nothing to do with changes in policy, like lower tax rates, as those making this argument would have us believe. Tax revenues are low compared to their historical averages, but that has everything to do with a terrible recession and a worse-than-anemic recovery that has repressed incomes and driven millions to the unemployment lines.

Conveyors of the wrongheaded wisdom about the necessity of tax hikes are trying to convince the American people that there is just no way to lower the deficit with spending cuts alone, that some tax hikes are necessary in any “reasonable” plan.

Higher taxes are not a mathematical necessity. They are a choice Washington politicians would make to expand the size of government. After all, history has shown us that Congress rarely if ever uses revenue from tax hikes to lower the deficit. Rather, it uses the money on new or expanded big-government programs. And tax hikes now would further harm job creation.

The reality is that hikes are not necessary to fix the budget. If Congress restrained spending to its historical level of 20 percent of GDP (rather than the bloated 25 percent that President Obama’s budget aspires for), the deficit would fall to manageable levels as revenues climb, and the national debt would stabilize as a share of the economy.

It is all about the spending, and no amount of reiterating false claims about plunging tax revenue can change that. Washington has spent us into this budget hole and wants more of our money to fill the void they’ve created. It is time they realize they’ll be getting plenty of our money in the coming years, and the only way out of this mess is to cut spending.

 

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