Debt and Taxes

With the economy still faltering and the debt limit deadline approaching in August, Democrats continue to tout tax increases as the great panacea to cure the nation's deficit and unemployment woes. President Obama doubled down on this flawed policy in a much-discussed press conference on June 29. Rather than directly calling for tax increases, the president cloaked his plans in empty rhetoric about "tax breaks for millionaires and billionaires" and euphemisms like "tackle spending in the tax code."

Congressional Republicans have made it clear that we will not support tax increases and we will not pass any debt ceiling plan that does not cut spending by an amount greater than the debt limit is increased.

Economic statistics from the past decade confirm that Democratic calls for tax increases are misguided. Although the president likes to claim that the Bush tax cuts are responsible for the trillion-dollar deficits that have occurred on Obama's own watch, the facts show otherwise. According to the nonpartisan Congressional Budget Office (CBO), tax revenue remained consistently strong after the tax cuts were passed in 2001 all the way to 2008 when the recession began to take hold. In 2007, tax receipts were above the modern historical average, at 18.5 percent of GDP. Even with the economic slowdown, tax revenue in 2008 came in at 17.5 percent of GDP, before dipping to 14.9 percent for 2009 and 2010. The CBO projects a tax revenue rate of 14.8 percent of GDP for 2011.

It doesn't take an economist to deduce that the problem is not that tax rates are too low. The tax rates the president criticizes today are the very same rates that produced above average tax revenue throughout the 2000s. Tax revenue only fell when the economy slowed.

As the Wall Street Journal points out, liberal claims that tax cuts caused the deficit are "demonstrably false." The CBO accounted for the tax cuts when it predicted in 2001 that we would be enjoying a surplus of $889 billion by 2011 instead of the $1.4 trillion deficit we ended up with. The Bush tax cuts account for only $216 billion of this $2.29 trillion turn-around. What accounts for the rest? The culprit is something the Wall Street Journal calls a "spending bonanza, with outlays in 2011 that are $1.135 trillion higher than the budget office estimated a decade ago."

We will only make real progress on reducing the deficit when the president and his party acknowledge that tax increases are not the solution. The deficit was created by spending increases, and it will only be solved by significant and lasting spending cuts.