Will Raising Taxes Fix Our Deficit Issue

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  • The government’s budget deficit in 2009 was $1.5 trillion. Many have suggested raising taxes on the rich to cover the difference between what the government collected in revenue and what it spent. Is that a realistic solution? Economics professor Antony Davies uses data to demonstrate why taxing the rich will not be sufficient to make the budget deficit disappear. He says, “The budget deficit is so large that there simply aren’t enough rich people to tax to raise enough to balance the budget.” Instead, it’s time to work on legitimate solutions, like cutting spending.

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  • When the government raises taxes, does it actually collect a larger portion of the US economy? As the U.S. debt and deficit grows, some politicians and economist have called for higher tax rates in order to balance the budget. Professor Antony Davies examines 50 years of economic data and finds that regardless of tax rates, the percentage of GDP that the government collects has remained relatively constant. In other words, no matter how high government sets tax rates, the government gets about the same portion. According to Davies, if we’re concerned about balancing the budget, we should worry less about raising tax revenue and more about growing the economy. The recipe for growth? Lower tax rates and a simplified tax code.

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  • Although it may seem counterintuitive, raising taxes on the rich does not actually increase the amount of taxes the government collects. How could this possibly be the case? According to Professor Antony Davies, it is because the many loopholes in federal income taxes, capital gains taxes, and many other taxes, enable people to partially avoid these taxes. Perhaps instead of discussing how to raise tax revenues, we should spend our energy simplifying the tax code. This would make it more difficult for people to avoid taxes and, Davies says, “The less time and money we spend trying to work around a complex tax code, the more time and money we will have available to put to more productive uses.”

Debt Ceiling Flashback: 2011-Not Doing It An Act of Terrorism (MSNBC); 2004-Doing it an Embarresment to Republicans (MSNBC)

What a difference an election makes. NewsBusters has this little gem tucked away, and keep in mind this is a reason Bush scored low among us conservatives… he spent more and more on programs that need to be totally eradicated (like the Dept of Education):

MSNBC’s Chris Matthews and Andrea Mitchell have been telling viewers in recent days that Republicans considering blocking an increase in the debt ceiling could be creating a financial crisis.

Seven years ago after George W. Bush was re-elected and the debt ceiling had been raised in November 2004, the perilously liberal couple felt Republicans should be “embarrassed” for having done so (transcripts follow with commentary):

ANDREA MITCHELL: But what is looking over his shoulder is history. He wants a legacy. He wants to be able to do something about Social Security. He knows he’s got to do something about deficit reduction. That is the big embarrassment for Republicans. They ought to be ashamed of themselves, what the Hill Republicans have done. They’ve been worse than Democrats.

CHRIS MATTHEWS: They just increased the debt ceiling.

MITCHELL: Exactly.

This exchange occurred on the November 21, 2004, installment of “The Chris Matthews Show.”

Yet as NewsBusters has been reporting, Matthews has in the past several days twice referred to Republicans as terrorists because they’re refusing to support a raise in the debt ceiling if it includes tax increases.

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What a Twit[ter]!

From the Wall Street Journal:

President Obama was right about his audacity, if not always the hope. Six months after he agreed to a bipartisan extension of current tax rates, he is now insisting on tax increases as part of the debt-ceiling talks. At his press conference yesterday he repeated this demand, as well as his recent talking point that taxes are lower than they’ve been in generations. Let’s examine that claim because it explains Washington’s real revenue problem—slow economic growth.

Mr. Obama has a point that tax receipts are near historic lows, but the cause isn’t tax rates that are too low. As the nearby table shows, as recently as 2007 the current tax structure raised 18.5% of GDP in revenue, which is slightly above the modern historical average. Even in 2008, when the economy grew not at all, federal tax receipts still came in at 17.5% of the economy.

Today’s revenue problem is the result of the mediocre economic recovery. Tax collections in 2009 fell below 15% of GDP, the lowest level since 1950. But remarkably, tax receipts stayed that low even in the recovery year of 2010. So far this fiscal year tax receipts are growing at a healthy 10% clip, so the Congressional Budget Office (CBO) January estimate of 14.8% of GDP is probably low. We suspect revenues will be closer to 16%, but even that would be the weakest revenue rebound from any recession in 50 years, and far below the average tax take since 1970 of 18.2%.

But what about the liberal claim, repeated constantly, that the Bush tax cuts of 2001 and 2003 caused today’s deficits? CBO has shown this to be demonstrably false. On May 12, the budget arm of Congress examined the changes in its baseline projections from 2001 through 2011. In 2001, it had predicted a surplus in 2011 of $889 billion. Instead, it expects a deficit of $1.4 trillion.

What explains that $2.29 trillion budget reversal? Well, the direct revenue loss from the combination of the 2001 and 2003 Bush tax cuts contributed roughly $216 billion, or only about 9.5% of the $2.29 trillion. And keep in mind that even this low figure is based on a static revenue model that assumes almost no gains from faster economic growth.

After the Bush investment tax cuts of 2003, tax revenues were $786 billion higher in 2007 ($2.568 trillion) than they were in 2003 ($1.782 trillion), the biggest four-year increase in U.S. history. So as flawed as it is, the current tax code with a top personal income tax rate of 35% is clearly capable of generating big revenue gains.

CBO’s data show that by far the biggest change in its deficit forecast is the spending bonanza, with outlays in 2011 that are $1.135 trillion higher than the budget office estimated a decade ago. One-third of that is higher interest payments on the national debt, notwithstanding record low interest rates. But $523 billion is due to domestic spending increases, including defense, education, Medicaid and the Obama stimulus. Mr. Bush’s Medicare drug plan accounts for $53 billion of this unanticipated spending in 2011.

The other big revenue reductions come from the “temporary” tax changes of the Obama stimulus and 2010 bipartisan tax deal. CBO says the December tax deal—which includes the one-year payroll tax cut and the annual fix on the alternative minimum tax—will reduce revenues by $196 billion this year. The temporary speedup in business expensing will cost another $55 billion.

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One online post puts it thusly:

To put it simply though: we don’t have a tax revenue problem, we are spending way too much. The stats show this perfectly. In 2005 we generated $2.1 Trillion in taxes, and had $2.5 Trillion in federal spending. In 2010 we saw almost $3.5 Trillion in expenses, yet collected almost the same in taxes. These are official numbers from the White House, and not some partisan made up numbers.


We are spending way too much than what we take in, and we need to cut the excess bloat in our government. We need a much flatter and simpler tax code than what we have currently. The solution is simple: we need to spend less than what we earn.

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Coo-Coo for Co-Co Puffs~AFL-CIO President

BigGov h/t:


  • The AFL-CIO is one of the single largest contributors to President Obama and the Democratic Party
  • They reap enormous, direct benefits from the ever-expanding size of the federal government
  • The AFL-CIO ran itself insolvent in the 2008 presidential election–spending millions more than the union had taken in from dues, and later engaged in “creative accounting” to conceal their financial hardships
  • The AFL-CIO has pledged to spend upwards of $53 million in the waning days of the midterm election
  • Mr. Trumka has also said that he “watched (tea party protesters) spit at people, I watched them call John Lewis the n-word,” even though he is nowhere to be found on any of the videos of the alleged incident
  • Mr. Trumka has also said, in reference to the Tea Party Movement: “There are forces in our country that are working hard to convert justifiable anger about an economy that only seems to work for a few of us into racist and homophobic hate and violence directed at our President…”

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