High taxes no Rx for budget deficit
President Barack Obama is having qualms about the huge deficits his economic stimulus plan, along with bank bailouts and his predecessor’s actions, are expected to rack up.
So the president’s budget, a summary of which is set to be delivered to Congress this week, includes an ambitious plan to cut the deficit in half over the next four years.
Unfortunately, a significant part of the president’s deficit-reduction plan is a proposal to raise taxes on businesses and the wealthy. That’s a prescription for more economic ailments, not a cure.
Obama didn’t mention the tax hikes during a discussion of the deficit on Monday, but The Washington Post and other news sources reported it over the weekend.
The wealthiest Americans already shoulder a disproportionate share of the tax burden.
For instance, “In 2006, the top 1 percent of tax returns paid 39.9 percent of all federal individual income taxes,” according to the Tax Foundation. The same 1 percent earned 22.1 percent of the total adjusted gross income for the nation. Significantly increasing the rates they pay will only be a disincentive for them to invest more in the U.S. economy.
Raising taxes on businesses at a time when nearly every sector of the economy is suffering and businesses are shedding jobs rapidly is an even worse idea. It will discourage business expansion and job creation.
A good deal of the president’s deficit-reduction plan makes sense. Using more honest bookkeeping procedures so that spending for things like the wars in Iraq and Afghanistan are not kept off the books would certainly be a step in the right direction.
So is the president’s pledge to go through the budget of every federal department “line by line” to look for areas where spending can be cut. But he’ll have to overcome the spending proclivities of both Republicans and Democrats in Congress to make any real cuts.
Obama also plans to substantially cut military spending in Iraq and Afghanistan. That’s fine in Iraq, where the surge that began two years ago has made it militarily possible to substantially cut U.S. armed forces in the country over the next few years.
In Afghanistan, where Obama is increasing troop numbers and where the Taliban have been reasserting their control over isolated regions, the prospects for a near-term military cutback are far less encouraging.
Cutting the deficit is a laudable goal. But attempting to do so by enacting investment-crushing taxes is likely to do little but add to the current economic misery and, eventually, the deficit.