Raising taxes to shrink the deficit? Sure: “Our research indicates this is a sucker play”

by Skip

Most of us on the Right have known this innately for years – how?  Just look at budgets.  At the town level, at the city level, at the county, or State or Federal level – how often have you ever seen a budget DECREASE?  Even a slowing of rises are decried by those whose favorite program is "a cut".

Now, from the Wall Street Journal, some research shows what we have known all the time; my paraphrase is this:

A raising of an existing tax, or the birth of a new tax revenue stream is like a hit of crack to the vast majority of politicians and Progressives; it is never enough and they only want more and more to support their spending habit. 

Higher Taxes Won’t Reduce the Deficit (emphasis mine):

The claim here, echoed by endless purveyors of conventional wisdom in Washington, is that these added revenues—potentially a half-trillion dollars a year—will be used to reduce the $8 trillion to $10 trillion deficits in the coming decade. If history is any guide, however, that won’t happen. Instead, Congress will simply spend the money.

In the late 1980s, one of us, Richard Vedder, and Lowell Gallaway of Ohio University co-authored a often-cited research paper for the congressional Joint Economic Committee (known as the $1.58 study) that found that every new dollar of new taxes led to more than one dollar of new spending by Congress. Subsequent revisions of the study over the next decade found similar results.

We’ve updated the research. Using standard statistical analyses that introduce variables to control for business-cycle fluctuations, wars and inflation, we found that over the entire post World War II era through 2009 each dollar of new tax revenue was associated with $1.17 of new spending

…Politicians spend the money as fast as it comes in—and a little bit more. …

We’re constantly told by politicos that tax increases must be put "on the table" to get congressional Democrats—who’ve already approved close to $1 trillion of new spending in violation of their own budget rules over the last two years—to agree to make cuts in the unsustainable entitlement programs like Medicare and Social Security.

Our research indicates this is a sucker play. After the 1990 and 1993 tax increases, federal spending continued to rise. The 1990 tax increase deal was enacted specifically to avoid automatic spending sequestrations that would have been required under the then-prevailing Gramm-Rudman budget rules….

The grand bargain so many in Washington yearn for—tax increases coupled with spending cuts—is a fool’s errand. Our research confirms what the late economist Milton Friedman said of Congress many years ago:

"Politicians will always spend every penny of tax raised and whatever else they can get away with."

Indeed. Former NH Governor Mel Thompson had it right:

Lower taxes is a result of less spending.

Remember this, too:

Sixty-five percent of voters said they prefer a smaller government with lower taxes over one with more services and higher taxes, results indicated.

Enough with the taxes; let Government share in the "shared sacrifice" that politicians keep telling us that WE have to undergo.

(H/T: TaxProf via Instapundit)

Like it? Share it!

Leave a Comment

Previous post:

Next post: