Nick Gillespie and Veronique de Rugy
New York Post
12/26/2010
A value-added tax, a soda tax, a gas tax, banning earmarks, freezing a portion of federal spending at “pre-stimulus” levels — there’s no shortage of ideas being thrown out to fix the country’s disastrous balance sheet, which threatens not just near-term economic recovery but the possibility of long-term growth. Like last month’s report from the president’s Commission on Fiscal Responsibility and Reform, most of the current plans to fix the country’s finances rely more on increases in revenues than on cuts in spending. In part due to its heavy reliance on revenue hikes, the commission, charged with balancing the budget by 2020, failed to win enough votes of its own members to present its recommendations to Congress.
Which raises the question: Can America really reduce its debt and deficit without raising taxes to job-killing rates or cutting essential services to developing-world levels? The answer is not simply yes, it’s that we have to.
Raising government revenue — taxes — substantially is not only bad policy, it has proven difficult and ultimately unsustainable for any length of time. Since 1950, annual government revenue, as a percentage of GDP, has averaged just below 18% despite every attempt to jack it up or tamp it down. Our post-World War II experience shows that if the government is going to live within its means, it can’t spend much more than 18% of GDP. Period.
Which is one reason to be happy that the debt commission’s recommendations won’t be presented to Congress anytime soon. The report assumes revenue equal to 21% of GDP and struggles to get spending to “below 22% and eventually to 21%” of GDP. That’s a recipe for disaster that would guarantee deficits and red ink.
The article continues at the New York Post.
