Tax Hikes Will Slow Growth

Denying the impact of taxes on the economy should be a lot harder for lawmakers now that the Congressional Budget Office has spelled it out in the most precise terms.

The nonpartisan CBO took a look at the future of the budget deficit and came up with some great news: Today's $1.1 trillion deficit will dwindle to a measly $269 billion by 2015.

Of course, making that happen assumes a massive tax hike. The CBO is counting on the Bush-era tax reductions to expire on all Americans at the end of this year and that the bruising Alternative Minimum Tax will be allowed to hit 30 million middle-income taxpayers.

Those tax hikes would raise revenues of $1 trillion over the next three years.

It assumes, as well, that Congress will discover some fiscal discipline and cut discretionary spending by $2 trillion over the next decade.

That's fantasy on all counts, of course.

Congressional Democrats and President Barack Obama may have an appetite for soaking the rich with higher taxes, but they aren't going to touch the extensive tax releif the Bush cuts provided to middle-income earners. And they aren't going to cut spending.

But say they did allow the rates to rise. What would happen then?

The CBO projects tax hikes of the magnitude it assumes would slow growth to 1 percent next year and cause unemployment to rise back above 9 percent.

One percent growth is barely above recessionary levels and would place the nation at risk of a double-dip downturn if the economy hits the least little bump.

Growth at the current 2 percent annual level is anemic enough.

As we said, there's little danger of all of the Bush-era cuts going away. But the president and Democratic lawmakers are pushing a massive tax hike on higher earners, including the new super tax on millionaires that would hit investment income particularly hard.

Higher earners are already in line for a $21 billion tax increase next year to help pay for Obamacare. There's little reason not to believe that a massive tax hike concentrated on one group of taxpayers would have less economic impact than one spread more broadly.

In fact, it's easy to see how over-taxing investors could have even greater consequences.

Those consequences won't be borne as heavily by the upper income earners who will pay the higher taxes as they will by the middle-income earners who will lose their jobs.

The economy appears to be picking up some momentum. Now would be the worst time to throw speed bumps in the form of tax hikes in its path.

The federal debt has swollen by $5 trillion in three years and must be addressed to avoid economic ruin.

The answer to restoring fiscal sanity to the federal budget is not growth-slowing tax hikes, but pro-growth spending cuts.

 

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