The Congressional Budget Office has released a report on Options for Reducing the Deficit. The report presents policy options for reducing the federal budget deficit, with 44 options for reducing spending, and 32 proposals for increasing federal revenue, including proposals to raise tax rates for individuals, corporations, and investors.
While the spending reduction options may be useful to Members of Congress actually interested in reducing federal budget deficits, a number of the proposed tax increases are anti-growth and would do little to reduce deficits. The tax rate increases are the most harmful to economic growth, and they are the least effective way to reduce deficits and the debt.
History shows that trying to reduce deficits by raising individual and corporate tax rates just does not work. Numerous economic studies show that raising the corporate tax rate is the most economically harmful tax increase and would have negative effects on economic growth.
A Penn Wharton study of budget reduction options found that raising the corporate tax rate would do the most damage to the economy, leaving debt “growing and unsustainable,” and leading to long-term “economic decline.” Even small rate increases would result in lost economic output, investment, and productivity, resulting in a long-term reduction in real GDP, lower federal revenue, and larger deficits.
Increasing economic growth should be our number one economic policy goal. A St. Louis Federal Reserve Bank paper described how “high economic growth” helped reduce the World War II national debt exceeding 100% of GDP to a historic low of 25% of GDP by 1975. The debt was reduced as spending and tax levels were limited, and economic growth grew at an average annual rate of 4% a year and at 5% in the 1960s after the Kennedy tax cuts.
Economic growth has stagnated the last two decades to less than 2% a year as federal spending has soared, increasing the national debt back to record highs. CBO has projected real economic growth to average a dismal 1.8% a year for the next ten years.
Amazon founder Jeff Bezos agrees that expanding economic growth is the best way to solve the national debt problem, saying recently that the U.S. needs “to grow the GDP at 3, 4, 5% a year.” Faster economic growth is the key to reducing deficits and debt, and curbing federal spending and keeping tax rates low is the best way to achieve the faster growth we need.
Tax Increases Won't Accomplish Much of Anything
December 25, 2024
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