Dems to Increase Taxes.
I find it funny that the dems aren’t going to talk about it till after 2008. I think it is time for the Right wingers to get out there and expose the dems and beat them at their own game. This is ridiculous. I think taxes are high enough. The reason the Democrats are getting away from this that they are getting a free pass from the left leaning Main Stream Media. Look for right leaning talk show hosts to be all over it. Hannity was on it today already. Its time to take the dems to task. ND residents should be writing Dorganoff and Conrad right away.
The Coming Tax Increase
April 5, 2007; Page A12
What with the big stories of Iraq and the Presidential horse race, and the non-story of the U.S. attorneys, the Beltway press corps seems all tapped out. That does leave the small matter of economic policy, however, and the big but uncovered news that Congress has just lit a fuse for the biggest tax increase in history.
The new House and Senate majorities have now passed budget resolutions—five-year budget outlines—that include the repeal of the Bush tax cuts of 2001 and 2003. Republicans are overstating things when they imply this means a tax increase this year. The Bush tax cuts don’t expire until the end of 2010, and Democrats aren’t about to tip their tax hand before the 2008 election. But under the cover of zero media attention, Democrats are constructing a budget process that will make a tax increase all but inevitable.
The ploy here is “pay-as-you-go” budget rules that Democrats are implementing in the name of “restoring fiscal responsibility.” A few journalists even quote that phrase with a straight face. But everyone in Washington knows that “paygo” is all about making tax cuts more difficult, and not about slowing the growth of spending.
Under “paygo,” extending the Bush tax cuts is itself a tax cut that must be offset either with cuts in entitlement spending or with other tax increases. And paygo merely constrains the growth of “new” entitlements. Entitlement rules already in place don’t count under paygo rules, so Medicare, Medicaid and the new “children’s” health-care program (SCHIP) will keep growing on autopilot. So-called discretionary spending—defense, education, highways, etc.—isn’t affected at all.
This is a big enough political con. But an even bigger ruse is the Democratic-media chorus that the Bush tax cuts must be repealed because they’ve left the Treasury high and dry. The nearby chart tells the modern story of federal tax revenues as a share of the economy. And what it shows is that tax receipts did plunge earlier this decade from their late-1990s heights, reaching a trough in fiscal 2004 of 16.3% of GDP. The economy was still recovering from the collapse of business investment and the stock market bubble, and no doubt the lower Bush rates played a role in reducing revenue for a time.
But the lower rates also provided a spur to incentives that led to a rebound in investment, stock prices and ultimately in economic growth, individual incomes and corporate profits. This produced, in turn, a very sharp rebound in federal tax receipts—to 17.6% of GDP in fiscal 2005 and 18.4% in 2006. The Congressional Budget Office—now run by Democrats—predicts it will reach 18.6% in fiscal 2007.
This is slightly above the 40-year historical average of 18.3%, and CBO says it will climb again in each of the next two years before dipping in 2010. Despite the Bush tax cuts—or we should say because of them—federal revenues are above where they’ve been for most of the last half century. The government is far from starved for cash.
What Democrats really don’t want you to know is what will happen to receipts after 2010 if the tax cuts expire: CBO says the feds will grab a huge additional chunk of the economy to spend—more than 1.5% of GDP a year in extra tax revenue by 2017. At 20.1% in that year, taxes as a share of the economy would exceed every postwar year except for the 20.9% of 2000, when the stock bubble and bonuses tossed many taxpayers into higher tax brackets.
Now, we hardly take CBO projections as gospel. They’re usually wrong beyond the first year or so because they ignore the impact of higher or lower tax rates on incentives and growth. So CBO is surely mistaken that letting the Bush rates expire would have little effect on growth and that tax receipts would continue to mount. A tax increase of that magnitude could well lead to a recession and a plunge in receipts.
Our point in citing these CBO projections is to show that the tax increase fuse has now been lit. Do nothing and taxes will rise as much as they have at any one time since World War II. Democrats have made the decision to obscure this burning fuse, and the press corps is ignoring it. But that doesn’t mean the rest of the country has to play along. How to handle those looming tax hikes is the most important economic choice the Congress and next President are likely to face. It’s a debate we should start having now, before the fuse burns down.

