Excerpted from WSJ, “We Can’t Tax Our Way Out of the Entitlement Crisis”, by R. Glenn Hubbard, August 21, 2008
The spending shortfalls in Social Security and Medicare are large.
According to the Congressional Budget Office, Social Security and Medicare spending left unchecked would, after a generation, consume about 10 percentage points more of GDP than it does today.
Simple arithmetic suggests that with this much more of GDP eaten up by the two programs, all federal taxes on average would have to be raised by more than 50% to make up the shortfall … such a tax increase would reduce long-term GDP growth by about a full percentage point … reversing all of the gains in our long-term growth rate from the productivity boom of the past 15 years.
Large entitlement budgets … cannot be financed with growth-chilling taxes alone. Spending on other areas, including defense but also education, research, etc., must also be adversely affected.
Mr. Obama’s fiscal … vision is plain enough: a larger welfare state paid for by higher taxes … leaving open the question of what tax increases are next.
If Mr. Obama is going to increase spending, will he raise the money by higher business taxes instead? He has already distanced himself from John McCain’s call to reduce America’s corporate tax rate, and he is committed to raising tax rates on successful small business owners who pay individual as opposed to corporate income taxes. Does this mean he will raise tax burdens on individuals with annual incomes less than $250,000?
In a June 26 interview … Mr. Obama said he wanted to roll back the Bush tax cuts for those in the top 5% of incomes — that is, about $145,000 per year. He also voted for the Democrats’ fiscal year 2009 Budget Resolution, which would raise taxes on individuals earning $42,000 or more.
Balancing the federal budget without a tax increase is possible, but will require strong fiscal restraint.
Three actions are essential: (1) reduce entitlement spending growth through some form of means testing; (2) eliminate all nonessential spending in the rest of the budget; and (3) adopt policies that promote economic growth.
This 180-degree difference from Mr. Obama’s fiscal plan forms the basis of Sen. McCain’s priorities for spending, taxes and health care.
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Mr. Hubbard, dean of Columbia University Business School, was chairman of the Council of Economic Advisers under President George W. Bush.
Full op-ed:
http://online.wsj.com/article/SB121927694295558513.html?mod=opinion_main_commentaries
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