Barack Obama, tax-cutter? As the election campaign wound down the president apparently was considering a new tax cut to stimulate the still sluggish economy. But his administration only was privately discussing—the deputy White House press secretary officially declared that nothing was being contemplated “at this time”—a limited package of temporary cuts. Far better is Mitt Romney’s proposal for fundamental tax reform.
Americans face a serious fiscal crisis. If the U.S. was a family it would declare bankruptcy. The official national debt is $16.2 trillion. But economist Laurence Kotlikoff and columnist Scott Burns figure that “the U.S. government’s fiscal gap — the true measure of the nation’s indebtedness”—is $222 trillion, or about 14 times as much.
This “fiscal gap” did not result from the Bush tax cuts. According to the Heritage Foundation and Tax Foundation, those tax reductions only accounted for 14 to 16 percent of the $12 trillion net shift from surplus to deficit during the Bush administration. Maintain the cuts and the federal government still will be collecting a larger share of the GDP in the future than the average over the last 40 years. The coming tsunami of deficits and debt instead will result from a sharp increase in spending on entitlements: Social Security, Medicare, and Medicaid.
Nor, despite the meme promoted by the president and his allies, is there a problem of “the rich,” however defined, failing to pay their “fair share” of taxes. The wealthiest top one percent pays 36.7 percent of income taxes. The top five percent pays 58.7 percent, the top ten percent pays 70.5 percent, and top quarter pays 87.3 percent, and the top half pays 97.8 percent. The Reagan tax reform essentially ended income taxes for the lower half of earners. Indeed, because of refundable tax credits, members of the bottom 40 percent actually collect more than they pay. Higher income Americans also pay the bulk of other taxes.
With Uncle Sam running trillion dollar annual deficits, the immediate necessity is big spending reductions. The real cost of government is expenditures. Whether Washington taxes or borrows, it is consuming valuable private resources. The resulting opportunity cost is lost private investment and consumption. Today government is spending far too much.
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