September 20, 2010

September 20, 2010 | Commentary on Budget and Spending, Deficits

Washington Tax Raisers Ignore Wasteful Spending

Because of overstaffing, the U.S. Postal Service selects 1,125 employees daily to sit in empty "standby rooms." They are not allowed to work, read, play cards, watch television, or do anything. This $50 million annual cost may be dumped in the taxpayers' laps if the debt-ridden Postal Service receives a federal bailout.

Stimulus dollars are being spent on mascot costumes, electric golf carts, and a university study examining how much alcohol college freshmen women require before agreeing to casual sex.

Washington is spending $2.6 million training Chinese prostitutes to drink more responsibly on the job. This is the kind of wasteful spending that President Obama and Congress stubbornly refuse to cut. Instead, they plan to raise taxes on families and entrepreneurs by trillions of dollars.

President Obama had promised not to raise taxes "one single dime" on Americans earning less than $250,000. Then he raised taxes for ObamaCare, hiked tobacco taxes, and endorsed an $800 billion cap-and-trade energy tax. And he isn't done yet. His budget would raise annual taxes by an average of $30,000 each on small businesses and families earning more than $250,000. Small businesses — who create the majority of new jobs — would be taxed at a top rate even higher than that of corporations. So if the president has his way, the neighborhood dry cleaner may be assessed a higher tax rate than Exxon.

Additional higher taxes may also be in store for middle- and working-class families. All indications are that House Speaker Nancy Pelosi, D-Calif., won't even allow a vote on extending the tax cuts for anyone.

This means that on New Year's Day, the $1,000 child tax credit would fall to $500, and the marriage penalty re-imposed. Low-income families would see their income tax rate jump by half, while everyone else's tax rates would rise between 3 and 4.6 percentage points. Capital gains and dividends tax rates — currently 15 percent for most investors — would leap to 20 percent and 39.6 percent, respectively. The death tax would be re-imposed at a 55 percent rate.

The president and Congress claim these painful tax increases are vital to reining in the staggering $1.4 trillion budget deficit. Nonsense.

First, soaring spending — not low taxes — is driving the budget deficit. Those who blame the past decade's deficits on $1.7 trillion in tax cuts have been oddly silent about the $5 trillion in new spending over that period. And with the government set to spend an unfathomable $46 trillion over the next decade, blaming future budget deficits on extending $0.7 trillion worth of "tax cuts for the rich" is quite selective. Second, these historic tax increases would be imposed during a recession — a policy rejected by every economic school of thought. Higher tax rates penalize work, saving and investment, and make it more difficult for businesses to create jobs. And if tax increases create a double-dip recession (as many predict), there would fewer jobs and less income to tax, negating the entire revenue purpose of the tax increase. This is root canal economics.

Finally, does anyone believe Washington would save any new revenues for deficit reduction? Even the most casual observer of Congress knows they would just spend it. Virtually all the tax increases proposed or enacted over the past two years — the ObamaCare taxes, tobacco taxes, cap-and-trade taxes — have been earmarked for new spending. And now Washington spenders demand more taxes under the guise of deficit reduction? Here's a better idea for politicians: Don't raise taxes by even $1 until you've fixed the $98 billion lost annually to payment errors. Don't raise taxes by $1 while spending $600 million on a Grateful Dead archive, or while running 342 different economic development programs, or while spending more on corporate welfare than on homeland security.

Most important, don't raise taxes by $1 until you've seriously confronted the Social Security, Medicare and Medicaid spending trends that risk bankrupting our children and grandchildren.

The president and congressional spenders want to raise taxes on families and entrepreneurs. But taxpayers are already tightening their belts.

It's time for Washington to do the same.

Brian Riedl is the Grover M. Hermann Fellow in Federal Budgetary Affairs at The Heritage Foundation.

About the Author

Brian M. Riedl Grover Hermann Fellow in Federal Budgetary Affairs
Thomas A. Roe Institute for Economic Policy Studies

First moved on the McClatchy News Wire service