The Heritage Foundation

Backgrounder Update #146

October 7, 1990

October 7, 1990 | Backgrounder Update on

The Budget Summit Agreement, Part VIII: Hidden Time Bombs

(Archived document, may contain errors)

10/3/90 146

THE BUDGET SUMMIT AGREEMENT: PART VIII HIDDEN TIME BOMBS

(Updating Ewcutive Memorandum No. 286, "The Budget Summit Agreement: Part VII, Economists Speak Out," October 3, 1990; BacA:grounder Update No. 145, "The Budget Summit Agreement: Part VI, No Real Budget Process Reform," October 3, 1990; BacA;grounder Update No. 144, "The Budget Summit Agreement: Part V, Faulty Economic Assumptions, " October 3, 1990; Backgrounder Update No. 143, "Me Budget Summit Agreement: Part IV, Tle Myth of Entitlement Reform," October 3,1990; Backgrounder Update No. 142, "The Budget Summit Agreement: Part III, No NewTaxes Needed" October 3,1990; Backgrounder Update No. 141, "The Budget Summit Agreement: Serious Damage to the Economy, Part II," October 2, 1990; Backgrounder Update No. 141, "Me Budget Summit Agreement: Serious Damage to the Economy, Part I," October 1, 1990; and Backgrounder 787, "Rx for the Federal Deficit: The Four Percent Solution," September 4, 1990.) Budget summiteers claim that the $134 billion tax hike included in their agreement, the largest first-year tax increase in America's history, was a one-time necessity. In the long run, they say, the agreement will limit the growth of government spending and thus eliminate the need for higher taxes in the future. Yet the budget agreement actually includes several provisions which would reshape fundamentally the nation's tax and spending policies. Far from reducing the likelihood of future tax increases, these provisions would open the door to higher taxes and bigger government. Thus, not only does the budget package propose recessionary policies for today, it also virtually guarantees a huge increase in spending and taxation in the future. Among the many fiscal time bombs hidden in the budget agreement: A National Sales Tax. Many liberals in Congress have long wanted a value-added tax or some similar national sales tax, knowing that such a national tax would be a cash cow to finance fu- ture pet programs. The agreement opens the door to such a tax. The imposition of a ten per- cent tax on so-called luxury items can easily be expanded to include other products and ser- vices. Indeed, because the overall package is sure to fail in its goal of deficit reduction, pres- sure will be created for more tax increases in future years. Legislators then will be tempted to define more and more goods as "luxury" items. Eventually this revenue-raising "luxury" tax will become the full blown national sales tax that the big spenders have always wanted. Effective Prohibition of Future Tax Cuts. Many policy makers, concerned that the budget summit agreement may be enacted into law, are developing tax-cut proposals to pull the economy out of the recession which almost certainly will follow the enactment of the budget

About the Author

Daniel J. Mitchell, Ph.D. McKenna Senior Fellow in Political Economy