John Kerry has pledged to cut the budget deficit even as he
implements policies that would drastically increase federal
spending. How much would he have to raise taxes to make good on
both promises? Between $2,090 and $2,829 per household. And that's
on top of his already promised tax hikes.
Specifically, Kerry says he will cut the current $422 billion
budget deficit in half by 2008. At the same time, he proposes
hiking federal spending and making permanent the Bush tax cuts for
lower- and middle-income families. Kerry claims he can do this all
simply by rescinding the Bush tax cuts for the "wealthy," which he
defines (at the moment) as households earning more than
$200,000.
Let's break down the numbers.
The American Enterprise Institute, using third-party sources such
as the Congressional Budget Office (CBO), estimates that Kerry's
spending and targeted tax proposals would cost $1.7 trillion over
the next decade. Adding in his plan to alter the Bush tax cuts
would increase the deficit by $438 billion, according to The
Heritage Foundation. Then there is Kerry's pledge to fix the
Alternative Minimum Tax, which CBO says would cost $340 billion.
Include the total added net interest from these policies, and you
have another $586 billion.
Taken together, these policies would add $3.1 trillion in
additional budget deficits over the next decade. Rather than halve
the $422 billion budget deficit by 2008, Kerry's budget would
actually push it up to $525 billion.
Skeptical readers may prefer an estimate based on the Kerry
campaign itself, or on other liberal-leaning sources. They're in
luck. The Kerry campaign's Web site concedes $1.1 trillion in
proposed new spending and targeted tax credits over the next decade
(based on gimmicks that would make an Enron executive blush). The
Urban Institute estimates that Kerry's tax-cut alteration would
increase the deficit by $364 billion. Add in the above-mentioned
$340 billion to fix the Alternative Minimum Tax and the new debt
interest payment of $448 billion.
Even this benefit-of-every-doubt calculation shows that Sen. Kerry
would add $2.3 trillion to the budget deficit over the next decade.
That 2008 deficit would reach $443 billion. Again, he's increasing
the deficit, not halving it.
These estimates aren't surprising. Kerry's proposal to shave $211
billion off the budget deficit while also spending nearly $2
trillion more -- on everything from health care to business
subsidies to endangered-species protection to high-speed rail to
free college tuition for volunteers -- doesn't pass the smell test.
No tax increase restricted to those earning more than $200,000 can
bridge this large of a gap.
So how would Sen. Kerry deal with this mathematical reality? When
former President Bill Clinton's campaign promises proved
incompatible with his deficit-reduction pledge, he bridged the gap
with large, broad-based tax increases. Should Kerry choose the same
route, he would have to raise taxes by $2,090 to $2,829 per
household (depending on which budget estimate is used) in addition
to his current proposed tax increases.
And after all this, Kerry's budget still ignores the most important
economic challenge of our time: the $44 trillion shortfall in
Social Security and Medicare.
Whoever is elected this year will be in the White House when the
first baby boomers reach early retirement on Jan. 1, 2008. In the
absence of reform, Social Security and Medicare will eventually
require tax increases that, at today's prices and incomes, would
top $10,000 per household. Kerry has so far presented no plan to
avert this catastrophe. Even if he successfully cuts $211 billion
off the 2008 budget deficit, it will matter little compared to the
massive long-term Social Security and Medicare costs that may
remain ignored.
When politicians make promises, it pays to run the numbers. In this
case, the numbers give Americans an idea of just how much taxes
might rise under a Kerry administration. And it gives us the basis
for debating something even more critical: how such a tax hike on
families and small businesses would affect job-creating investment
and economic growth.
In short, are we willing to pay a huge price for a
deficit-reduction plan that doesn't work?
Brian Riedl
is Grover M. Hermann Fellow in Federal Budgetary Affairs in the
Thomas A. Roe Institute for Economic Policy Studies at The Heritage
Foundation.
Distributed Nationally on the Knight-Ridder Tribune Wire