Balancing the Budget Without Tax Hikes

COMMENTARY Budget and Spending

Balancing the Budget Without Tax Hikes

May 25th, 2011 2 min read

Former Norman B. Ture Senior Fellow in the Economics of Fiscal Policy

J.D. served as the Norman B. Ture Senior Fellow in Economics of Fiscal Policy

'You can't balance the budget without raising taxes." That's the conven tional wisdom at the better cocktail parties from Washington, DC, to Boston -- and, thank goodness, it's wrong.

I know, because my colleagues at The Heritage Foundation released a proposal yesterday that balances the budget in 10 years -- and keeps it balanced -- without raising taxes. It also immediately strengthens the rapidly fraying social safety net and steadily cuts America's debt burden.

Everyone knows that the federal spending-and-debt binge can't go on. And every serious-minded person -- including the Medicare and Social Security trustees and their actuaries -- acknowledges that those programs can't continue as they are.

Fear-mongers who scream that reformers like House Budget Committee Chairman Paul Ryan want to end Medicare are kidding themselves. "Medicare as we know it" is already finished.

The cocktail-party crowd hope that taxes will go up so spending can come down less, keeping as many folks as possible on the federal gravy train. And the political key is convincing enough people that tax hikes are inevitable. That's why the fans of big government constantly repeat the erroneous conventional wisdom.

Choosing is inevitable -- not the choice. If your goal is bigger government, then join the call for higher taxes. If you want higher wages and more jobs, then leave high taxes to Europe -- and choose less government.

In putting together the Heritage plan, we chose the latter option.

First, we set a tax-revenue cap at the maximum level Americans traditionally have been willing to pay: 18.5 percent of our Gross Domestic Product. That would bring in about $2.8 trillion this year -- and even the federal government should be able to get by on that.

Next, we determined what government properly should do and what is nonessential. Notice, this is basically how families work up their budgets.

Some federal spending is truly mandatory: paying interest on past debt for one; national security for another. National-security spending is determined by the threats facing the nation -- both current and foreseeable. Defense spending is truly mandatory -- not the political football that some make of it.

We also determined that ensuring an adequate safety net for those at risk (without crowding out private help) remains a proper government function. To give seniors real peace of mind, we reform Social Security and Medicare so they deliver benefits guaranteed to keep seniors out of poverty. Shamefully, the existing systems can't make this claim.

We then phase out benefits for more affluent retirees who need no financial assistance -- a move that some seniors will object to, arguing that they paid into these programs and were promised benefits.

They're absolutely right. Unfortunately, the politicians making those promises never explained that taxpayers can't afford to make good on them. Now, the day of reckoning approaches, and the nation must make a decision: Either today's workers -- and their children -- will pay far more in taxes to subsidize the retirements of more affluent seniors, or the wealthiest retirees will do with a little less.

As long as they're insured against poverty, we think seniors who can stand on their own should do so.

We also reform Medicaid so it is better targeted for those in need, more flexible for the states and more affordable. Welfare for farmers? Gone. Railroad subsidies? Gone. ObamaCare? Gone. Federal highway program? Turned back to the states, which manage highway programs very nicely, thank you.

And we replace the entire federal tax system with a simple, single-rate system that fosters economic growth by encouraging savings and investment.

The Heritage plan proves that taxes need not go up. It is a choice -- a choice between visions for America's future. We can either save the American dream, or replace it with the European dream.

The European dream is fine for those willing to accept high taxes, big government and long-term decline. But I'm betting most Americans will decline the foie gras in favor of freedom and prosperity.

J.D. Foster is The Heritage Foundation's Norman B. Ture senior fellow in the eco nomics of fiscal policy.

First appeared in The New York Post