Think Tank Denounces US Tax Hikes

by Mike Godfrey, Tax-News.com, Washington

22 June 2010

Right wing think tank, the Heritage Foundation has argued that the US government’s fiscal mismanagement has led to a deficit set to reach USD1.5 trillion this year. The Foundation said that the government should solely focus efforts towards cutting spending and drop proposed hikes to the American tax burden.

In a statement on June 18, the Foundation said “the deficit will reach a stunning USD1.5 trillion this year. Even after the recession ends, trillion-dollar deficits will persist, causing the national debt to double by 2020.”

The body surmised that under the current tax regime in the US, the budget deficit will be 92% of GDP by 2014, and 100% by 2017. Social Security, Medicare, Medicaid, and interest costs will surge by nearly USD2 trillion by 2020, the think tank added. It argued that “solutions that ‘split the difference’ between tax hikes and spending cuts don’t address the source of the problem: spending.”

Urging that tax increases cannot be the solution, the Heritage Foundation said:

• In order to pay for entitlement spending, federal income tax rates would be need to double by 2050;
• Balancing the budget with tax increases alone would increase the tax burden from an average of 18% of Gross Domestic Product (GDP) to 30% by 2055;
• Layering on a value added tax (VAT)—a new national sales tax—would create a further huge drag on the economy and family budgets, adding that a VAT would cause price significant price inflation. By 2019, under a VAT, 44 cents of every dollar would go to the federal government, compared to 15 cents today.

The think tank observed that hikes to the US tax burden will have multiple detrimental effects on the economy:

“Tax increases take money from families and businesses, lowering savings and investment and killing jobs. This is especially harmful in the current economic climate."

"Future generations—who can’t yet vote—will be stuck paying the higher taxes and inheriting lower standards of living that go with it.”

Concluding, the Foundation argued that “a VAT would become a cash cow for Congress to fund new spending,” and would open the door for continued fiscal mismanagement, urging instead the adoption of comprehensive retrenchment.

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