Treasury Secretary Timothy Geithner on Tuesday said higher tax rates on upper-income Americans were a central part of the White House’s deficit-reduction proposal because there was no way to raise enough revenue by only limiting tax breaks.
No doubt. But that just means it’s a bad proposal. Notice that this plan proceeds from a couple of false premises. One is that the Federal government needs more money. Another is that the only way to cut the deficit is to raise taxes. (Putting on my best cheesy-ad voice) but wait—there’s more!
Mr. Geithner said there was a lot of “magical thinking” about the amount of revenue that could be raised by capping or eliminating tax deductions and exemptions. He said this approach wouldn’t come near the roughly $1.5 trillion in revenue the Obama administration believes is necessary as part of a broad deficit-reduction package.
There he goes again, and with his own “magical thinking.” Geithner’s magic is to repeat the fantasy that the Feds need $1.5 trillion in revenue in order to reduce the deficit. In the first place, taking that much money out of the private sector will reduce economic output, which will continue, if not increase, the current unemployment rate. In the second place, taking that much money out of the private sector will lower the amount of tax revenue flowing to the Feds, both directly and through that continued/increased high unemployment rate. If the government wants to increase revenue, it must support a vibrant, growing economy—which it cannot do when it starves that economy of its fuel, which is money.
Then Geithner says, without a trace of irony,
When you take a cold hard look at the amount of resources you can raise from that top 2% of Americans from limiting deductions you will find yourself disappointed to the relative magnitude of the revenues we need[.]
I won’t repeat myself on his underlying false premise; I’ll just point out the equal truth of his statement from substituting “raising tax rates” for “limiting deductions.”
In the end, the only way to eliminate the deficit (and so to begin paying down the national debt) is to spend less than is collected in revenue, as any third-grader on an allowance understands. The only way to do this is to spend less. Only that third-grader would insist on an increase in his allowance.