NCPA - National Center for Policy Analysis

Balancing The Budget Through Tax Increases

April 2, 1997

Economists have branded three proposals to balance the budget as back-door tax increases: adjusting the Consumer Price Index (CPI), ending corporate welfare and reinstating the airline ticket tax.

The federal income tax is indexed to the CPI to protect wage earners against inflation. According to analysts, adjusting the CPI formula could cause taxes to go up $240 billion over 10 years. Critics believe Congress should set in place a tax reduction plan to off-set the CPI adjustment.

Corporate welfare, in which Washington gives subsidies to specific products or industries, has been targeted by some legislators for elimination. However, analysts point out that eliminating tax breaks that spur growth and are available to all industries, such as the tax credit for investment in research and development, is a tax increase.

And reestablishing the 10 percent airline tax that expired in December 1995 (as Congress and the President have done) is a direct tax increase by any definition.

Federal, state, and local taxes are already at an all time high, absorbing 35.7 percent of the net national product. Total government spending as a percentage of national product has increased 40 percent since 1959, rising from 25.8 percent to 36.4 percent today.

Source: Lewis K. Uhler (National Tax Limitation Committee), "Getting Rid of 'Back-Door' Taxes," Washington Times, April 2, 1997.


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