NCPA - National Center for Policy Analysis


November 14, 2006

A mere two days after Democrats capture Congress claiming they wouldn't raise taxes, former Treasury Secretary Robert Rubin tells them they should do so anyway.

According to the Wall Street Journal, it should be reassuring that Rubin now thinks the economy is strong enough to withstand a tax increase:

  • That's a switch from his opposition to the 2003 Bush tax cuts, which he predicted would bust the budget and do little for growth.
  • The U.S. economy proceeded to grow by an average of nearly 4 percent a year for three years following mid-2003, until the recent slowdown due largely to the housing slump.

Everyone makes mistakes, but raising taxes amid a housing decline doesn't sound like brilliant policy, says the Journal:

  • Depending on inflation signals in the coming weeks, the Federal Reserve may not be done raising interest rates.
  • The best hope for avoiding a recession next year and into 2008 is that strong corporate profits and the tight job market will lift business investment and consumer spending enough to offset the impact of tighter monetary policy.
  • The last thing the economy needs now is a tax increase, too.

And what are the urgent "fiscal problems" that justify a tax increase, anyway?

  • Federal revenues in fiscal 2006 were 18.4 percent of gross domestic product (GDP), higher than the 18.2 percent post-1965 average.
  • In October, the first month of fiscal 2007, revenues rose by 12 percent from a year earlier; Rubin thinks this windfall isn't enough; perhaps he wants to return to the late Clinton years, when the feds grabbed a record 20.9 percent of GDP and taxpayers demanded a refund by endorsing George W. Bush's tax cut proposal in the election of 2000.

Source: Editorial, "Rubin's Tax Gambit," Wall Street Journal, November 14, 2006.

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