TAX BURDEN SAPS ECONOMY
October 4, 2007
The Congressional Budget Office's recent federal fiscal update drew attention for its positive deficit news, while its more ominous news on the rising tax burden was largely overlooked, says J.T. Young, a former Treasury Department and Office of Management and Budget official.
- Measured as a percentage of the U.S. economy, this year's federal tax receipts will exceed the last 40 years' average by an even greater amount than last year's.
- Projections are for this burden to increase next year as well -- and this increase is with the 2001 tax cuts, to expire after 2010, still in place.
The concern is threefold:
- Five of the last six recessions have occurred when the federal tax-to-economy ratio exceeded the 40-year average.
- Five of those six recessions have come on the heels of far stronger growth than our economy is now experiencing.
- And two political factors will only add to the tax burden pressure: the near-term expiration of the 2001 tax cuts and coming entitlement spending explosion.
Policymakers should remember that the 1990 tax hike did not have to take effect to have an effect, says Young. Even before rates rose in 1991, the economy fell. Today's lesson should be that time is even shorter than it appears. With a weakening economy and rising tax burden, the country may not have to wait long to see the fallout from a rising tax burden.
Source: J.T. Young, "Tax burden saps economy," Washington Times, October 3, 2007.
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