In the column “America is not broke; neither is Minnesota,” Eric Murphy suggested that the spending crisis is artificial and the budget deficits in Washington can be solved if only we raise taxes, especially on wealthy Americans. However, a closer examination of data on the federal budget contradicts Murphy’s argument. The true nature of the spending crisis shows that higher tax rates will not solve the fundamental problem of unsustainable spending.
The core of the spending crisis revolves around the rapidly increasing cost of entitlements. Data from the Congressional Budget Office show that in 1972 the cost of Social Security, Medicare and Medicaid combined made up 4.4 percent of GDP. Thirty years later that total has grown to 10.3 percent, an increase of 134 percent. If the entitlements follow a similar growth pattern for another 30 years, the cost of maintaining these three programs alone will be bigger than any federal budget in history. Furthermore, Social Security and Medicaid will surge in cost as the federal government tries to fulfill the unsustainable commitment to baby boomers entering retirement.
Murphy proclaims the feasibility of raising taxes, especially on the wealthy, as a solution to the budget deficit, but historical data suggests otherwise. Never in the history of the U.S. has the federal government raised revenues in excess of 20.6 percent of GDP, even in the 1950s when the tax rate on America’s wealthiest was above 90 percent. For the last 60 years, revenue has averaged 18 percent of GDP with a peak in 2000 when the top income bracket was taxed at 39.6 percent, only 4.6 points higher than today’s top rate.
Recently, President Barack Obama has suggested a new tax on wealthy Americans dubbed the “Buffet Rule.” He claims this “rule” will help balance out rising costs with an increase in revenue. However, the CBO estimates this new tax will raise $47 billion over the next 10 years. This new revenue would only be enough to cover the deficit for 1.7 days per year, less than 0.5 percent of the deficit. Dramatically hiking taxes on the wealthy will not result in the kind of big revenue boost that too many Americans surmise to be so simple.
Many pundits and politicians suggest we should cut defense spending in order to reduce the budget deficit. It should be noted that since 1972 defense spending has actually decreased from 6.7 percent of GDP to 4.7 percent. However, even if all defense spending was cut and the entire military eliminated, there would still be a budget deficit of $596 billion.
While there may be ways to spend more wisely anywhere in the budget, entitlement programs are the crux. There is a dangerous notion that the U.S. is a rich enough country to afford this spending. That’s the same irony that causes lottery winners to have a bankruptcy rate twice as high as the public.
Federal government spending, led by the entitlement engine, is taking the express train to an unprecedented size of government. Murphy has tried to assert that the spending crisis is “manufactured” and used to “advance an ideological agenda.”
The rhetoric of Obama has told us that we can fix the budget if only the wealthy pay their “fair share.” What we truly cannot afford is to buy these arguments. Spending reform must be the core measure in fixing the budget deficit.
History has shown that marginal tax rates as high as 94 percent on the richest Americans cannot raise enough revenue for the rapidly increasing cost of entitlement programs. Regardless of one’s moral position on entitlements, Democrat or Republican, liberal or conservative, to deny their unsustainable structure is to obscure the truth.
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