The Debate Over Whether Higher Taxes Leads to Higher Revenues

The Heritage Foundation today released The Elements of a Responsible Budget Proposal, written by six conservative think tank types. It begins, "Early reports suggest that President Obama will propose a budget that reduces the budget deficit to $533 billion by 2013. This is hardly ambitious.

"Given the budget's assumptions of peace (deep cuts in spending on the global war on terrorism) and prosperity (the economy should be recovered by then), a $533 billion budget deficit should not be a heavy lift. By contrast, President Bush oversaw budget deficits that typically ranged between $150 billion and $450 billion even while fully funding wars in Iraq and Afghanistan."

Next, the Heritage scholars point out that spending would remain above 22 percent of GDP—"a level that has been reached only eight times in the past 62 years. Yet tax rates would reportedly rise for individuals and businesses in order to finance items such as a down payment on national health care. And the President is reportedly considering statutory Pay-as-You-Go (PAYGO) rules, which are biased in favor of tax increases over spending restraint."

Here are the elements of what Heritage considers to be a more responsible route: Limit Overall Spending, Be Realistic About Iraq Savings, Avoid Harmful Tax Hikes, and Do Not Raise Taxes on Investment. For the full article click here.

The timeless debate over whether raising taxes actually raises revenue continues. This shouldn't be a question of what's liberal or conservative. It should be a question of what works. Isn't there a way to test this in the Econ Lab? Send your thoughts to

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