April 19, 2006

The Ghost of Tax Day Future

R. Glenn Hubbard:
Closing the spending gap shown us by the Ghost of Tax Day Future with tax increases would eventually require all taxes on average to increase by more than 50%. Such a tax increase is not simply a larger check made out to "U.S. Treasury." Economic research suggests that larger governments are associated, all else equal, with slower economic growth because of the tax and regulatory burdens associated with a larger state. Using the estimate of Eric Engen of the Federal Reserve Board and Jonathan Skinner of Dartmouth College, meeting our entitlement spending wave through tax increases would ultimately depress our annual rate of economic growth by about a full percentage point.

That such tax increases would build up over many years does not dull the observation that tax increases of this magnitude would carry serious consequences for our future living standards. Their sheer size would restrain incentives for innovation and flexibility, and the entrepreneurship and productivity growth that have characterized relatively strong U.S. economic performance. Indeed, the "tax increase" shadow could ultimately crowd out about as much of the rate of growth as the productivity growth boom of the past decade has contributed.
Posted by James Zellmer at April 19, 2006 8:30 PM | Subscribe to this site via RSS:
Posted to Politics | Taxes