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William Ahern is director of policy and communications at the Tax Foundation.
March 12, 2010
Can Income Tax Hikes Close the Deficit?
By William Ahern
When David Walker was head of the General Accounting Office, he changed the agency’s middle
name from Accounting to Accountability, but the concept hasn’t caught on in the executive and
legislative branches. The commentary pages of the nation’s newspapers are filled with foreboding
about the nation’s finances, urging accountability, but Congress and the President are full steam
ahead with their expansive spending plans.
As usual, the one number that everyone talks about is the budget deficit, and sober, nonpartisan
fiscal experts are agog at the Administration’s toleration of previously intolerable deficits.
Everyone has a slightly different idea of how high the federal deficit can be in an ordinary year
and still be “sustainable,” but in recent testimony to Congress, Federal Reserve Chairman
Bernanke said that the structural deficit was sustainable at 2.5 to 3 percent of GDP.1
At no point in the next ten years, according to the Obama Budget, will the deficit ever shrink to as
little as 3 percent of GDP. According to the CBO, it will never even get as low as 4 percent.2 And
the dire deficit predictions of reliable nonprofit groups like the Pew Trust and Peterson Foundation
are even more alarming: the deficit won’t even shrink to 5.5 percent of GDP in their analysis.3
‘Mind boggling’ is the term Martin Sullivan of Tax Analysts uses to describe the tax and spending
changes that would have to occur just to get the deficit down to 3 percent of GDP.
“Our gridlocked, dysfunctional Congress simply cannot bring itself to absorb these types of
painful shocks,” says Sullivan. “Given these unprecedented pressures I believe that within the next
1 Remark made during Q&A after submitting testimony to the House Committee on Financial Services on February
2 Congressional Bud