Don't let this nightmare become real - potential tax increases - Editorial

Nation's Business, August, 1994

The people who run the federal government are often accused of running out of ideas, of lacking the creativity and spark needed to keep ahead of events.

That is obviously a fair assessment in most aspects of statecraft, but it unfortunately does not apply to taxation. Finding ways to drag more money out of American taxpayers is one of the things that official Washington does best.

We're going to need lots more money not too far down the road?

Then how about a value-added tax that would raise $608 billion over five years? Or picking up $523 billion by eliminating the deductibility of home-mortgage interest, state and local taxes, and charitable contributions?

Good work. We've already passed a trillion dollars, and we're not even breathing hard.

Making workers pay income taxes on the value of employer-paid health insurance would produce an additional $254 billion.

Another round of increases in income-tax rates would generate $195 billion, and another increase in the motor-fuel tax would bring in $127 billion.

If this sounds like a taxpayer's worst nightmare, it is. But it is also grounded in reality. Those and many other potential tax increases are on a list drawn up by the Congressional Budget Office (CBO) for use in developing strategy for deficit reduction.

The full listing appeared on Page 26 in last month's issue of Nation's Business. The standby deficit-reduction plan also offers options for spending reductions. Recent history suggests, however, that future attempts to slow red-ink spending will be based on a combination of real tax increases and highly suspect claims of cutbacks in expenditures.

In presenting its options, the CBO seeks a neutral position, noting that it gives the case for and against each tax-increase or spending-reduction option and that it does not endorse any.

The budget office does not suggest, however, that its list can be separated from real-world considerations. CBO notes: "Over the years, this report has become a standard reference for developing deficit-reduction plans."

Thus, the significance of the tax-increase options cannot be underestimated or played down as hypothetical suggestions falling short of actual legislative proposals. The last two rounds of deficit reduction resulted in tax increases that will total $400 billion a year when fully effective in 1998, but the future of the federal budget nevertheless remains a study in red.

Accumulated deficits over the next decade are expected to total $2.6 trillion, which will mean intense pressure for the type of high-yield tax increases offered by the CBO as options.

CBO says in its report: "Further policy actions are necessary if the deficit is to be brought down, and are most certainly necessary if the budget is to be brought into balance."

Whatever terms CBO chooses to use--among them "policy actions" and "options"--its report should realistically be considered as a warning.

If federal spending is not brought down radically within the next few years, Congress will begin compiling a draconian tax-increase package from the CBO's handy checklist.

To avoid that outcome, business must be even more insistent in its demands for fiscal restraint.

That means intensified support for such actions as a balanced-budget amendment, line-item veto, a spending-reduction commission, the A-to-Z plan to allow every member of the House of Representatives an official forum for proposing spending cuts, and abolition of the official practice of claiming that spending has been cut if an increase is not as high as projected.

If Congress continues on its present course and refuses to impose both short- and long-term spending restraints, the tax nightmare inherent in its budget office's report will become all too real.