U.S. NEEDS GROWTH, NOT NEW LAYER OF TAX

The U.S. President who promised change now wants higher taxes and more government spending. The federal budget, he says, needs the revenues presumed to result from new taxes. And the economy needs the stimulus of federal outlays. So tax and spend, tax and spend. This is change?

Feb. 9, 1993

3 min read

Trial balloons crowd the air over Washington, D.C.: more or higher levies on gasoline, imported oil, energy consumption, general consumption, Social Security benefits, upper-level incomes. Petroleum industry supporters of an oil import fee have happily leapt aboard: If taxes are going to rise anyway, they reason, they might as well be taxes that raise the price of domestically produced oil.

This is all very dangerous business. President Clinton's quaint appeals to "sacrifice" notwithstanding, the U.S. economy does not need - indeed, it cannot comfortably endure - another layer of taxation. The runaway federal deficit demands a response - but not new taxes.

GOVERNMENT HAS LIMITS

Voters sense something that their elected leaders do not. It is a limit on how much an economy can pay for government activity. Federal receipts - mostly tax revenues - now account for one fifth of gross domestic product, federal expenditures nearly a fourth. Voters, facing rising state and local taxes as well, want it to stop. The politically effete misinterpret this antitax mood as taxpayer greed. Politicians who act on the misinterpretation pay with their jobs; just ask former President Bush.

In a heavily taxed economy, further taxes can never fully deliver on the promise of higher government revenues, if they deliver at all. The added burden hurts economic activity, which reduces taxable incomes and government revenues. Tax supporters scoff at such supply side effects. So why didn't the deficit shrink after past tax hikes billed as deficit-cutting sacrifice, including the one with which Bush so starkly betrayed his constituency?

The prospect of an energy tax brings this point into focus. Energy is, by definition, the ability to perform work. To tax energy, therefore, is to tax work, which is not the way to stimulate economic growth. Tax proponents try to paint a silver lining into this cloud by pointing out how elevated prices would make Americans stop wasting energy. Yet as long as Americans pay economic prices for energy, claims about their wastefulness amount to nothing more than cosmetic judgments. Ultimately, an energy tax would make Americans use less energy by forcing them to work less; that is, by stifling growth. Conservation arguments for an energy tax are just sugar coating for economic poison.

BEST TO STAND CLEAR

To Clinton's great fortune, the U.S. economy has begun to recover. The best he can do now is stand clear. The economic pump doesn't need priming, especially with federal IOUs. And it certainly doesn't need to divert more cash away from profitable investment and into the U.S. Treasury.

The government's best hope for new revenues is, in fact, economic growth, not new taxes. Clinton - should concentrate his deficit reduction exertions where they can make a difference-by cutting federal spending. He should make government smaller, more efficient, and less an intrusion into American life than it is now. Cost-cutting and scalebacks have become painful operating imperatives of every aspect of the U.S. economy except government, which only grows. That's what must change, and change is what Clinton promised. More taxes and more spending mean more of the same old stuff. That's not why Americans voted as they did in November.