Contact FreedomWorks

400 North Capitol Street, NW
Suite 765
Washington, DC 20001

  • Toll Free 1.888.564.6273
  • Local 202.783.3870

Blog

    The Right Way to Balance the Budget

    01/05/2011

     

    Personal Freedom and Power 104:  Taxes Diminish Personal Power

    Collecting more taxes than is absolutely necessary is legalized robbery.  -President Calvin Coolidge

      Every tax imposed by government diminishes the power of the person taxed.

     The Right Way to Balance the Budget

    To stabilize the national debt, taxes must be raised by 23percent, expenditures reduced by 23% or a combination of tax increases and cuts.  The political elites, e.g., the Bowles and Simpson debt commission, are proposing some cuts and significant tax increases.  Offensively, the Obama Administration ran up the debt, while planning to enact an additional VAT tax.

    Americans be warned; any increase in taxes will be spent by the politically powerful, which will reduce every taxed American’s power over how we spend and invest the fruits of their labor.  Worse, a tax increase will lead to more spending and delay and retard debt reduction efforts.

    Utilizing the ground-breaking work of Alberto Alesina and Silvia Ardagna of Harvard, Andrew Biggs, Kevin Hassett and Matt Jensen of the American Enterprise Institution (AEI) studied many governments’ attempts to reduced debt and found that major spending cuts is indispensable:

    The data also clearly indicate that successful attempts to balance budgets rely almost entirely on reduced government expenditures, while unsuccessful ones rely heavily on tax increases.

    The AEI study found reducing transfers/entitlements and government wages was also essential:

    A 1996 International Monetary Fund study concluded that "fiscal consolidation that concentrates on the expenditure side, and especially on transfers and government wages, is more likely to succeed in reducing the public debt ratio than tax-based consolidation."

    The research is strong, cut entitlements/transfer payments and wages.  The political elites will surely resist.  Alas, it is the same political class that created the debt and the danger. 

    Once again, change will not happen within government.  It will be up to the American people make it happen.  Our goal should be to match the reductions achieved by Finland, 108% reduction of spending followed by a tax cut.

     As French economist Jacques Attali forewarned, our enormous debt threatens our civilization.  Again, the citizens must force spending cuts by demanding the reduction of government workers and restructuring entitlement/transfer payments.