Our Vision

Building an America where freedom, opportunity, prosperity, and civil society flourish.

QuoteHome

BannerWingLeft Become a Member Today BannerWingRight

SideBarBase

What's the Real Source of the Federal Deficit?

Yesterday on ABC’s This Week, host Christiane Amanpour asked Speaker Nancy Pelosi (D-CA): “You are, by all accounts, one of the most — if not the most — powerful and successful speakers of — in the history of the United States. You’ve passed so much legislation. The President was elected with a significant majority. You had control of both houses of Congress. And yet now, people are talking about you might lose your majority in the House. The gap seems to be growing wider between what’s achieved and what’s making an impact with the people. How did this happen? … How did you get to this place where, perhaps, you might lose your majority?” Pelosi responded: “We don’t see it that way. We are very proud of the agenda that we have put forth to the American people.”

The American people sure aren’t proud of the Pelosi agenda. According to Gallup, the American people’s trust in Congress is at a historic low and their low approval ratings point to big changes in November. Tops among the people’s concerns? The economy. Also according to Gallup, 64 percent of Americans mention some aspect of the economy as the top problem, which isn’t surprising since the unemployment rate, at 9.5 percent, is still 1.5 points higher than the Obama administration promised it ever would be.

Now Speaker Pelosi wants to dig the economic hole even deeper by allowing the 2001 and 2003 tax cuts to expire. Pelosi claims that cutting taxes on “the wealthiest people in America, increases the deficit and doesn’t create jobs.” This is just plain false. Research on the last seven recessions shows that small businesses generate about two out of every three new jobs during recoveries. Hitting small businesses with tax increases would kill this job growth. Speaker Pelosi and her allies at The Washington Post may claim that these tax hikes will hurt only a small number of small businesses. But these claims are deceptive. As Heritage Foundation analyst Curtis Dubay has detailed, while only eight percent of small businesses pay the highest two tax rates, those businesses earn 72 percent of all small business income and pay 82 percent of all income taxes paid by small businesses. In other words, those small businesses that would be hit hardest by the impending Obama tax hike earn an overwhelming majority of small business income and employ most of the workers hired by small businesses. Higher tax rates would drain these businesses of cash flow, the lifeblood of any business, and would diminish the incentives to grow and add new workers.

So why is the left dead set on raising taxes and killing job creation? All of a sudden, after first enacting an $862 billion economic stimulus and a new $1 trillion health care entitlement, the left is now against deficits. But our deficits are simply not caused by a lack of revenue. According to the Congressional Budget Office (CBO), extending all the 2001 and 2003 tax cuts will place revenues at 18.2 percent of gross domestic product (GDP), which is actually above the 18 percent average over the past 50 years. Meanwhile, spending, which has averaged 20.3 percent of GDP over the past 50 years, is set to explode to 26.5 percent of GDP by 2020. These spending increases are being driven by our entitlement programs (Social Security, Medicare and Medicaid). By 2020 spending on these three programs alone will consume 11.4 percent of GDP. If revenues stay at their historical 18.2 percent average, these programs will consume all federal revenues by 2052. 

The solution to our economic troubles is not higher taxes, it is less spending: If the federal government managed to return to the per-household spending level of the Reagan administration, the budget would be balanced by 2012 without any tax hikes. Just returning to the per-household spending levels that existed before the current recession would balance the budget by 2019.

But balanced budgets, low taxes and smaller government are not part of Speaker Pelosi’s vocabulary. As Amanpour said, the gap between Pelosi and the people is only growing.

Other Questions