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March 02, 2010

Steny Hoyer: Yeah, We're Going To Have To Raise Taxes And We Really Hope The Republicans Will Help Us

Democrats are at risk of losing their House majority over their profligate spending, their health care overreach and a general disdain for the way they do business and Steny Hoyer thinks the solution is raising taxes in an election year? Has Rove the Magnificent cultivated a mole in the House Democratic leadership?

“No one likes raising revenue, and understandably so,” Hoyer said in an address at the Brookings Institution. “But if you’re going to buy, you need to pay.

“If need be, I am hopeful that both parties will agree to look at revenues as part of the solution — not as a gateway to higher spending, but as part of a compromise that cuts spending and balances the budget,” he added.

Hoyer, a voice for centrists in the House leadership, said reining in record debt requires a combination of spending cuts and tax increases.

“It seems to me that the only solution that can win the support of both parties is a balanced approach: one that cuts some spending and raises some revenue while avoiding extremes in either direction,” he said.

Tax and budget experts suggest enacting only tax increases or relying only on spending cuts just won’t work.

The White House projects this year’s deficit to hit $1.6 trillion, and it expects annual deficits to average $850 billion over the next decade. Deficits will rise after that.

Now we all know that Obama's $250k/year protective threshold is crap. He's more or less admitted it and hell he's already violated it. And as Ace has pointed out here, there's simply not enough money to grab from those high earners to cover the costs of the Democrats spending. So they will go after the "middle class" because as the saying goes, "that's where the money is".

I love how the idea that spending cuts alone won't work, as if it's ever been tried. Of course, no one is actually suggesting that's what we do. Most people know the only way to get deficits and debt down is to increase growth (which leads to higher revenues) and decrease spending.

The problem with the 'tax your way to a prosperity' plan is it doesn't work. There's also the minor problem that increases in tax rates don't equate to higher revenue.

What will happen is Democrats will increase taxes and spending. They will base this increased spending on assumptions about increased revenues that will never materialize and actually lead to larger deficits, with the side benefit of lower economic activity at no extra charge!

The economics of deficit reduction isn't hard...cut spending and pursue economic policies that will spur growth. We've done the latter before so we know it's possible. The challenge is the politics of the former. Sure voters say they want to control spending but that's in theory not reality. "Cutting spending" is like "health care reform", it's real popular as an amorphic phrase, not so popular when you get around to doing it.

Even if we could control discretionary spending, and that includes defense spending which I'm betting a lot of you don't want to see cut, we still aren't anywhere near enough money. No, we too need to be Willie Sutton and go where the money is...entitlements like Social Security, Medicare and Medicaid. Here again the economics are simple...when Social Security was enacted in the '30's* the life expectancy was 60-63 years, it's now almost 78. In that same time the retirement age has gone from 65 all the way up to...67. We simply can't afford to subsidize people for this long. Add in Medicare costs and the fact that the Baby Boomers are a huge population and...we are screwed.

Tax increases are not only the wrong medicine for what we are suffering from, they will only make things worse. Yet, this is exactly what the Democrats are suggesting and likely will push through. Did I mention we are screwed?

*As an aside, Social Security has been a bad economic joke from the start:


On January 31, 1940, the first monthly retirement check was issued to Ida May Fuller of Ludlow, Vermont, in the amount of $22.54. Miss Fuller, a Legal Secretary, retired in November 1939. She started collecting benefits in January 1940 at age 65 and lived to be 100 years old, dying in 1975.

Ida May Fuller worked for three years under the Social Security program. The accumulated taxes on her salary during those three years was a total of $24.75. Her initial monthly check was $22.54. During her lifetime she collected a total of $22,888.92 in Social Security benefits.

That's from the Social Security Administration's own website. They are proud of it!

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posted by DrewM. at 11:49 AM

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