March 23, 2006 | By Nathaniel Ward

Should Congress raise your taxes by $7,000?

Annual per-household tax increases required to fund projected spending. By 2015, taxes would need to rise $7,000 over current levels —or more. (Larger version )

Unless lawmakers confront runaway spending, within a decade just balancing the budget will require a $7,000-per-household tax increase, Heritage’s Brian Riedl writes in a new paper.

Riedl, Heritage’s Hermann fellow, writes that a responsible budget resolution should:

• Freeze discretionary spending through 2011 by setting priorities and eliminating waste. Funding for high-priority programs may be increased—but only with offsets to low-priority programs.
• Finally start on entitlement reform. This should include capping Medicaid growth at 5 percent a year, encouraging families to leave anti-poverty programs and enter the workforce, means-testing the unaffordable Medicare drug benefit, reforming farm subsidies and cutting waste.
• Extend the 2001 and 2003 tax cuts. Since the 2003 tax cuts, federal revenues have grown by a record $420 billion as the economy has expanded. So low tax revenue is not causing the budget imbalance—though raising taxes could hurt the economy and potentially lower tax revenue.

Without these changes, Americans could face dramatic tax hikes by 2011.

• Tax rates will rise substantially in every tax bracket
• Low-income taxpayers will pay 50 percent more taxes as the 10-percent bracket is replaced by the 15-percent bracket
• Married taxpayers will see the marriage penalty return
• Parents will lose half of their child tax credits
• Taxes on investment and dividends will increase beginning in 2009
• Federal death taxes will come back to life in 2011, after fading down to nothing in 2010

“Freezing non-defense discretionary spending and reining in runaway entitlements will help America keep taxes low and thereby avoid the kind of economic stagnation that now plagues Western Europe,” Riedl writes. “Extending the tax cuts will help keep the American economy the envy of the world.”

How federal income taxes punish wealthier states

Last Thursday, the Tax Foundation released its annual study of federal taxing and spending by state—popularly known as the “giving and receiving states” report. 

Among the report’s highlights:

• New Mexico soaked up two dollars in federal subsidies for each dollar of taxes paid
• New Jersey received just 55 cents in federal funds for each dollar of taxes paid

The most important cause of the disparity, the report noted, is not members of Congress who fail to bring home enough federal spending, but rather the way the progressive federal income tax more heavily taxes wealthier “donor states.”

Reform taxes and entitlements—for national security

In last week’s Washington Examiner, Heritage’s James Carafano yet gave another reason to reform taxes and entitlements: national security (no link available). In his column, titled “If I Were President,” Carafano wrote:

The president’s most important job is providing for the common defense. Right now we’re spending about 4.5 percent of gross domestic product on defense and homeland security. That’s about right—and sustainable—if we address the number one national security issue America faces today: Mandatory spending on entitlement programs and the federal debt are the largest part of the budget and growing.  It crowds everything else out. I’d make tax and entitlement reform a national security priority—so we can continue to afford to defend the nation.

Spending reform—what do you think?

Some in Congress, Republican and Democrat alike, have said their big spending is just an election-year tactic to appeal to “moderates.” Even some self-described conservatives have used the logic that it’s better to ensure that Republicans remain in power after November than to enact conservative reforms today.

• What should Republicans in Congress focus on? Maintaining the Republican majority or enacting immediate conservative reform? Take our poll!

In other news

• Heritage’s Mark Tapscott, director of the Center for Media and Public Policy and the Marilyn and Fred Guardabassi Fellow, has been named to the Freedom of Information Act Hall of Fame for his work to make “a difference in the battle against government secrecy.”
• President Bush outlined a solid position on border security and immigration on Tuesday, saying that “amnesty would be the wrong course of action.” He also insisted that illegal immigrants already in the country “shouldn't get automatic citizenship” and emphasized the importance of securing the border, ending catch-and-release programs and stepping up internal enforcement.
• A new study conducted of fewer than 100 children in notoriously liberal Berkeley, CA by professors from notoriously liberal UC Berkeley finds that whiny children are more likely to grow up to be conservative, while self-confident children end up liberal. One of the professors involved in the study “admits in his paper that liberal Berkeley is not representative of the whole country,” but he insists the results are still valid.

Coming up at Heritage

To attend these or any other Heritage Foundation events, RSVP at Heritage’s events website. Or you can watch these events live online at Heritage.org. All times are Eastern.

• On Monday, March 27 at 11:00 am, Heritage’s James Carafano will host three military manpower experts to discuss how America’s armed forces can avoid becoming a “hollow force” with a large number of soldiers but insufficient funding to maintain operations.
• On Tuesday, March 28 at noon, New York University’s William Easterly will discuss the impact of increasing foreign aid and whether it will genuinely improve lives in the developing world.

Nathaniel Ward is the Editor of MyHeritage.org—a website for members and supporters of The Heritage Foundation.

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