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President’s Tax Increases: Bad for the Economy and Don’t Solve the Deficit

April 13, 2011

During the President’s speech today, he called for tax increases on the American people and small businesses in addition to those contained in his February budget proposal. It is important to keep in mind the negative impact that higher taxes have on job creation.

Mr. President, We Don’t Have a Revenue Problem, We Have a Spending Problem

During the 12 years since 1940 in which the federal budget was balanced or we experienced a budget surplus, spending never exceeded 19.4 percent of GDP.  The President’s FY 2012 Budget Proposal calls for a massive increase in spending.  According to an analysis by the Congressional Budget Office (CBO), Federal Government spending as a percentage of GDP will climb to more than 24 percent in the next 10 years.  As the chart below shows, spending will skyrocket in the years after.

Increases in Government Spending Do Not Help Create Jobs

The belief that government spending is the solution to creating more jobs has been proven false.  Despite the Democrats’ trillion dollar stimulus bill, the unemployment rate remains far too high and nearly 14 million Americans remain unemployed.  All that the trillion dollars in stimulus spending bought us was another trillion dollars in debt.  In fact, experience has shown the best way to spur job creation is to reduce government spending. 

Source: Agency Reported Data from and the Bureau of Labor Statistics

We Can’t Tax Our Way Out Of the Problem

The President’s Budget Proposal, which doesn’t even come close to erasing our deficits, suggests taxes increasing to at least 20 percent of GDP by 2021.  Federal revenues have equaled or exceeded 20 percent of GDP only three times since 1940, and two of those years were during World War II.  More importantly, those taxes would kill job creation.  As an alternative, Republicans are calling for comprehensive tax reform that keeps taxes at historically normal levels – between 18 and 19 percent of GDP.  Independent economists have said tax reform combined with spending cuts will help spur a million new jobs in the first year.