Doing it With Tax Increases

Writing for CAP, Michael Ettlinger and Michael Linden say that achieved a balanced budget by 2014 solely through higher taxes “is not a likely or necessarily desirable policy.” Still, as they say it’s certainly a feasible policy:

Much is said about the economic effect of tax increases, but it is worth noting that there is little risk of the United States becoming economically disadvantaged relative to other advanced economic nations by raising its aggregate tax levels. We have the fifth lowest taxes as a share of GDP among economically developed nations (counting all federal, state, and local taxes). If we raised taxes in aggregate to a level that would safely balance the budget, the United States would still be in the bottom 10 out of 30.

Obviously that’s not a politically kosher solution. But on the merits I think the case for doing this almost entirely through tax side measures is pretty strong. Higher taxes on the scale under consideration would simply leave the United States with the kind of tax levels found in Australia and Canada, exactly the kind of countries you would expect to be similar to America.

The larger issue is that no matter what happens in 2014 as long as the US is committed to providing health care to senior citizens and the cost of health care grows faster than GDP, over the long run taxes as a percent of GDP will need to consistently rise. And as far as I can tell Republicans aren’t prepared to break that commitment to providing health care to senior citizens and Democrats aren’t prepared to back continually higher taxes. Across some margin of time you can fudge this by messing with defense and domestic discretionary spending but ultimately the choice will have to be made.