The WasteWatcher: The Staff Blog of Citizens Against Government Waste

Higher Taxes Will Lead to New Spending

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.


The fiscal cliff, a combination of automatic budget cuts and tax increases set to take effect at the beginning of 2013, has dominated the news since the 2012 Presidential election.  The effect of going off the cliff would be detrimental to the U.S. economy, potentially leading to a 3.6 percent decline in the gross domestic product.  These impending negative consequences have led to Congress and the president scrambling to strike a deal. 

Proposals submitted by Republicans center on spending cuts to entitlement reforms and increased revenue through tax reform.  President Obama and Democrats have focused their proposals around increased tax rates for incomes above $250,000, but have largely ignored cuts to entitlement programs.  Both sides agree that tax cuts for the middle class should stay in effect.   

On November 29, 2012, Treasury Secretary Timothy Geithner summarized President Obama’s plan to avoid the fiscal cliff to members of the Senate and the House of Representatives.  The plan called for $1.6 trillion in tax increases, but would “largely exempt Medicare and Social Security from budget cuts.”  President Obama has urged in the past that the rich “pay their fair share” to reduce the deficit, meaning that tax increases on the wealthy would go toward reducing the deficit. 

However, new data from the Senate Budget Committee tells a different tale about where the money from the tax increases will go. The committee found that out of the proposed $1.6 trillion in tax increases, only $400 billion will go toward reducing the deficit.  The remaining $1.2 trillion will finance additional spending, including the full restoration of the budget cuts planned under the Budget Control Act of 2011, along with “$50 billion in fresh spending on the economy,” i.e., another stimulus package.  The Senate Budget Committee also contends that the plan will add $8.6 trillion to the national debt over the next decade.

While it is preferable to avoid the fiscal cliff and opt for sensible cuts to federal spending, President Obama’s plan would be damaging to the economy.  It is living proof of a quote by Milton Friedman: “Higher taxes never reduce the deficit.  Governments spend whatever they take in and then whatever they can get away with.”

If President Obama and congressional Democrats want to avoid the fiscal cliff, they should offer concrete cuts to spending and reforms to entitlement programs that are driving the ever-increasing national debt.  They should start with Citizens Against Government Waste’s Prime Cuts 2011, which identifies 691 recommendations that would save taxpayers $391.9 billion in the first year and $1.8 trillion over five years.

Taxing “the rich” will not solve any problems; the only way to reign in the federal deficit and cut the $16.3 trillion national debt is by first eliminating wasteful spending.

-- Tom Miller

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