Newspaper article The Christian Science Monitor

Tax Hikes Sound Big but Are Not Really So

Newspaper article The Christian Science Monitor

Tax Hikes Sound Big but Are Not Really So

Article excerpt

PRESIDENT Clinton did something unique in his State of the Union message Wednesday. He proposed deficit-cutting measures that will more than pay for his own spending goals - such as more money for infrastructure.

"Refreshing," says Charles Schultze, a budget director under President Johnson, now with the Brookings Institution. "We never had a president do that."

Mr. Clinton's budget numbers sound so big. A $500 billion program of tax increases and spending cuts over four years. Some $126.3 billion in higher income taxes from 1993 through 1998. New energy taxes are to raise $71.4 billion, starting in mid-1994.

But taxpayers, corporate and personal, will send only about 1 percentage point more of national income to Uncle Sam. Michael Keran, chief economist of Prudential Insurance Company of America, reckons that by the time the dust from the multiple budget changes settles down, Americans will be paying an extra $75 billion to $80 billion in taxes in 1997. That will boost federal revenues as a proportion of national output to around 20 percent from 18.6 percent last year. That share has never dropped below 17.4 percent or risen above 20.1 percent in the last 28 years.

Within Clinton's package, of course, the well-to-do will be hit harder. These are the people that prospered in the 1980s.

The jump in the federal deficit from 0.2 percent of gross domestic product (GDP) in 1965 to 4.9 percent in 1992 is entirely explained by the rise in federal spending, notes Lawrence Kudlow, a Reagan-era budget office economist now with Bear Stearns & Co. Excluding deposit insurance, federal budget spending as a share of GDP has increased from 21.7 percent in 1988 to a peak of 24.3 percent in 1983, dropped to a recent low of 21.7 percent in 1989, and moved back up to 23.5 percent last year.

"Notwithstanding the rhetoric about savage Republican budget cuts, the real rate of growth of the domestic budget since 1989 has been more than 7 percent per year - the fastest four-year expansion of the budget in 30 years," note CATO Institute economists William Niskanen and Stephen Moore in a new book, "Market Liberalism: a Paradigm for the 21st Century. …

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