The draft recommendations of the president's commission on deficit reduction call for closing popular tax deductions, higher gas taxes and other revenue raisers to drive tax collections up......
They claim that these added revenues—potentially a half-trillion dollars a year—will be used to reduce the $8 trillion to $10 trillion deficits in the coming decade. This will not happen!
What will happen is exactly the opposite of what the tax-increase lobby in Washington are preaching today. For example, Erskine Bowles, co-chairman of the president's deficit reduction commission, suggested at a briefing several months ago that there will be $3 of spending cuts for every $1 of tax increases. Sound familiar?
Proof that it will not happen........
In the late 1980s, one of us, Richard Vedder, and Lowell Gallaway of Ohio University co-authored a often-cited research paper for the congressional Joint Economic Committee (known as the $1.58 study) that found that every new dollar of new taxes led to more than one dollar of new spending by Congress. Subsequent revisions of the study over the next decade found similar results.
Updating the research..... Using standard statistical analyses that introduce variables to control for business-cycle fluctuations, wars and inflation, it was found that over the entire post World War II era through 2009 each dollar of new tax revenue was associated with $1.17 of new spending.
This research confirms what the late economist Milton Friedman said of Congress many years ago: "Politicians will always spend every penny of tax raised and whatever else they can get away with."
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