Taxing Our Way Out of a Problem

Wed, 23 Apr 2008 14:28:33 +0000

Greg Mankiw directs us to David Leonhardt's article on John McCain's chief economic advisor, Doug Holtz-Eakin. I've known Doug for a number of years and admired his scholarship and his policy work. It's got to be frustrating to be pushing the McCain economic agenda. From the article, here's the crux of the problem:

In all, federal taxes now equal about 19 percent of the nation’s economic output, which is in line with the historical average. But the costs of Medicare and Medicaid, on their current path, would require that number to rise to an unmanageable 30 percent, and beyond, in coming decades.

“We as a nation cannot tax our way out of this problem,” Mr. Holtz-Eakin says. “It’s just not an option.”

It is true that we cannot tax our way out of all of this problem. But we could untax ourselves today into a bigger problem tomorrow. As I've said before in the context of entitlement reform, all dollars matter:

If concern over tax burdens on future generations is what motivates you, then it is completely inconsistent with that motivation to pass a Medicare prescription drug bill that generates a projected unfunded obligation that is bigger than the projected unfunded obligation in Social Security. It is also completely inconsistent with that motivation to run General Fund deficits that are not balanced by later surpluses, raising the debt burden on future generations. This sort of inconsistency will doom any chance at prudent reform of any of the programs.