Sunday, April 15, 2007


Rising tax burden threatens revenues

Democratic politicians have been complaining all century about the Bush tax cuts. So why does the tax man seem to bite harder this year? Well, it's not you who is confused.

While President Bush was reducing taxes in 2001 and 2003 for the poor, middle class and rich alike, a rising toll from state and local governments was making up much of the difference.

Indeed, the tax burden from state and local governments this year has hit a 25-year high, consuming an average 11 percent of income, according to a new report by the Tax Foundation. Californians pay 11.5 percent, a load that has increased steadily since 1979, when state and local levies skimmed 9.2 percent.

Combined with federal taxes, various governments take a staggering 34.3 percent of Americans' incomes.

And yet, this raid on our pockets is just getting started. Lawmakers are busy cooking up the largest tax increases in U.S. history.

In Washington, the new Democratic majority on Capitol Hill has unveiled 5-year budget plans that would repeal the Bush tax cuts. What's more, congressional leaders have imposed “pay-as-you-go” budget rules that exclude the existing entitlement programs, such as Medicare and Medicaid, which dominate federal spending. So “paygo” is really just political cover for new taxes to support new spending.

Meanwhile, cash has been pouring into the treasury. The Bush tax cuts, together with Federal Reserve policy, stimulated the economy into six years of impressive growth. By far, the wealthy gave the most; their job-creating investment binge has triggered a historic surge in government revenues.

So Washington has plenty of our cash. This year federal tax revenues will come in at 18.6 percent of the total U.S. economy, above the 40-year historical average of 18.3 percent, according to the Congressional Budget Office. Yet Democrats say they will let the Bush tax cuts expire in 2010. Revenues could actually decline, because higher taxes are likely to damage the economy.

In California, a similarly reckless culture of tax-and-spend is gaining steam. Despite pledges against new levies, Gov. Arnold Schwarzenegger has proposed a government health insurance plan that would impose new taxes on employers and health care providers. More fundamentally, lawmakers have badly out-spent revenues, despite record gains from property, sales and income taxes.

Now, as the economy slows, state budget deficits are poised to widen. With Democrats refusing to cut spending, the looming fiscal crisis will test Republican promises to resist tax hikes.

Then there's San Diego, which is drowning in pension debt, losing police officers and neglecting its infrastructure. Mayor Jerry Sanders, who inherited the mess, rightly refuses to ask voters for a tax increase until the city streamlines operations and solves its pension crisis. But the union-backed City Council is less austere.

At every level, politicians have squandered the Bush economic boom. As they turn to higher taxes, and thus discourage work and investment, they jeopardize the fiscal engine of their ambitions.

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