We Can’t Tax Our Way Out of the Entitlement Crisis By R. GLENN HUBBARD
The Bear on Aug 29 2008 at 8:20 am | Filed under: Social Security, Taxes
Given the hearty support Democratic presidential candidate Barack Obama received in Europe last month, he must have noticed the surprise and skepticism among some Germans when he asked that Europeans contribute more for defense. Many Europeans argue they cannot afford such an additional expenditure.
They are right. And therein lies a cautionary tale for the United States, because continental Europe has been following something like Mr. Obama’s plans for spending and taxes.
Mr. Obama has revealed his plans in stages. First, on his campaign Web site, he indicated he would solve the long-run solvency of Social Security (a good thing). In a Sept. 21, 2007, op-ed in Iowa’s Quad-City Times, he ruled out benefit cuts to achieve solvency and looked first to payroll taxes (a bad thing). Last week, on this page, his economic advisers clarified his evolving tax proposals.
The spending shortfalls in Social Security and Medicare are large. According to the Congressional Budget Office, Social Security and Medicare spending left unchecked would, after a generation, consume about 10 percentage points more of GDP than it does today.
Simple arithmetic suggests that with this much more of GDP eaten up by the two programs, all federal taxes on average would have to be raised by more than 50% to make up the shortfall.
Read more from The Wall Street Journal
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