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To Tax or not To Tax ?


BrownIndian

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Best-case scenarios for health reform would reduce the growth rate in health care costs by 1.5 percentage points a year. Even Obama economic adviser Christina Romer has said that won't be easy to achieve.

 

Gale and Auerbach estimate that for health cost savings alone to stabilize the debt-to-GDP ratio over time, the growth rate in health costs would need to be slowed by 3 percentage points a year -- for 75 years.

 

"The issue is certainly health care, but the issue is a lot more than health care," Gale said. "Our fiscal books are fundamentally out of balance."

 

A big reason, Gale and Auerbach say, are the tax cuts and spending increases put into place since 2001.

 

One way to measure the imbalance is to consider the "fiscal gap" -- which is a measure of the difference between revenue and outlays over the long term.

 

Under Obama's budget, Gale and Auerbach estimate the fiscal gap would be 9% of GDP. Conceptually, that means to restore fiscal balance over the long-term the federal government would need to increase taxes by 9% of GDP or cut spending by that amount starting now and lasting "until the end of time," Gale said.

 

For some context, consider that in a normal year, the country gets tax revenue equal to about 9% of GDP.

 

Obama has promised to make permanent the tax cuts for everyone except high-income households. It's an expensive promise. The federal coffers will see roughly $2.1 trillion less in revenue over the next 10 years than it would if the tax cuts expired for everyone, according to estimates from the Joint Committee on Taxation.

 

"The [Obama administration] gave away a huge pot of money. [it was] a gargantuan missed opportunity," said Charles Konigsberg, chief budget counsel of the Concord Coalition, a deficit watchdog group.

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