Tax Hikes Much Worse than Spending Cuts

Capitol Building / WC

Capitol Building / WC


With the $1 trillion sequester, or “fiscal cliff” fast approaching, economists agree: Raising taxes would be far more harmful to the economy than cutting government spending.

The Hill reports:

Economists appear to be in broad agreement that the possibility of ending the Bush-era tax levels next year would have about twice the impact on economic growth as the automatic cuts to government spending under the sequester.

An informal survey of economists shows that they see increased marginal income tax rates as causing up to 40 percent of the slowdown in economic growth if the United States were to “jump off” the so-called fiscal cliff. In contrast, they attribute about 20 percent of the slowdown to reductions in government spending.

This assessment mostly reflects the amount of money the higher taxes would take out of the economy compared to the lower spending. Returning marginal income tax rates to where they were in the Clinton administration would take a bit more than $200 billion out of the private sector, while the sequester would require a cut of about $100 billion in 2013 government spending.