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Raising Taxes Won't Solve America's Debt Problem

In my casual debates with center-left to far left friends and colleagues, I can’t help but notice how many times they argue tax hikes will solve everything. How do we solve entitlements? Tax hikes. How do we lower unemployment? Tax hikes. How do we turn the economy around? Tax hikes.

Taxes, taxes, taxes.

But while Democrats are obsessed with the revenue end of the equation and pay little attention nor take any action at all on the spending side, I think we’re losing sight of the bigger picture here – the fact that there isn’t even enough money to tax in order to cover our national debt or even next year’s projected spending. It may be cliché to say at this point, but it’s true; America has a spending problem, not a tax problem.

U.S. companies have stocked $2 trillion in cash coffers in the wake of the recession, mainly as a defense mechanism in case the dreaded double dip occurs. So if you want to raise our corporate tax rate (already the second highest in the world at 39.2%) even higher, that’s how much cash you can hope to squeeze out of it.

For argument’s sake, let’s just say we were able to close every tax loophole in existence, eliminate all deductions, and successfully crack down on tax evasion while bumping up our corporate tax rate to the highest in the world at an even 40% and returning to Clinton-era income tax rate levels. Of course, any talks of eliminating these subsidies and loopholes will mean Washington will be barraged by an army of lobbyists and attorneys seeking to keep these very things in place. There would have to be enough politicians willing to ignore these efforts and follow through on closing them to begin with, as well as enough politicians thinking raising tax rates is a good idea – impossible in today’s political climate, but for argument’s sake, let’s say all the stars aligned.

The U.S. has lost out on $337 billion worth of revenue to tax evasion. So again, for argument’s sake, let’s assume every millionaire and billionaire out there all of a sudden stops trying to dodge paying taxes and decides they all want to pay as high of a rate as Washington wants to raise it and the Fed has all the means possible to enforce collection.

So how much revenue does that give us in 2012? Some $2.337 trillion. Not bad. But guess what? That doesn’t even cover next year’s projected spending.

The total spending expenditures requested from the Obama administration for the 2012 budget is $3.729 trillion. Even if we collected all the cash sitting on the sidelines and hiding overseas tomorrow, that would still leave a $1.392 trillion budget deficit.

Also, in case you hadn’t heard, we already happen to be $15.1 trillion in debt on top of that. Add that to the projected deficit, and there is $16.5 trillion worth of money the U.S. needs that raising taxes and collecting revenue couldn’t even cover because there just isn’t enough money to play with. How many more increments of quantitative easing (printing more money) can the Fed even get away with without severely contributing to a rise in inflation? To add insult, another round would cost another $1 trillion.

My point here is this – at what point do we seriously look at the spending end of the equation in all this? Could we raise taxes? Of course, and it provides for great rhetoric for politicians on the campaign trail. Could we close every loophole in existence and effectively collect on those higher rates? Tougher, but even if we could, the resulting revenue would only be enough to pay down either 15.7% of our national debt or 62.7% of the 2012 budget.

Does this not worry anyone else?

Real spending reform has to come sooner or later, and  that should be our top priority. Either that or we’re going to have to kill a hell of a lot more trees and bring in truckloads more ink.

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