Austerity Measures Are the Proper Response to a Debt Crisis

I. Tax Increases vs. Spending Cuts - Tax Increases Must Be Part of the SolutionI'm going to save the arguments against spending cuts to Round 4, where it is more appropriate (check the debate structure). In this point, I will mainly be attacking the premise that tax increases are more direct than spending cuts at reducing debt. First, take a look at how people respond to higher tax rates: "Noted supply-side economist Arthur Laffer postulated that tax receipts and tax rates do not have a linear relationship. Instead of higher taxes always leading to more revenues, higher taxes act as a disincentive for utilized labor and can actually result in lower tax receipts. As tax rates increase, disposable income falls. This causes some workers to experience a phenomenon in which they see their total disposable income being worth less to them than the required effort needed to generate that income. In other words, workers prefer leisure -- or simply not working -- versus putting in the effort to make the lower disposable income level. "[1]So, as tax rates rise, tax bases drop, negating the effect of the tax raise. Empirical evidence supports this claim. "Since World War II, the top marginal tax rate has been greater than 90 percent and as low as 28 percent, yet total tax revenues have remained relatively stable around 18 percent of GDP. From 1950 to 1963 when the top marginal tax rate was above 90 percent, federal tax revenues averaged 17.4 percent of GDP, compared to average revenues of 18.2 percent of GDP from 1988 to 1990 when the top marginal tax rate was 28 percent. "[2][3]There is not strong correlation between higher top marginal tax rates (these are pretty much the same among the wealthy) and higher tax revenues in relation to GDP: [3]"According to the Congressional Budget Office, letting the rich go over the cliff would generate less than $950 billion over 10 years. The cumulative deficit over that period will be more than $6 trillion. An additional tax on the rich, such as Warren Buffett's millionaire tax, would raise $47 billion (at best) over 10 years. Even if you are in favor of higher taxes on the rich, you have to admit that this won't go far toward solving any problems. "[4]Tax increases don't really go that far into reducing the deficit by any significant amount. Finally, all claims my opponent made about how raising taxes on the rich would help the middle class, I will counter in my second point. II. Long-Term Growth Effects of Tax-Financed Deficit ReductionsI will start with how tax increases will harm the lower classes. "In pure dollar terms, Americans will see their incomes fall by more than $720 billion over the next 10 years. That works out to an income reduc­tion of $6,000 per household due to the tax increase that was only intended to hurt the rich. As a result of this decrease in incomes, Americans will see their wealth decline by a staggering $11 trillion over that same span. Such a massive reduction in wealth will seriously hamper Americans’ standard of living not only in the short term, but for succeeding genera­tions as well. "[5][6]Raising taxes on the rich decreases the amount of spendable income available for people in lower classes to spend; however, that is not all:"In fact, if Congress passes the President’s tax hike plan, businesses will create an average of almost 800,000 fewer jobs per year between 2013 and 2019 than they would if tax rates remain where they are now. That is, 800,000 additional Americans per year will not have a job because of a misguided tax increase—roughly equivalent to the total loss of jobs during the recent recession. In terms of job loss, the Obama tax hike is effectively equivalent to a deep recession, except this one would be intentional. "[6][3][7]Now, on to how tax increases harm the economy. Obviously, with the two above things mentioned, tax increases are very harmful to the economy both from the perspective of consumer spending and from jobs. But there is more evidence that points to this same conclusion. Small businesses, a vital sector of the economy, will be hit hard by Obama's new tax proposals:"Those who will be hit hard by the tax hikes are the small businesses that employ workers and create the most new jobs. According to the same data from the Treasury Department, those 8 percent of small businesses that earn enough to pay at the top two income tax rates earn 72 percent of all small business income. They also pay 82 per­cent of all small-business income taxes. This means that the small businesses that will pay higher taxes under the Obama plan are the largest small busi­nesses, which employ the most workers. Targeting them for higher taxes will have the largest possible negative impact on job creation. "[6][8]Finally, and very importantly, "Under the President’s proposal, individuals earning $37,000 would see no increase in their taxes. But, the combined income/payroll tax rate on their customer would rise to 43.4% (39.6+3.8). That means, their customers would now have to earn $65,371 to net the $37,000, an increase of $5790, or 10%. "[9]Tax increases would severely harm GDP. In fact, when one plots tax rates among different countries versus each's corresponding annual GDP growth, it is clear that there is an inverse correlation between high tax rates and economic growth: [3]Also, finally, as one last note on GDP: "Tax changes that are made to promote long-run growth, or to reduce an inherited budget deficit, in contrast, are undertaken for reasons essentially unrelated to other factors influencing output. Thus, examining the behavior of output following these relatively exogenous tax changes is likely to provide more reliable estimates of the output effects of tax changes. The results of this more reliable test indicate that tax changes have very large effects: an exogenous tax increase of 1 percent of GDP lowers real GDP by roughly 2 to 3 percent. "[10]Sources:[1]: . http://seekingalpha.com...[2]: . http://www.demint.senate.gov...[3]: ibid [4]: . http://washingtonexaminer.com...[5]: William W. Beach, Rea S. Hederman, Jr. , John L. Ligon, Guinevere Nell, and Karen A. Campbell, “Obama Tax Hikes: The Economic and Fiscal Effects,” Heritage Foundation Center for Data Analysis Report No. 10-07, September 20, 2010[6]: . http://www.heritage.org...[7]: ibid[8]: U. S. Department of Treasury, “Treasury Conference on Business Taxation and Global Competitiveness,” July 26, 2007, p. 15[9]: . http://www.forbes.com...[10]: . http://www.nber.org...