Former US Deputy Treasury Secretary Roger Altman offers a sequester escape route (via the FT):
Unblocking the impasse should follow three principles. First, further deficit reductions are necessary. Second, they must incorporate both reductions in entitlement spending, which is growing too quickly, and increases in tax revenue, which is growing too slowly. Third, they should be phased in to protect the still fragile economy.
Later in the piece, Altman says he would raise more tax revenue by reducing the value of tax deductions for high earners. The Obama White House is pushing for about $500 billion in such tax hikes.
But the tax hikes won’t stop there. I think it is a good time to remind ourselves of the Democrat/liberal/progressive endgame. Here is Altman back in 2009:
We all know the recent and bitter history of tax struggles in Washington, let alone Mr. Obama’s pledge to exempt those earning less than $250,000 from higher income taxes. This suggests that, possibly next year, Congress will seriously consider a value-added tax (VAT). A bipartisan deficit reduction commission, structured like the one on Social Security headed by Alan Greenspan in 1982, may be necessary to create sufficient support for a VAT or other new taxes.
How much money would Altman like to raise from a VAT? Well, back in 2009 — Democrats were VAT-crazy that year — I heard him at a Center for American Progress event recommend a $400 billion VAT. Correction: A $400 billion a year VAT. (BTW, that would be a massive middle-class tax hike.) If we did the Altman plan this year — and assuming no further tax hikes — tax revenue would jump from $2.7 trillion, or 16.9% of GDP to $3.1 trillion, or 19.3% of GDP. And assuming no economic damage, tax revenue would easily be over 22% of GDP by 2023 vs 18% historically.
The US tax burden likely does need to rise above its historic average in coming years. But it needs to be done in a pro-growth way — not layering a VAT on the existing tax code — and combined with entitlement reform.