In Sunday's New York Times, Warren Buffett discusses the need to raise taxes on the wealthy. He's absolutely right. Tax increases, in general—as well as tax increases on the wealthiest households, in particular—need to be a part of the solution.
Past major budget agreements, such as the 1983 Social Security reforms and the 1990 and 1993 budget deals, ultimately included both revenue increases and spending cuts. It's not hard to see why: Cutting deficits from both sides of the budget provides a sense of fairness, shared sacrifice and political equilibrium.
Also, raising taxes to pay for current spending has proved more effective at restraining spending than allowing the government to finance its outlays with deficits. Every time we have tried to cut spending by restraining taxes, we have failed. In the 1980s under President Ronald Reagan and in the past decade under President George W. Bush, taxes fell, but spending rose. The only time in the past 30 years when spending fell was in the 1990s, under President Bill Clinton, when taxes were also raised.
Even the massive tax increases during and after World War II—amounting to a permanent rise of 10% to 15% of gross domestic product—and the much smaller tax increases in 1990 and 1993 did no discernible damage to U.S. economic growth.
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