Republican and Democratic responses to Standard & Poor’s negative outlook on the federal debt are so predictable they could have been scripted years ago. Democrats want to address the deficit by soaking the rich; Republicans want to cut supposedly vital programs such as Medicare and Planned Parenthood.
The problem with soaking the rich, as economist Kurt Hauser points out, is that it doesn’t increase overall revenues. As the above graph from American Thinker shows, since World War II, tax rates on the wealthy have ranged from 25 percent to 90 percent, yet total tax revenues have never varied much from 19 percent of GDP. As Reason’s Nick Gillespie emphasizes, the lesson is that, if you want to eliminate the deficit, you have to reduce spending to 19 percent of GDP.
