The Debt Problem: Should We Raise Taxes or Cut Spending?

Writing in Saturday’s edition of the Wall Street Journal, Peter G. Peterson makes the case for tax increases and spending cuts:

While I believe that spending cuts must play a lead role in any solution to our long-term structural deficits, the sheer magnitude of the imbalances requires revenue increases.

The University of Rochester’s Steve Landsburg is a refreshing antidote to this line of thinking:

There is this notion abroad that an extra billion in federal spending can be converted from “irresponsible” to “responsible” as long as it’s accompanied by an extra billion in tax hikes. That’s like saying a $500 haircut can be converted from “irresponsible” to “responsible” as long as you withdraw the $500 from your bank account.

Here, according to Landsburg, is why:  

The government’s chief asset—in fact, pretty much its only asset—is its ability to tax people, now and in the future. The taxpayers are the government’s ATM. Make a withdrawal today, and there’s less available tomorrow.

The bottom line: Under reasonable policy assumptions, government’s share of GDP is set to climb dramatically in the coming decades. We can not solve the problem by taxing ourselves to solvency.