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Budget stalemate: Why America won't raise taxes

Budget stalemate has many on Capitol Hill crunching numbers. With any new budget, taxes may be the real third rail of politics. Can the U.S. solve its fiscal woes without more revenue?

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President Obama did call for raising taxes as part of his long-range budget plan unveiled April 13. Mr. Obama, seeking to reduce the deficit by $4 trillion over 12 years, suggested his plan was a more balanced approach that relies on both spending cuts and an increase in taxes on the wealthy. Yet the tax increase will be one of the most contentious parts of his plan.

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Editor's note: This story has been updated to reflect the settlement of the federal government's budget impasse on April 8.

The antitax ethos has been shaped by both politics and principle. To tax opponents, the overall tax burden is still needlessly high – the US corporate tax rate, for example, is one of the highest in the industrialized world – suppressing the activity of businesses and individuals who would otherwise use those resources to stimulate the economy and create more jobs. They say higher taxes would just feed an already bloated government that is getting inexorably bigger by the day. As the nation once again grapples with staggering deficits and some $14 trillion in debt, the real problem, they insist, isn't a lack of revenue. It's too much government spending.

"The federal government is too big and too wasteful and too inefficient," says former GOP House majority leader Dick Armey, who now heads FreedomWorks, a tea party affiliated group.

To critics, however, the refusal to even consider raising taxes is threatening the nation's financial future. Democrats and many independent analysts argue that the debt problem is just too big to be tackled through spending cuts alone, and that any eventual solution must involve higher revenues.

Yet budget negotiations of the sort George H.W. Bush presided over in the early '90s – in which Democrats pushed for higher taxes and Republicans pushed for spending cuts and they met somewhere in between – don't seem to exist anymore. Instead, lawmakers get locked into intractable standoffs in which they can agree on only a smattering of minor spending cuts, while putting off resolving the deeper economic problems.

"We've sort of lost the capacity to raise taxes under any circumstances," says Joseph Thorndike, director of the Tax History Project at Tax Analysts, a nonprofit group in Falls Church, Va. "And as long as tax increases are off the table, then spending controls are off the table, too. There's no happy ending to this story."

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One gauge of how institutionalized antitax sentiment in Washington has become is a single-sentence statement known as the "Taxpayer Protection Pledge." Issued by Americans for Tax Reform (ATR), a Washington-based antitax group, it asks candidates for elective office to agree to oppose "any and all" hikes in income-tax rates for individuals or businesses, as well as any elimination of deductions or credits unless offset "dollar for dollar" by further reducing rates.

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