Thoughts on Taxes and Deficits

Some thoughts from a discussion over at Darren's blog - RightontheLeftCoast.blogspot.com

Of course, higher taxes won't end our debt in a year or two, and no one is proposing it could. And no one is proposing 100% confiscation, which is absurd. Of course, marginal rates of 89% existed during the country's exceptional economic boom from 1945-1965. Not that I'm arguing higher rates solve the problem - just that they don't necessarily cause more problems. The economy is about far more than marginal tax rates.

However, had rates not dropped to historic lows over the past decade, the debt would be far, far less. Extrapolate the lost revenue over twenty years and the case is obvious for allowing rates to rise for the wealthiest. If, for the past thirty years, capital gains and dividends had just been taxed as income, as uber-rich people like Buffett and Gates have proposed, and FICA was not capped, this current debt crisis would hardly exist. So, raising taxes on the rich - over the next decade or so - will do wonders in paying down the debt. And the garbage about "killing jobs" by "punishing the job creators" is exactly that, garbage. Supply and demand doesn't work that way - and no effective business owner turns down a good investment or refuses to expand his business simply because he might pay 19%, rather than 15%. A good deal is a good deal and business investments are made on timeliness first.

Budget criticisms about foreign and PBS/NEA/NPR are political not fiscal, and they don't have much relevance to the debt/deficit concern. As are comments on Ponzi schemes and socialism. Social insurance is a good investment for any society - just look at the economies of Singapore and Germany - and the debt problems are essentially solved through means testing and allowing the government to negotiate with providers. Just look at prescription costs for veterans if you disagree. And we've actually been "printing money" since the 1970s and the boat is afloat.

Taxes are the revenue the state uses to fund state business. The greatest percentage of revenue will come from its greatest concentration of it. The wealthy can simply afford to pay more for the functioning of the state, and they have clearly gleaned as much from a society that has been stable enough - because of said government/society - to create such wealth.
No wealthy business owner amasses wealth in a vacuum - it accrues from all contributers along the supply/demand line. And the infrastructure that allows that to occur and flourish is maintained by a government of representative democracy.

Limit/end corporate welfare (agree with you there), means test the safety net and allow for negotiations and cuts without hysterical "killing grandma" cries, cut back the military/security behemoth, don't cut taxes to "spur growth," plan to pay for wars while fighting them, and have a nice day.

Deficit Dithering

The cold, hard reality is that the United States government has accrued $12 trillion in debt. Most of that came in six years when the Bush Administration proposed and passed two unfunded tax cuts, two unfunded wars, and a huge unfunded expansion of the entitlement system with a prescription drug plan for Medicare - one that is now being asked to expand to close the "doughnut hole." While the debt went from $3 trillion to $10 trillion during that time, government spending did not increase by $7 trillion. Thus, any competent middle school math student can conclude that the budget deficit has ballooned the debt primarily through a cut in revenue. However, spending most certainly played a role. It played a huge role. In no way should this post be construed as absolving the Democrats of responsibility, especially for wasteful spending.

Thus, as David M. Walker and the Concord Coalition have argued since 2003, the debt and deficit will not be addressed without spending cuts AND tax increases, and significant entitlement reform. It is that simple. It's so simple. It's astoundingly obvious. Cut spending AND raise taxes while reforming entitlements. That is what the proposed Fiscal Responsibility Committee would have done. That's what a new bill in Congress to re-institute "Pay-as-you-go" would have done.

Yet, the GOP has vowed and voted to defeat these attempts because it will raise taxes. Of course, it will. It has to. And, then, Senator McCain responded to ABC news today by claiming the spending freeze might be OK, but he would "cut taxes" so that revenue would increase. Even though cutting revenue is the majority of the problem. Ugh! Does everyone in the GOP misunderstand the lessons of the 1980s and 2000s, and the inherent flaws in supply-side economics. Or are they just that pathetic in their fear of PACs and "think tanks" that threaten to derail the career of any Republican voting for tax increases.

It's $12 trillion.

I want to see taxes at the 1992 and 1983 levels. That's where the economy can be strongest. That is absolutely the goal. And, to do so, spending will have to be cut and entitlements reformed. I know that. I get it. I want the spending to go down, so the taxes can go down. But the debt and the deficit have to go, too. And taxes will have to go up, for some time, in order for that to happen.

This is our problem. There are no, or few, fiscal conservatives in the Republican Party. No one is willing to be pragmatic about this. Fiscal conservatives are not conservative if they think the deficit and debt can be handled without tax increases. Just crunch the numbers. Really. Do the math. Lower taxes are preferable. Less wasteful spending is the goal. But do the math. Be honest with yourself.

It's $12 trillion.