Let's Have A Tax Debate
Senator Tom Coburn finally came out this morning and admitted, in the Washington Post, what anyone with common sense knows to be true, that in the near term, any deficit fix is going to have to include revenue increases as well as spending cuts:
The public rightly prefers spending cuts over revenue increases, but numerous polls indicate the vast majority of Americans would support the only type of plan that would ever make it out of Congress and be signed into law: one that favors spending cuts over revenue increases but includes both.
Assume Senator Coburn is correct. (If you think he’s wrong, fine – but that can be a debate for another post.) What kinds of “revenue increases” should conservatives and moderates support? (Well, perhaps “support” is too strong a word. Try “be willing to accept.”)
It seems to me that there are, broadly, five options:
A) Tax simplification – lower rates in exchange for fewer deductions, along the lines proposed by the Bowles-Simpson commission or Congressman Ryan, but resulting in some level of (projected) net revenue increase, probably around $100-150 billion/year
B) Across-the-board moderate increase – something like a return to the Clinton-era rates, or perhaps something as simple as a 5-10% increase in every tax rate
C) Tweaking the existing tax code to try to extract another $100 billion or so a year out of it – this could include raising taxes on some people but not others, some forms of income (e.g., capital gains) but not others, limiting some deductions, etc.
D) An entirely new kind of tax – e.g., a national consumption, or sales, tax
E) Any of a variety of combinations of the above
My guess is that A would be the default choice for most conservatives, but some caution is needed – assuming the result will be a net increase in revenues of $100-150 billion/year (which is the premise here), this could easily turn into a tax increase falling almost as exclusively on upper-middle and upper incomes as the Democrats’ “tax the rich” proposals, albeit via eliminating deductions rather than raising marginal rates.
B has the merits of fairness (everybody pays) and effectiveness (by tapping into all incomes, rates don’t have to be raised all that much). But does any ranch of the government have the stomach for proposing a tax increase on everyone?
C is normally thought of as the Democrats’ territory – “Raise taxes on the rich! Eliminate their deductions!” – and there are lots of good reasons why conservatives should resist these gutter appeals to envy and class warfare. But should all tweaks be of the table? (I actually think there’s a case for a modest increase in the capital gains tax and the creation of a true “millionaires’ rate,” but I’ll save that for a different post.)
D has some adherents across various spots on the political spectrum. Quite a few conservatives would be happy to replace the income tax with a consumption tax, and quite a few liberals would be happy to add it, but I’m not sure there’s much common ground there. Replacement seems to me to be a non-starter, at least in the near term – it would be hugely complex, and there is nothing like the political will required. A very modest consumption tax, on top of something like current income taxes, might well be do-able, and might well be the most painless way to generate the (presumed) necessary billions – but it seems to me to open up a Pandora’s Box of potential future increases.
So how does Ricochet vote? Again – assume the premise, which is that Coburn is right, and as a practical matter any “fix” is going to have to include $1-1.5 trillion in revenue increases to go along with $2 or $3 or $4 trillion in spending cuts. What tax changes are you willing to accept in return for those cuts?
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May '11
Re: Let's Have A Tax Debate
Option A and D are the only ones that are remotely fair; A because it takes some of the social engineering out of the tax code and D because it takes ALL of it out. In a perfect world option D is the way to go because its not the government's business how much someone makes nor is it fair to punish them on that basis. Option D, however, is politically impossible because the libs will scream bloody murder over it's "regressive" nature. Option B just perpetuates and worsens a horrible tax system. Its not even woth commenting on Option C; in fact I don't see how our tax code passes the Equal Protection Cluase in the constitution. Having said all this we will probably wind up with something like Option E which will be the usual race to the bottom.
Apr '11
Re: Let's Have A Tax Debate
There is absolutely no reason to reward the obscene increases in spending by accepting tax increases.This is why we are in the trouble we are in because somehow the left has been able to continue to raise spending and then call for tax increases to deal with the deficits it causes...then start the whole process over again.The states with the highest tax rates have the biggest deficits because they follow this process over and over again.If we raise taxes,the spending will continue going forward and shortly we will hear calls for yet more tax increases.When Clinton was president the federal gov't spent 18% of GDP....when Bush left office that number was 19.6% and today it is incredibly 25.3%......if we simply returned to the 19.6% of 2 years ago and encouraged growth the problem would take care of itself.If we conservatives accept tax increases in order to lock in record spending levels then we have lost in a dramatic way and Obama has won....I say no thanks to any tax increases!
Oct '10
Re: Let's Have A Tax Debate
Are you willing to consider the historical evidence that both Reagan and Kennedy lowered tax rates and saw a very significant increase in actual revenues? For myself, 100% of the deficit should be covered by revenue cuts.
To assume that the leviathan feral government isn't the problem and that it should be maintained in even a bit reduced size will automatically concede the future to the Left. As bad as the deficit situation is, the size and scope of government is far more threatening to our future survival as a nation.
The deficit is a SYMPTOM of a far worse condition. We are becoming a people owned by the government, and our elections are moving to simply getting to choose the tyrant who will run our lives until there is no meaningful living being done.
Jul '10
Re: Let's Have A Tax Debate
I reject Coburn's premise. nyconservative is right; cut spending and encourage growth.
Increased taxes, as every poodle knows, are a drag on growth. I've heard estimates that if we returned to a 5% unemployment rate, the deficit would decrease by a trillion dollars a year as increased revenues flowed in and welfare benefits such as unemployment insurance and food stamps decreased. From that point, we only need another half-trillion in cuts, which shouldn't be unobtainable.
That being said, if I had to name my poison, I'd go with a simplified income tax: I don't like using the tax code for social engineering.
Oct '10
Re: Let's Have A Tax Debate
raycon, yet Reagan ran such huge deficits, even the liberals complained.
Look, Reagan's economic policy made a lot of sense--but it wasn't what right-wingers insist it was. Global central banks responded to accelerating inflation by hiking interest rates close to 20%. To prevent a depression, Reagan deliberately ran deficits.
He used the deficits to amp up private investment (not government spending). The tax cuts were designed to encourage investment, and the military buildup of the Cold War contributed to productivity growth (a strategy which worked then but has run out of steam today).
Remember, aggregate demand includes investment. Reagan anchored global demand in a period of disinflation (historians call this the "fiscal twist" of the 1980s), not by increasing government spending but by increasing private spending and investment.
Oct '10
Re: Let's Have A Tax Debate
Steve, I admire your courage! There's lots of hard memories here; conservatives were promised spending cuts after most of Reagan's tax hikes and Bush 41's broken tax pledge, cuts that never happened.
Of course, we did cut spending the 1990s so there is hope. Besides, this time really is different: we face a genuine balance of payments (currency/fiscal) crisis if we don't get the budget under control.
And besides, it isn't possible to tax our way to sustainability--all the models say so.
Sep '10
Re: Let's Have A Tax Debate
Spending cuts = sealing the border.
Tax increases = "comprehensive immigration reform".
Its the same argument. I take the same stance. Prove to me you can cut spending/seal the border in a meaningful way. Then we'll talk about the rest.
Oct '10
Re: Let's Have A Tax Debate
Mark Belling Fan: Spending cuts = sealing the border.
Tax increases = "comprehensive immigration reform".
Its the same argument. I take the same stance. Prove to me you can cut spending/seal the border in a meaningful way. Then we'll talk about the rest. · May 19 at 10:58am
Given how small any new revenue would be, I don't think you have to worry. Steve's estimate of 100-150 billion per year is probably correct; with a nine hundred billion deficit (excluding the temporary payroll tax cut), that barely makes a dent.
It isn't even possible to balance the budget without spending cuts! Washington has seen to many nations suffer currency crises in the past thirty years to ignore the deficit now.
May '10
Re: Let's Have A Tax Debate
Why is it always assumed that to raise revenues we need to raise tax rates? Raising the tax rates is liberal code for wealth redistribution. It always amazes me how often (almost absolutely) that the right allows the left to frame the debate on almost every important issue. The minute we agree that increased revenue = increased rates is where we lose the debate.
Therefore, my response is that yes I'm all for raising revenues in addition to massive spending cuts. Then I'd trot out the evidence that the correlation between increased tax rates and increased tax revenues is spurious at best. In fact, the evidence shows in almost every case that a decrease in marginal tax rates leads to an increase in tax revenues. That doesn't mean lower tax rates are the cause of increased revenues, but the lower rates stimulate investment and spur growth that lead to economic growth. That growth leads to higher revenues.
Therefore, assuming Coburn's premise is correct (i.e. we need to raise revenues), none of the options listed, with the potential exception of A, are likely to accomplish that goal.
Sep '10
Re: Let's Have A Tax Debate
I advocate a tax rate of an extra 3% on anyone advocating increasing tax rates. I don't know how that would be put into effect, perhaps a new division of the IRS that monitors news outlets and internet chatter, matching screen names with social security numbers (we have the technology). Politicians like Obama and Reid will be easy to track. I would, in the case of elected officials, expand the tax to include members of their families out to the level of cousins. I know there are some practical problems but Congress can work it out.
Jun '10
Re: Let's Have A Tax Debate
"I advocate a tax rate of an extra 3% on anyone advocating increasing tax rates."
Quadruple that number for anyone in Congress since 2008. Add 3% per year more for those "serving" longer terms until they have no income, Then start taking their savings, like they are threatening to do to us. This would continue until they cut enough spending to balance the current budget.
This could be plan E, Mr Manacek
Jul '10
Re: Let's Have A Tax Debate
How about a 200,000 percent tax on gun sales? They're gonna need it if they keep foolin' around.
Oct '10
Re: Let's Have A Tax Debate
The massive tax cuts of the past few years aren't enough? Taxes have to go up anyway--the temporary massive stimulus cuts will phase out. I mean, we're raising 14% of GDP in revenue--that's an absurdly low number, and isn't good for investment (because of the federal deficits).
18% of GDP is considered the lowest long-term revenue possible, and usually 19%-20% are quoted in serious proposals.
Oct '10
Re: Let's Have A Tax Debate
Kenneth, I take it you're in the hard-core "taxation is theft" camp of libertarians?
When the temporary tax relief expires (at the end of this year), taxes will go up anyway (regardless of what happens to the Bush tax cuts in 2013). Surely raising a little extra revenue through simplification is a good way to go; it's not like it would raise much. Having so many deductions isn't fair, not when a few people still pay the full tax rate.
Edited on May 19, 2011 at 2:49pmApr '11
Re: Let's Have A Tax Debate
Any tax increases have to be accompanied by real (as in no bookkeeping sleight of hand) spending cuts - both discretionary and in entitlements. I don't see how more tax reductions will increase revenue... there's an inflection point on the Laffer curve. Part of the problem is exemption of half the population from any more than token tax liability.
We also need major changes in policy: reduce immigration to genuinely skilled people (and then only when our unemployment rate falls); bring the military home (and shrink it); and a host of others that take into account the fact that tax money is a limited resource. We can't be nursemaid to the world.
I'm willing to see my retirement deferred a year or two - but only after we see real and meaningful cuts.
I suspect this issue is going to be very difficult (if not impossible) to solve: a growing and aging population supported by an economy that requires fewer and fewer workers.
Jul '10
Re: Let's Have A Tax Debate
Joseph Eagar: Kenneth, I take it you're in the hard-core "taxation is theft" camp of libertarians?
When the temporary tax relief expires (at the end of this year), taxes will go up anyway (regardless of what happens to the Bush tax cuts in 2013). Surely raising a little extra revenue through simplification is a good way to go; it's not like it would raise much. Having so many deductions isn't fair, not when a few people still pay the full tax rate. · May 19 at 2:47pm
Edited on May 19 at 02:49 pm
Taxation is the confiscation of wealth at the point of a gun.. To the extent that it's necessary for the constitutional functions of government, it's sufferable. When it's used for redistribution of wealth, it's tyranny.
Apr '11
Re: Let's Have A Tax Debate
End all tax breaks. As Dave Carter pointed out a while ago, the tax code exists to fund the government, not as some sort of social cure-all. Second, broaden the tax base, to avoid Rumsfeld's 'tipping point'. I agree with Kenneth, taxation is legalized theft. Any tax increases should be countered with spending cuts by a ratio of 10-1 or higher, with the spending cuts enacted first so the liberals can't double-cross.
Aug '10
Re: Let's Have A Tax Debate
If taxation is theft, what do you call deficit spending? Theft from your children? Is that better?
There's just no way you can balance the budget with just spending cuts, much as this libertarian would like to do so.
Yes, spending has gone way up as a percentage of GDP - but about half of that is due to real increases in spending, and the other half is due to the recession causing a drop in GDP. The recession has also caused about half of the drop in tax revenue, with the other being due to temporary tax cuts.
The key to a tax increase that is palatable to the right is to demand spending cuts even bigger than the tax increases. In Canada, we balanced our budget with spending cuts and tax increases, but we cut $7 for every $1 we raised taxes. After we paid down the debt and lowered our debt servicing costs, we cut taxes again and kept spending low. That's how to do it.
Avoid any plan to raise taxes now, with only a promise to cut spending in a future budget.- that's a sucker play Republicans keep falling for.
Edited on May 19, 2011 at 10:28pmAug '10
Re: Let's Have A Tax Debate
As for specific tax proposals:
- lower corporate rates by eliminating loopholes and lowering the corporate rate until the changes are venue neutral.
- institute a 7% VAT. The first 5% of the VAT revenue is used to bring corporate tax rates down to the same rate as Canada, the U.S.'s biggest trading partner. Canada's corporate tax rate is 16.5%, but will be lowered to 12.5% in the next couple of years.
- The second 2% of the VAT is pure revenue enhancement for the government. However much money that raises must be matched 2 for 1 in spending cuts. If that doesn't get the budget deficit below GDP growth, then raise the VAT another 1%, with another 2X in spending cuts.
- Make a commitment that at all times, the spending cuts must happen first. So in order to raise the VAT to collect $100 billion in FY2014, there must be $200 billion in spending cuts in FY2013. This 2-1 ratio continues until the budget is balanced.
- Freeze marginal rates. All future tax increases are to be done with the VAT so it's broad based and everyone has skin in the game.
- Means-test Medicare.
Oct '10
Re: Let's Have A Tax Debate
STARVE THE BEAST !!!!! Anything less is how we got here.
Taxation above the cost of Constitutional government functions is more than theft. It is tyranny !!