Saturday, December 16, 2017

We Need to Raise Taxes Not Lower Them

Guest post by Stephen Rose

The Republicans have managed to turn a political win—lowering middle class taxes—into an unpopular monstrosity. Their proclivity to believe that the worthiest people are business people who provide jobs for the masses has led them to give the most generous breaks to corporations, small businesses (pass-through entities), and those with high income. Of course, the fact that these people are their major donors is one that they try to hide.   

The unpopularity of this bill doesn’t negate that the Republicans have won the argument over Reagan’s statement that ‘the government is the problem and not the solution.’ Faith in the federal government has been low for a long time, which makes tax cuts always popular. People don’t understand where the federal government spends its money, although they feel like that their benefits are deserved. Consequently, even if they, their parents or their children receive public benefits, they think that the government wastes lots of money and can easily do with less.

Another major reason to cut taxes is to “starve the beast". Since defense spending can’t be cut, reductions in revenues lead to bigger federal deficit which leads to calls to cut the deficit by reducing spending on social programs. Because the Republicans worry about losing the House of Representatives in 2018, they are pivoting to “entitlement reform” now rather than waiting for the deficit to rise. This is a bold move now, especially since they couldn't pass the repeal and replace of Obamacare.

The Republicans main attack line for decades against the Democrats is that ‘they want to raise your taxes’. Obama avoided this critique by saying that he would never raise taxes on households with incomes below $250,000. To avoid the claim that she would raise taxes, in 2016, Hillary Clinton also made this pledge and ran on a series of small tweaks and showed how they would be paid for without across the board tax increases.

This has put the Democrats on the defensive and allowed Republicans to do a variety of stupid things. At a time when our roads, bridges, water lines, and air ports are in need of massive infusions of money, the Republicans have kept to their “no taxes” pledge. Remarkably, they repeatedly have blocked increasing the gas tax even during years when they economy was strong and when gas prices were low.  Even though this money would be dedicated to infrastructure spending that would make our economy more efficient, keeping their no-tax pledge is more important.

            In the years ahead, more and more baby boomers will be retiring, which will drive up the costs of Medicare and Social Security. Although this is well known and has been somewhat planned for, the demands for higher federal spending are many: higher interest payments (and even higher when interest rates rise), much higher spending on seniors out of general revenue as the Social Security and Medicare Trust Funds are depleted, and addressing our pressing infrastructure needs.

The bottom line is that we are soon going to need lots more revenue, and every progressive should support tax increases. A good plan would cut defense spending, increase the top marginal rate a bit (maybe 45 percent), have the upper middle class pay more, and even have a minor increase on the middle class. In theory, this ‘sharing of burden’ approach might be sellable. This is not a call for a balanced budget but an arithmetic issue: while we can sustain a federal budget deficit of 2 percent of GDP, we are facing deficits much higher than this if we don’t increase revenues.

Cutting taxes now is an abomination driven by the Republican desire to shrink government. 

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