Where Will New Revenues for Deficit Reduction Come From?
Where Will New Revenues for Deficit Reduction Come From? by Howard Gleckman
My answer:
Eliminating the tax cuts on the wealthy is not possible without eliminating all the temporary tax cuts. Indeed, with a Republican House, the only window for reform during Obama’s first term is the election of a Democratic House and seat pickups in the Senate, with action during a January lame duck session in 2013. Of course if Obama is reelected and these things occur, he can take his time.
The more probably scenario is gridlock. In a strong economy, Obama wins – however in a middling economy gridlock results in letting the tax cuts for all die, while a poor economy means temporary tax cuts will stay with us – even though increasing taxes on the wealthy would actually have a STIMULATIVE effect by moving money from those who save it and fatten already fat corporate bank accounts to those who spend it – and afterall, consumption is the main component of economic growth.
As to fiscal balance, the better answer is to not only reduce the deficit to interest costs (which negates the impact of the federal debt on the economy) but to begin paying off the debt – both as a percentage of GDP and in absolute terms.
Doing that cannot be confined to the wealthy, nor should it be.
I have laid out a scheme to do this, in my submission to the Fiscal Commission, which is posted on my web page from way back last summer (and was shared with TaxVox). Aside from miscellaneous excise taxes, there should be four major revenue streams, with each stream set to cover a separate set of expenditures.
VAT should cover all domestic military and civil discretionary spending. To do that, the VAT would need to be on the order of 13.3%
A separate Business Revenue Tax of 33.6% would include tax expenditures for families (a $500 per child per month refundable credit paid with wages) and the health care exclusion. Any other retained expenditures would necessitate a higher rate than 33.6%. This levy would fund entitlement and social spending (although this may be overstated, since it includes discretionary grant programs that may be better shifted to the VAT). It would not fund Old Age and Survivors Insurance (retired survivors over 60), but would replace payroll taxes on Disability Insurance, Hospital Insurance and Survivors under 60.
A separate payroll tax would cover Old Age and old Survivors. This is mainly so it can be eventually diverted to personal accounts – else it might as well be part of the VAT so that it is funded by imports as well as wages.
The final stream is a high income surtax (with distributions, but not assets, taxed as normal income). This would only apply to the higher 3, or possibly 2, brackets (depending upon the final BRT and VAT rates). It should fund overseas and sea military deployments (which would otherwise be paid with borrowed funds), net interest and debt retirment. Such a segregation turns the wealthy into both peaceniks and budget balancers, since they would be on the hook for future interest charges, not business taxpayers or their customers).
What about cutting spending? These levies would incentivize it. VATs, which would be receipt visible, would lessen the demand for discretionary government, especially military waste (the bloated bureaucracy, with soldiers on briefing tours in the Pentagon participating in a Byzantine planning process known as PPBE) and pork barrell spending. Net interest would be reduced by the drive toward balance and repayment. Old Age Savings would not be reduced, but could be channelled from a governmental system to a personal account system where funds are invested in the employing firm rather than Wall Street, with a third held in an investment insurance fund, possibly maintained by the Fed). Entitlement spending could be shifted from the government to employer sponsored health, education, mental health care (in lieu of corrections) and anti-poverty programs at both the federal and state levels. This might make the spending much more effective, both in terms of programatic effectiveness and cost effectiveness – especially if third party providers like Catholic Charities, Lutheran Social Services, Catholic Health Care and the parochial school system expand their roles and are duplicated by other sects and faiths.
If one does not wish to go so comprehensive, we could settle on letting the Bush cuts expire, cutting the Pentagon budget as suggested by the Fiscal Commission, introducing a smaller VAT or simply raising the Hospital Insurance payroll tax to fully fund the same share of Medicare costs that it did in prior years, plus a further increase to fund Medicare Part D (the base could also be broadened).
My answer:
Eliminating the tax cuts on the wealthy is not possible without eliminating all the temporary tax cuts. Indeed, with a Republican House, the only window for reform during Obama’s first term is the election of a Democratic House and seat pickups in the Senate, with action during a January lame duck session in 2013. Of course if Obama is reelected and these things occur, he can take his time.
The more probably scenario is gridlock. In a strong economy, Obama wins – however in a middling economy gridlock results in letting the tax cuts for all die, while a poor economy means temporary tax cuts will stay with us – even though increasing taxes on the wealthy would actually have a STIMULATIVE effect by moving money from those who save it and fatten already fat corporate bank accounts to those who spend it – and afterall, consumption is the main component of economic growth.
As to fiscal balance, the better answer is to not only reduce the deficit to interest costs (which negates the impact of the federal debt on the economy) but to begin paying off the debt – both as a percentage of GDP and in absolute terms.
Doing that cannot be confined to the wealthy, nor should it be.
I have laid out a scheme to do this, in my submission to the Fiscal Commission, which is posted on my web page from way back last summer (and was shared with TaxVox). Aside from miscellaneous excise taxes, there should be four major revenue streams, with each stream set to cover a separate set of expenditures.
VAT should cover all domestic military and civil discretionary spending. To do that, the VAT would need to be on the order of 13.3%
A separate Business Revenue Tax of 33.6% would include tax expenditures for families (a $500 per child per month refundable credit paid with wages) and the health care exclusion. Any other retained expenditures would necessitate a higher rate than 33.6%. This levy would fund entitlement and social spending (although this may be overstated, since it includes discretionary grant programs that may be better shifted to the VAT). It would not fund Old Age and Survivors Insurance (retired survivors over 60), but would replace payroll taxes on Disability Insurance, Hospital Insurance and Survivors under 60.
A separate payroll tax would cover Old Age and old Survivors. This is mainly so it can be eventually diverted to personal accounts – else it might as well be part of the VAT so that it is funded by imports as well as wages.
The final stream is a high income surtax (with distributions, but not assets, taxed as normal income). This would only apply to the higher 3, or possibly 2, brackets (depending upon the final BRT and VAT rates). It should fund overseas and sea military deployments (which would otherwise be paid with borrowed funds), net interest and debt retirment. Such a segregation turns the wealthy into both peaceniks and budget balancers, since they would be on the hook for future interest charges, not business taxpayers or their customers).
What about cutting spending? These levies would incentivize it. VATs, which would be receipt visible, would lessen the demand for discretionary government, especially military waste (the bloated bureaucracy, with soldiers on briefing tours in the Pentagon participating in a Byzantine planning process known as PPBE) and pork barrell spending. Net interest would be reduced by the drive toward balance and repayment. Old Age Savings would not be reduced, but could be channelled from a governmental system to a personal account system where funds are invested in the employing firm rather than Wall Street, with a third held in an investment insurance fund, possibly maintained by the Fed). Entitlement spending could be shifted from the government to employer sponsored health, education, mental health care (in lieu of corrections) and anti-poverty programs at both the federal and state levels. This might make the spending much more effective, both in terms of programatic effectiveness and cost effectiveness – especially if third party providers like Catholic Charities, Lutheran Social Services, Catholic Health Care and the parochial school system expand their roles and are duplicated by other sects and faiths.
If one does not wish to go so comprehensive, we could settle on letting the Bush cuts expire, cutting the Pentagon budget as suggested by the Fiscal Commission, introducing a smaller VAT or simply raising the Hospital Insurance payroll tax to fully fund the same share of Medicare costs that it did in prior years, plus a further increase to fund Medicare Part D (the base could also be broadened).
posted by Michael Bindner at 12:04 AM
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