America Must Raise Taxes

Tom Kando 

Congress was at it again: It was having difficulty passing a budget on time, thereby threatening to shut down the government. 

This now occurs every other month or so. It is one of the many aspects of our dysfunctional government. The problem is simple and obvious: Republicans want small government and low taxes. Democrats want the government to provide services for the people - you know, things like education, infrastructure, public health, medical insurance, police, defense, etc. Republicans prefer that you keep as much of your earnings as possible and that you hand over to the government as little of it as possible. A majority of Americans agree with this. Therefore any candidate who dares to suggest raising taxes is committing political suicide. 

During the Reagan era, there even arose an economic theory which argued that CUTTING tax rates would INCREASE the government’s tax intake. The theory became quite popular. It was called the LAFFER CURVE, after its progenitor Arthur Laffer. The man’s reasoning was that lower taxes incentivize workers to work more and earn more, and businessmen to invest productively rather than to shelter their profits unproductively or hide them in off-shore tax havens. This theory has long been debunked by most economists, including Nobel Laureate Paul Krugman, some calling it the “laughter curve.” yet it retains many adherents among conservatives. 

The Republicans’ never-ending efforts to minimize taxes also include their current campaign against increasing the IRS in order to maximize tax audits and minimize tax cheating. Tax under reporting and underpayment cost the government several dozen billion dollars every year. 

Understandably, even Democrats are loath to advocate raising taxes. 

Yet, there approaches a time when this will be absolutely inevitable. Here are some facts (See for example What is the National Deficit ).

For the past twenty-two years, the federal government has been spending more than it has been taking in. Its budget was last in the black in 2001, when Clinton was president. 

Here is how federal revenue and spending stack up in 2023: 

Spending: 6.3 trillion 

Revenue: 4.5 trillion 

Deficit: 1.8  trillion

Here is how the debt has grown over the past two presidencies: 

Trump:

2017: 67 billion

2018: 78 billion

2019: 98 billion

2020: 3.13 trillion 

yearly average: 1,39 trillion

Biden:

2021: 2.77 trillion

2022: 1.38 trillion

2023: 1.8 trillion

yearly average: 1.98 trillion 

 Note that the government has spent far more than it took in during both presidencies. Trump’s last year was particularly bad. One important contributor to the deficit during Trump was his large tax cut for the rich. The causes of Biden’s large deficits include the lavish Covid payments during the pandemic and the generous military assistance to Ukraine and to Israel. 

The total accumulated federal debt exceeded $30 trillion for the first time in 2022. It now exceeds 32 trillion. This is 122% of our GDP (our total national economy), which is 26.2 trillion in 2023. 

The most wasteful aspect of running a huge debt is the same as what you experience when you fail to pay off your debts (for example your credit card balance). You run into a vicious cycle: You spend an ever increasing portion of your earnings on interest payment, instead of buying things. You become poorer and poorer. 

In 2023, the federal budget was $6.3 trillion. Over 10% of this - $659 billion - was spent to finance the debt. This means borrowing additional money, at the cost of (future) interest payments. This amount was nearly double the debt financing cost in 2021, which was $352 billion. The reasons for this were (1) the increase of the federal debt and (2) the rise in interest rates. 

Consider all the useful things the government could do with the $659 billion - an extra 10% - it currently wastes on debt financing! Schools, housing, infrastructure, research, public health, all the things which the country needs so direly. 

One comes across articles and media discussions of the federal deficit, but you know what? Hardly ever does a pundit or a politician dare to even mention the taboo: The need to raise taxes. 

A good example is E.J. Antoni, (“US Credit Gets Downgraded as Signs of Default are Clearer,” Nov. 20, 2023). He wisely warns us that “the federal government’s path of ever-growing deficits is completely unsustainable.” However, nowhere does he mention the need to raise taxes.

Some mention Japan, whose debt to GDP ratio is higher than ours, and yet appears to be manageable. However, the Japanese government is able to borrow much more cheaply than the US government - at nearly 0%. It is able to legislate this because most of Japan’s public debt is owed to the Japanese people 

 Others argue that economic growth is larger than the interest rate on government debt, which means there won't be a debt crisis. However, by now the debt and the cost of financing it, are growing far more rapidly than the economy. In sum: There is a near universal taboo on mentioning the unmentionable medicine - taxes. Spending cuts (alone) will not solve the problem. 

Sure, Biden did talk briefly about raising taxes on people earning over $400,000 a year. But with elections looming, the topic is now off the able. The only subject of the debate is what to cut or not to cut. 

To begin with, this country has nearly a thousand billionaires, including many whose net worth exceeds the GDP of countries such as Ukraine, Morocco and Ecuador. We also have over twenty million millionaires. And then, there is Biden’s proposal to raise taxes on people making over $400,000 annually. 

Depending on the math, it is conceivable to begin raising taxes mildly at an even lower level. This could be a temporary measure, until the government has reduced its debt. But you get my drift. Unless something is done along my suggestions, our government is headed for bankruptcy. And then, what happens?  leave comment here