via The Economist
Tag Archives: domestic policy
During the debt ceiling debate the Congressional Republicans stood firmly against raising revenues of any kind, even defending loop holes and subsidies for corporations. In fact the Republican stance against taxes is so extreme, that even discussion on raising taxes on the wealthy is rebuked. The criticism of raising taxes on the wealthy is often characterized as punishing the successful or engaging in class warfare. Republicans are still clinging to the supply-side theory of trickledown economics, and that taxing the rich will damping job creation.
In 1936, President Franklin Roosevelt said that his principle was that “taxes shall be levied according to ability to pay. That is the only American principle.” Adam Smith wrote in the Wealth of Nations that the “subjects of every state ought to contribute toward the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.” The idea that taxes should be levied in a progressive manner according to someone’s ability to pay them is no radical idea.
Research from economists Peter Diamond of MIT and Emmanuel Saez of the University of California at Berkeley in a recently published paper, The Case for a Progressive Tax: From Basic Research to Policy Recommendations, shows that not only would raising taxes on the wealthy not will undermine incentives to work and save but that the government should be taxing the wealthy at a much higher rate. In fact, they suggest that optimal tax rate for the top marginal tax bracket could be raised from its current 35% to as much as 76%.
Would taxing the wealthy at a higher rate have any effect on the nation’s revenue problem? According to a report from the Campaign for Americas Future, if just corporations and households making $1 million or more a year were taxed at the same rate they were in 1961 there would be $716 billion more in revenue per year. That would nearly cut our current budget deficit in half. The report, which cites an Institute for Policy Studies paper, that “if the federal government started taxing the wealthy and their corporations at the same rates in effect a half-century ago, the federal debt to investors would almost totally vanish over the next decade.”
Associate Justice of the Supreme Court of the United States Oliver Wendell Holmes said that “taxes are the price we pay for a civilized society.” However, it seems that the wealthy and moneyed interests want to pay less and less for this society – despite the fact that their wealth is due to the strength of this society. Public schools create educated work forces and public roads provide transportation for goods and services. All of the things “job creators” utilize from the public domain to create jobs – while they are instead padding their paychecks. If you don’t soak the rich you shouldn’t expect more than a trickle.
There has been kind of a crowd sourcing of ideas for how to solve to the debt ceiling crisis, and the ideas include substantive policy ideas and purely political ideas. A few of the ideas I found particularly interesting, and I think the way forward for the Obama Administration is to use a combination of a few. Below are a few ideas that the President should use in some form or another beginning with his remarks tonight.
The New York Times editorial board argues that President Obama should threaten to raise the debt ceiling unilaterally, and not based on the 14th Amendment but on “president’s role as the ultimate guardian of the constitutional order.”
“A deadlocked Congress has become incapable of acting consistently; it commits to entitlements it will not reduce, appropriates funds it does not have, borrows money it cannot repay and then imposes a debt ceiling it will not raise. One of those things must give; in reality, that means that the conflicting laws will have to be reconciled by the only actor who combines the power to act with a willingness to shoulder responsibility — the president.”
Elizabeth Drew writes at Politico that the President should demand a clean bill raising the debt limit, and that he should “veto any bill encumbered by amendments, and emphasize that if the Congress does not comply he will take the issue to the American people.”
“It’s come time, perhaps long-since come time, for Obama to take charge, show some strength and commit an act of political jujitsu that will leave the Republicans gasping for air. In a short speech to the nation, Obama might remind his fellow citizens of the patience he has shown, of the fact that time is running out for the drafting and passage of a bill to increase the debt ceiling. He could make it clear that to lift the debt ceiling does not, as many people seem to think, sanction the spending of one more dime than the Congress has not already agreed to.”
David Callahan at the Policy Shop says the Democrats could agree to the large spending cuts that the Republicans are demanding, and then simply obstruct an extension of the Bush tax cuts.
“Democrats agree to $2.5 trillion in spending cuts now and reserve another $1 trillion in cuts for future hostage-taking episodes — for a grand total of $3.5 trillion in cuts. Ending the Bush tax cuts then brings in another $3.7 trillion in revenues over the next decade. That’s a big deficit reduction plan with a 1-1 ratio of revenue hikes to spending cuts, which is far more progressive than what the White House has been offering and more progressive than the Simpson-Bowles plan.”
Join me on Twitter to live-tweet during the President’s remarks tonight.