Increasing Taxes in the U.S.: Accepting the Inevitable

In the New York Times yesterday, David Leonhardt announced the formation of “Club Wagner.” It’s named after Adolf Wagner who postulated that as societies prospered taxes would increase due to a demand for more government services. Members of the club are those who favor increasing taxes in the U.S.

Maybe I should rephrase that last sentence. The members recognize that the current tax system generates insufficient revenues to fund the promises of the state and believe that as part of a rational fiscal plan, revenues raised through taxation need to increase. Reluctantly, I have to say that I would count myself a member of the club.

Perhaps eight or ten years ago, had we taken appropriate measures we could have avoided arriving at this crossroads, but we didn’t. Now the numbers are what they are, there isn’t rationally a means for the country to responsibly meet its obligations absent increased revenues. Simply cutting spending won’t get it done.

The point now is not to bay at the moon and oppose everything only to be run over by the inevitable. Rather it’s to admit to reality and try and shape something that will do the least damage and perhaps improve on the current system. Certainly it’s possible to construct a tax regime that favors employment and capital formation and contains far fewer distorting loopholes. That should be the goal.

Comments

[Dave Wrixon:]

Actually, it probably isn't necessary to raise taxes. There apppears to be no real reason why the US Government should not create sufficient additional money out of fresh air to meet its requirements. Of course many would argue that this would be highly inflation, and of course it is, but that is also a major unsung strategy of this adminstration and indeed it may also be essential to ensure that outright default can be avoided.

Jul 08 07:12 AM

[Hopefull:]

I believe we have to insure our personal and financial survival by facing up to drastically cutting programs to people in need, social security, medicare, medicaid, aid to schools, aid to states, subsidies to renewable energy, unemployment aid, block grants to states, flood insurance, earmarks, the list is endless. Only those who give up the fight want to raise taxes. I believe sensible want to survive, not surrender to ever more powerful and corrupting government.

Jul 08 07:58 AM

[optionsgirl:]

I would like to tender my resignation in the club.

Jul 08 08:25 AM

[Carlos Lam:]

"The members recognize that the current tax system generates insufficient revenues to fund the promises of the state and believe that as part of a rational fiscal plan, revenues raised through taxation need to increase"

1. I hope the members of the club provide a sterling example and pay the U.S. Treasury 10% MORE each year than their total tax as calculated by the tax tables.

2. I do not understand why the members of the club do not understand that instead of "raising revenue" (nice euphemism) the state could simply cut its military and social expenditures.

3. In answer to #3, it appears that 5 of the 9 charter members either have been or are on the government payroll, either through salaries or pension plans.

Jul 08 08:52 AM

[dick streich:]

Are you crazy? Have you ever heard of government waste?
Years ago, a commission reported all the areas where money could be saved if reduced or eliminated. What happened. NOTHING.
If your income goes down, what do you do - you reduce expenditures.

Jul 08 08:56 AM

[TeresaE:]

Higher taxes cause lower tax collections.

Proven time and time again.

Government will just grow (again) to eat up the "surplus."

But, the largest flaw in your "raise taxes" plan is that many of the former "taxpayers" are bankrupted or near there.

Small business used to pay the lions share of taxes, from property to payroll and look around, many have just disappeared.

Sure, why not, raise taxes.

The poor, which EVERY tax hits disproportionally, can afford it.

bwaaahaaaahhaaa

Jul 08 09:10 AM

[Vuke:]

Resignation will be refused. You are a servant of the State and so required to fulfill your civic duties. Hand over anything you've got to keep the banks and tentacles of Big Government on life support.

On Jul 08 08:25 AM optionsgirl wrote:

> I would like to tender my resignation in the club.

Jul 08 09:24 AM

[rm:]

[Perhaps eight or ten years ago, had we taken appropriate measures we could have avoided arriving at this crossroads, but we didn’t.]

Who are "we?" Some of us did see this coming, did call and write our Congressman, while they did whatever they wanted.

[Rather it’s to admit to reality and try and shape something that will do the least damage and perhaps improve on the current system. ]

The current system sucks. It doesn't need fine-tuning, it needs a substantial overhaul. I think people are realizing it, which is why BO was so popular.

Problem is, he isn't delivering the kind of change that we need.

The first step: replacing our "leaders" with people who don't want to make a career out of being a politician.

Jul 08 10:58 AM

[Craig W:]

Well, another potential upshot of raising taxes, at least from the governments perspective, is that it would reduce the funds available for individuals to pay down debt and/or increase their personal savings. We wouldn't want people to accumulate wealth and repair their balance sheets because then they would no longer be dependent on the government and the banks. Not only that, wealthy people often cease to be significant payers of income and payroll taxes. If you pay off your debt and build up a lot of wealth, you wouldn't have to work anymore, and at some point the taxes get to a point where people with wealth decide it is better to spend their time fishing or golfing. The media and politicians like to mix the terms "income" and "wealth", though they are not the same thing. That is why we often see mega-wealthy people in favor of high taxes on income . . . everyone is in favor of raising taxes that they don’t have to pay. Income is the means that most of us use to accumulate wealth. While wealth itself isn't taxed, the means to obtain wealth is taxed. Debt and taxes are the “whips” that the modern state use to compel their people into working as long as possible. Some might call that slavery.

Jul 08 11:13 AM

[Craig W:]

I should have included inflation as a third "whip" used by the state to grind down and suppress the people.

Jul 08 11:16 AM

[Alexander G...:]

It's going to happen. Socialism has been creeping into our economy ever since the mid to late 1800s. If it weren't so expensive (tax wise) to move out of the country, I'd have done it already.

To put things into comparison: Sweden does not tax inheritances. The US does @ 45%. We will look like Spain, France, Germany, the U.K., and Sweden within a lifetime.

Jul 08 11:23 AM

[ERCaptain:]

Oh, yippee, a club that will drag all of us kicking and screaming into it's membership.

Ahh the wisdom of Groucho Marx--
"I don't wish to belong to any club that would accept me as a member."

Jul 08 11:28 AM

[Mark Wallace:]

There is a measure of truth in this. Medieval lords couldn't seize 50 percent of a peasant's produce because the peasant would starve and the lord would lose his livelihood. Nowadays, the economy is more prosperous and government is able to impose high levies on its tax serfs (or should I say citizens) or, at least, on the more prosperous of the tax serfs. A certain level of taxation is necessary and justified, but high rates of taxation represent history's third wave of human bondage. The first was slavery, the second serfdom and the third is the tax serfdom we have today.

Jul 08 11:51 AM

[Dave Wrixon:]

I don't think you get it. What is really going to happen is their is going to be wage deflation by dropping the value of the dollar until America becomes competitive again. This will also wipe out a substantial part of government debt. The mechanism by which this will be achieved is just to print more money for the government to spend, which of course will debase the value of the dollar. You are not even going to feel the government take you cash. All that will happen is that much of what you are used to consuming will simply be priced out of your reach. Most people will be too stupid to see that it is the government that have stolen their wages and savings. Of course the government will continue to carefully bribe the swing voter with additional state benefits to try to secure re-election. Shouldn't be too hard.


On Jul 08 11:51 AM Mark Wallace wrote:

> There is a measure of truth in this. Medieval lords couldn't seize
> 50 percent of a peasant's produce because the peasant would starve
> and the lord would lose his livelihood. Nowadays, the economy is
> more prosperous and government is able to impose high levies on its
> tax serfs (or should I say citizens) or, at least, on the more prosperous
> of the tax serfs. A certain level of taxation is necessary and justified,
> but high rates of taxation represent history's third wave of human
> bondage. The first was slavery, the second serfdom and the third
> is the tax serfdom we have today.

Jul 08 12:18 PM

[J. Crighton:]

Why not do both: Raise taxes (or at the least equitably tax people, none of this progressive taxation bs, everybody pays whatever percent of income and limit deductions) AND reduce expenditures (cut some of benefits offerred). Then maintain the levels until all debts are paid off.

I can't fathom why we haven't declared war on Debt when we seem to declare war on just about everything else: poverty, homelessness, drugs, and so on.

Jul 08 03:06 PM

[rosey99:]

Bold move to post this on SA. . .Thirty years of deficit financed tax cutting is a hard habit to break, as the comments demonstrate. Everyone seems to forget that the highest marginal rate was around 90% for a long time after WW2. When Reagan was first elected, it was still around 70%. I believe it was Dick Cheney who said something like ". . .Reagan proved deficits don't matter. . ."

For thirty years deficits have not mattered politically, but they always matter economically, and eventually they must be repaid. And the alternative to runaway inflation should be pretty obvious, it is higher taxes. Doubtless, there will also be much cost cutting too, or at least I am hopeful there will be.

This will be tough politically, there is no doubt about it. Too many have become accustomed to living off of the future incomes of our own grandchildren, they take it for granted and they will be difficult (or perhaps impossible) to persuade, but there is really no viable alternative. I for one do not count hyperinflation among the viable alternatives. It is at least as irresponsible as deficit financed tax cuts. Make no mistake about it, it will suck, but it will suck a lot less than continued pillaging of the future, which is exactly what we have been doing for thirty years.

Tax rates

Debt levels

Jul 08 05:39 PM

[rosey99:]

Oops. . .meant to add these:

en.wikipedia.org/wiki/...

en.wikipedia.org/wiki/...

Jul 08 05:46 PM

[milkchaser:]

Next time the people listen to a politician who says, "Yes we can!" they should require him to complete the sentence. "Yes we can" was an open mandate to tomfoolery.


On Jul 08 10:58 AM rm wrote:

> I think people are realizing it, which is why BO was so popular.
> Problem is, he isn't delivering the kind of change that we need.

Jul 08 06:02 PM

[atlasman:]

"Certainly it’s possible to construct a tax regime that favors employment and capital formation and contains far fewer distorting loopholes. That should be the goal"

Thats been done. It is called the Fair tax. Either way, I am not paying more taxes. If Obama raises rates, I will just work less. F'em.

-AM

Jul 08 06:15 PM

[Tony Petroski:]

From the article: "...Adolf Wagner who postulated that as societies prospered taxes would increase due to a demand for more government services."

There is an insatiable demand for government services, especially when a small percentage of the people pay most of the taxes while a large percentage of the people get "serviced" without paying.

The larger the host, the more numerous the parasites. As societies prosper, they become targets for community organizers who wish to "spread the wealth around." Thus the taxes aren't rising because of the "demand for services," they are rising because the political class has learned to shear the sheep to maximum effect.

In the '80's British economists wrote of a "ratchet effect." Government only grows, never shrinks. Therefore taxes grow, never shrink (yeah, I know, you can cut my income taxes and raise my "payroll" taxes and many other taxes and claim I've been given a "tax cut.")

It may be that Jefferson was right and the tree of liberty needs on occasion to be watered with the blood of tyrants.

Jul 08 06:37 PM

[optionsgirl:]

Um, that's not politically correct, Tony. Tsk, tsk. Let's suggest a peaceful way:

termlimits.org/


On Jul 08 06:37 PM Tony Petroski wrote:

> From the article: "...Adolf Wagner who postulated that as societies
> prospered taxes would increase due to a demand for more government
> services."
>
> There is an insatiable demand for government services, especially
> when a small percentage of the people pay most of the taxes while
> a large percentage of the people get "serviced" without paying.
>
>
> The larger the host, the more numerous the parasites. As societies
> prosper, they become targets for community organizers who wish to
> "spread the wealth around." Thus the taxes aren't rising because
> of the "demand for services," they are rising because the political
> class has learned to shear the sheep to maximum effect.
>
> In the '80's British economists wrote of a "ratchet effect." Government
> only grows, never shrinks. Therefore taxes grow, never shrink (yeah,
> I know, you can cut my income taxes and raise my "payroll" taxes
> and many other taxes and claim I've been given a "tax cut.") <br/>
>
> It may be that Jefferson was right and the tree of liberty needs
> on occasion to be watered with the blood of tyrants.

Jul 08 09:25 PM

[derryl:]

David MacKay recently published, "Sustainable Energy--without the hot air". It's a free download. MacKay takes an arithmetic look at every form of sustainable energy to answer the question, Could we, if we wanted to, live on sustainable energy? The answers for various renewables range from unlikely to probably not to no to emphatically no.

I suggest the same arithmetic applies to the US fiscal situation. No realistic combination of spending cuts and tax hikes can restore America's public finances to fiscal sustainability. It's gone beyond, "The first thing to do when you find yourself in a hole is stop digging". I think the arithmetic solution is to acknowledge that the hole is too deep and the only way out is to float yourself up on a sea of quantitative easing.

Jul 09 04:13 AM

[Ray Winter:]

Inheritance Tax is a last resort to capture any potential money that was accumulated by a 'citizen' whilst in the employ of the Government to generate its income that had slipped-through their tax system through oversight.
After-all the attitude of most Governments is, 'You came into this world with nothing, therefore you should leave it the same way, and we will make sure you do'.

Jul 09 06:42 AM

[drewriders:]

So let me see. Using your theory if taxes were 0% (no revenue for the gov't) and they raised taxes to 1% of revenue we would collect negative revenue? Does that make sense to you?

The problem is people like Larry Kudlow think lowering taxes on business will foster growth and raise revenue (some odd interpretation of the Laffer Curve). Please explain to me how tax cuts help a company, like GM, when they are losing billions of dollars. Their effective tax rate was already zero!


On Jul 08 09:10 AM TeresaE wrote:

> Higher taxes cause lower tax collections.
>
> Proven time and time again.
>
> Government will just grow (again) to eat up the "surplus."
>
> But, the largest flaw in your "raise taxes" plan is that many of
> the former "taxpayers" are bankrupted or near there.
>
> Small business used to pay the lions share of taxes, from property
> to payroll and look around, many have just disappeared.
>
> Sure, why not, raise taxes.
>
> The poor, which EVERY tax hits disproportionally, can afford it.
>
>
> bwaaahaaaahhaaa

Jul 09 01:11 PM

[Walter Kurtz:]

It is clear that severe tax increases have or will be taking place in the US on both state and federal level. It is also clear that tax increases have a multiplier effect on GDP contraction. There is of course a delay before the tax shock translates into GDP decline. It is entirely possible that with the temporary impact of stimulus, we may be looking at a prolonged "W" type recovery that is far more protracted than many currently estimate.

Jul 17 02:13 AM