Informed greatly by Mr. Leonhardt and his column from last week,
Plain Truth About Taxes and Cuts, which lays out five basic truths that are often considered debatable with regard to taxes. These five can be summarized as: the affluent are paying a higher share of the taxes, this is because they are making more money – not due to increased rates, corporate tax rates are falling, the total tax burden is relatively stable over time, and the budget deficit is a bigger issue than either party wants to admit.
I am an admitted fiscal policy nerd, but this one nearly made me weep with its’ candid portrait of America’s fiscal position and condition. We can accept these truths and move forward or we can continue to haggle over how to define the debate, while making no progress in securing our nation’s fiscal health. The big hitter of the group of truths is, of course, #5 – the budget deficit. The current official projections show some hope, but are based on unsteady ground. They assume most likely unattainable revenue projections, with relatively modest expenditure planning (i.e. not continually spending billions per week in foreign wars). Not to mention the potential huge shortfall in revenues when Congress (and rightfully so) amends the alternative minimum tax (AMT) to affect fewer middle class families again or the revenue shortfall if not all of the Bush tax cuts are rolled back as current assumptions include.
So what are we to do? Well, if you know anything about basic economics - not the fancy kind, but the kind you run your house on – then you know there are two options out of these situations: Raise revenues or lower expenses. Raising revenues can come through an overall increase in tax rates, a heightened rate on the affluent, or expanding the tax base. Expanding the base sounds the best, but basing a recovery strategy only on continued expansion is asking for failure when this growth rate is not met. I think the best path forward is an across the board rate increase – in a progressive manner (i.e. affluent folks rate increases more) – combined with an increase in the standard deductions and personal exemptions. Another helpful revenue booster and policy simplifier would be to eliminate or greatly reduce (through phase outs) the use of itemized deductions, which incentivize certain behavior.
Another option of course is cutting expenses, which is never easy nor politically palatable. One area that could definitely use some attention is the costs of the Medicare system. I just hope my fellow young voters can recognize the importance of fiscal responsibility as we continue down the path of globalization – which means more competition from developing (quickly) nations (e.g. China).
