It is time for a broad-based tax increase
At the present time, the United States Government borrows 40 percent of its budget.
The tea party and other assorted far-right types have one simple answer: cut spending until expenditures match income. There are two problems with that. The first is that the far right always believes in the power of just one more tax cut--if we somehow managed to cut the budget by 40 percent, they would then demand another tax cut and to balance it out by another spending cut. The other problem is simpler: of the spending funded by taxes on income, about half of it goes to the military--and the far right refuses to allow even a dollar of reduction. Hence, to fix the deficit through a cuts-only plan means a budget that funds the military, pays a little bit of interest on the money we borrowed before, and funds absolutely nothing else.
I like to look at the "root causes" of problems to determine solutions. The root cause of the fiscal crisis is a poverty of tax revenue. In 1981, Ronald Reagan cut taxes and spending substantially. This caused a crisis that was solved by raising taxes (in ways that didn't increase tax rates, such as eliminating deductions) and heavy stimulus spending. The spending caused growth, as sufficient stimulus spending always does; the revisionist historians on the Right saw the tax cuts and the growth and decided the cuts caused the growth. If you wade through GOP historical fiction, they will claim things like "the third year of the Reagan tax cuts caused x million jobs to be created." By the time of the "third year" anniversary of Reagan's first tax legislation, he'd already raised taxes three times and gone on a hyper-Keynesian spending binge - but memories of such things are always lost in the sands of time.
The economic crisis gives us three choices. None of them are very good, but only one works.
Choice one is status quo: continue to borrow 40 percent of the budget. No one thinks this is a good idea.
Choice two is to reduce the government to The Army, and nothing else. We would become a military dictatorship under this plan - not because military dictatorships are good things, but because they'd be the only government employees left.
Choice three is tax increases. On everyone.
There are two types of "taxes on income." The first is Income Tax - the rates levied on income earned through labor. There are six "brackets" - 10 percent, 15, 25, 28, 33 and 35. Under my plan...
10 percent becomes 12 percent (2 percentage point increase)
15 percent becomes 19 percent (4 percentage point increase)
25 percent becomes 31 percent (6 percentage point increase)
28 percent becomes 36 percent (8 percentage point increase)
33 percent becomes 43 percent (10 percentage point increase)
35 percent becomes 47 percent (12 percentage point increase)
All bracket amounts, deductions and credits will remain as they are. Just the rate will increase. I sat down and played with it for a while, and a Married Filing Jointly couple with two children, the standard deduction and a $35,000 per year income would see a net tax increase of about $3 per pay period. That's affordable for almost everyone. When you get up into the $250,000 range those guys do get slammed, but then again they can afford it.
The second is Capital Gains Tax - the rate levied on income earned through investment. Right now it is 15 percent. That rate will stand for anyone who is over the published age of seniority - right now it's 65 - and who earns no more than half his or her income through labor or executive compensation in whatever form rendered. (This is to prevent the Republicans from claiming that retirees will be hurt by this increase.) Capital gains earned from securities purchased directly from the issuing corporation or from the brokerage acting as the corporation's agent will also be taxable at the current rate. Income from securities purchased on the secondary market will be taxable at the rate labor is taxed at.
These tax increases will be coupled with spending cuts on things like missile defense and congressional salaries. I find it interesting that in an era when every Republican congressman screams about the need for spending cuts, not one has offered to cut his or her own salary or office expenses.
The far right likes to confuse microeconomics with macroeconomics - claiming what a family would do to solve its budget problems is what the government should do. A family can only cut so much. After they've cut out all the luxuries and given up a meal a day to reduce expenses, the only solution (short of bankruptcy, which the US can't declare so we won't talk about it) is for Mom to enter the workforce and Dad to get a second job until the crisis is over so more money comes in. This is what the US must do--we must bring in more money, and the only way to do it is through tax increases. If we don't do it, we'll never get out of the hole we're in.
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