Pro-Con: “Should federal taxes be increased?”
Yes: It's time to try a new approach
We’ve been cutting taxes on the wealthy for two generations, and the results have been dismal.
Economists, who started as generally supportive of the tax cut experiment, have seen enough. By 2017, only 2% of the University of Chicago's Economics Expert Panel agreed the Trump tax cuts would lead to faster economic growth. The 98% were right.
The economy is growing slower, and budget deficits are rising faster than tax-cutters promised. Yet the same people are arguing for more tax cuts to solve the problem. We don't need another drink to steady our nerves before we get behind the wheel. It's time to sober up, raise taxes on the wealthy, restore our progressive tax system and get our economy growing again.
How could the economy grow faster with higher taxes? It’s hard for most Americans to remember how radically different our tax code was during the glory days of the U.S. economy, but we used to tax the rich, much more, and we taxed the super-rich much more still.
From the end of World War II into the 1970s, the United States experienced rapid, broadly shared growth under a dramatically more progressive tax system than we have today. Between 1945 and 1980 we had an average of 24 different tax brackets (there are seven today) with a top income tax bracket starting at 137 times higher income than the lowest bracket (today that number is closer to 30), and a top rate between 70 and 90%.
Halfway through the tax cut experiment, it was possible to believe it could work, but with an additional 20 years of data we know more about how tax cuts — and tax cutters — work. And it’s hard to take either seriously.
Real economic growth was faster in each of the three decades before 1980 than in any decade since, both for overall GDP growth and after adjusting for population growth. After the failure of the 1980s tax cuts, George W. Bush passed large tax cuts for the rich in 2001 and 2003, and growth slowed further, all before the great recession and a lost-decade of income growth.
The good news is we don’t need brilliant insights to get out of this hole, we can just stop digging. Raising taxes on the wealthy, which is extremely popular, will allow us to make the important investments in our future — in education, in career and family supports, in scientific research and physical infrastructure — that we’ve been short-changing for a generations. We can get back to relying on innovation for economic growth that’s broadly shared and makes all our lives better.
Another bonus is that the people who have bothered to look have confirmed the failure of tax cuts for so long that there are numerous good ideas for leveling the playing field without raising a dime from middle-class families. There are proposals for millionaire (and multi-millionaire!) surtaxes, wealth taxes, mark-to-market capital taxes and inheritance taxes, just to name a few. All have the benefit of checking the power of wealthy Americans and corporations, and reversing some of the burden of funding the important functions of government off of lower-income Americans who have been backfilling the lost tax payments from the wealthy with higher sales and payroll taxes.
This is no doubt worrying for tax cutters, who have grown used to winning the argument with disingenuous claims about unpopular policies. But tax cutters can relax because all along they’ve had the power to close their eyes, tap their heels together three times and go back to Kansas... where they can enjoy the catastrophic effects of a different tax cut experiment gone horribly wrong.
For at least 15 years now, it’s been the right time to raise taxes on the wealthy. It will lead to a fairer, stronger economy that will grow faster as we make the public investments we’ve been delaying for decades. And as economists have gotten more sophisticated about taxes, evidence for taxing the wealthy has gotten much stronger. The only thing that’s easier to predict is that the usual characters will claim the solution to the harms begotten by decades of tax cuts for the wealthy is a Shiny New Tax Cut. It’s our fault if we believe them.
Michael Madowitz is an economist at the Center for American Progress. He wrote this for InsideSources.com.
No: Federal taxes are too high
The Democrats running for president have demanded the government raise taxes on income, gasoline, energy, capital gains and your life savings at death. And your retirement savings will be hit by multiple taxes that they promise will only hurt “the rich” but will first and foremost reduce the value of your savings in your IRA or 401(k) or health savings account.
Joe Biden, Elizabeth Warren and Bernie Sanders have all threatened to repeal the Republican tax cuts that President Donald Trump signed in December 2017. That alone would hike taxes on smaller businesses and increase the business tax rates in the United States higher than China’s. Your child tax credit would be reduced. Your standard deduction will be reduced.
If Democrats repeal the Republican tax cuts, a family of four earning the median income of $73,000 would see a $2,000 tax increase, and a single parent with one child making $41,000 would see a $1,300 tax increase. Millions of low- and middle-income households would again be stuck paying the Obamacare individual mandate tax. Utility bills would go up in all 50 states as a direct result of the corporate income tax increase.
Small employers would face a tax increase due to the repeal of the 20% deduction for small business income. The United States would have the highest corporate income tax rate in the developed world. Taxes would rise in every state and every congressional district.
The death tax would ensnare more families and businesses. The alternative minimum tax would snap back to hit millions of households. Millions of households would see their child tax credit cut in half. Millions of households would see their standard deduction cut in half, adding to their tax complexity as they are forced to itemize deductions and hassle with the shoebox full of receipts on top of the refrigerator.
Federal taxes are too high. Federal spending is too high. Both should be reduced by reforming government to cost less.
To begin with, when you earn your paycheck — you earned it. Confiscation of your income is a big step and the government must justify that decision.
We know from experience that when tax rates are reduced the economy grows faster, more jobs are created and paychecks fatten. Higher taxes hurt the economy.
In the last two and a half years since Trump was elected and reduced the tax burden, the median family income has grown by $4,000 to $65,000. In the 7.5 years of Barack Obama (after the recession ended) the median household income grew only $1,000.
Calvin Coolidge, John F. Kennedy, Ronald Reagan and Donald Trump all cut taxes and the economy grew. When Obama raised taxes, we had the slowest, weakest recovery in 60 years. Last year the federal government took away $3.3 trillion from the American people, nearly 17% of GDP. That is more than enough for the national government to raise and spend on the limited number of expenditures allowed by our Constitution.
Defense spending, which is mentioned in the Constitution, consumes about one-sixth of the federal budget. Total spending on national defense is $649 billion, or 3.2% of GDP.
The problem our nation faces is that the federal (and state and local) government spends too much, not that it fails to take more of our time, our lives and our life savings each year.
Politicians begin to focus on reforming government to cost less only when we as citizens take “raise taxes” off the table. Tax hikes are the alternative to reformed and limited government.
Economic growth increases tax revenue, not by hiking taxes but by having more Americans working with higher wages. The same tax rates bring the government more money.
Some people like the idea of taxing “the other” to punish successful people. But that damages all Americans as jobs, income and growth fall. Envy leads to very bad decisions. It is a character flaw, not a political program.
Government should focus on its own failure to reform itself over the past decades rather than shove its fat hand into your family’s savings. Again.
Grover Norquist is founder and president of Americans for Tax Reform. He wrote this for InsideSources.com.
This story was originally published November 22, 2019 at 1:04 PM with the headline "Pro-Con: “Should federal taxes be increased?”."