If the leadership of both major U.S. political parties are truly serious about “paying down” the national debt, and reducing our budget deficit, then both need to move beyond the Austerian economics embedded in the Budget Control Act of 2011 (sequestration).
Perhaps in the rarefied atmosphere of academic debate it’s remotely conceivable that government services could be cut back sufficiently to balance the effects of (1) two major military operations, (2) one major recession, and (3) tax reductions during war time — however, as we discovered during the last government shutdown, “we” want leaner government BUT we don’t want our national parks closed, our NIH studies delayed, our Veterans Benefits deferred, our Indian Health Service programs halted, or our FAA flight safety personnel home on furlough, and so on and on.
The efficacy of the Austerian solutions to the economic doldrums in Europe has already been questioned. As of May 2013 members of the European Union were seriously questioning the “dogma of Austerity.” [CSMonitor] [Slate][USNWR] Predictably, there were voices from the financial sector replying that “real” austerity would have worked, and that the philosophy wasn’t truly implemented. [Forbes] Once more we tread into Academia, the land in which the theory of “true” austerity drives headlong into the realities of governance. We may want lower taxes in general, but we also want inspected food, safe air travel, veterans paid what they were promised, scientific trials for cancer treatments, national parks and memorials open and protected, unpolluted air, clean water, regulated nuclear power plants, disaster aid and relief, insurance for livestock losses, and all those other “details” swamped in the rhetoric of the Austerian ethereal-ism.
The focus on Austerity Economics (and politics) places singular focus on cutting expenditures — but there is another side to the equation — loath though political leadership may be to discuss it — increasing revenue, otherwise known to one and all as “raising taxes.”
Let’s begin with the premise that current levels of income disparity are counter-productive to growth in the United States economy.
The concentration of wealth (and income) in the upper echelons of American income earners doesn’t create the level of aggregate demand which could be achieved if more people had more money to spend for more goods and services. So, let’s talk about Tax Reform.
On one hand we have the Ryan Plan:
“The tax proposals in the budget that the House approved on April 15 place a top priority on cutting taxes for high-income people, while doing nothing to reduce budget deficits, themselves. In addition to making the Bush tax cuts permanent and continuing to provide relief from the Alternative Minimum Tax (AMT) at a cost of nearly $4 trillion over ten years, the House budget advances a series of additional tax cuts that would primarily benefit high-income households at a cost of nearly $3 trillion over that period, most of which is assumed to be offset by reductions in tax expenditures that are left unspecified. ”
Not to put too fine a point to it — but this is austerity on steroids — and there is probably a reason those reductions in tax expenditures are left unspecified. As we saw during the shutdown, it doesn’t take much pressure to make Republicans cave for specific funding categories.
#1. Financial Transaction Tax could be one way to increase revenue by transactions which would not exacerbate income disparity, would be relatively easy to administer, and might address some of the volatility issues in our current equities markets. A fuller explanation is available from the Center for Economic and Policy Research, published in 2010. More information is available from the Center for American Progress (Feb 25, 2013). See also: Zero Hedge, Nov 2009). For those who really want to get into the weeds of the European Council’s consideration of a financial transaction tax, there’s Bruegel.Org’s “Benefits of a Transaction Tax,” available in download (pdf) at this link. The Irish Congress of Trade Union published its “Case for the FTT,” (pdf) Nov 2012. “FTT: Europe Needs It,” published by the World Economic Review, March 2012. (pdf)
#2. Modify the capital gains tax. Our current tax system taxes actual w-o-r-k done by human beings at a higher rate than income earned by money.
Most long term capital gains are subject to a top rate of 15%. [TPC] The individual income tax rate (+$400,000-$450,000) are subject to a maximum rate of 39.6%. [TPC] This system doesn’t serve to ameliorate the income disparity in this country, and is popular only among those who serve the interests of the financial sector and adhere to the principles of the Supply Side Hoaxsters.
Additional information on the current state of capital gains taxation can be found at “A Tragedy in Two Acts,” Bloomberg, Dec. 9, 2012. CNN “Money” March 1, 2012. “Who Pays Capital Gains,” CTJ, and
“Ending Capital Gains Tax Preference.” “Rising Income Inequality and the Role of Shifting Market-Income Distribution, Tax Burdens, and Tax Rates,” EPI, June 2013. “Capital Gains Tax Rates, Stock Markets, and Growth,” Brookings, November 2005.
Not that we can expect members of the Nevada congressional delegation like Rep. Mark “Alamo” Amodei (R-NV2) and Senator “Default Dean” Heller (R-NV) to give these proposals much serious consideration, but perhaps those more inclined to balance the scales in our tax system will give modification of the capital gains taxes and the enactment of a financial transaction tax a serious thought or two.