I have a friend who I regularly disagree with on most economic issues. He’s to the left of me on fiscal issues, as is most of the human race. Although people say I am conservative (myself included at times) I’m more of a libertarian, except on foreign issues. Which makes me a man without a kingdom, since I think the GOP is a bunch of flakes on the economy and social issues, think the libertarians are wrong on foreign issues, and like the Dems even less on the economy. Nonetheless, the only magazine I ever read (excepting the one I write for) is the Economist, which I generally read on flights.
And so when my friend linked to this article yesterday, I pulled my last three hairs out.
As a side note, though, one point Mr Sullivan makes isn’t really correct. Mr Sullivan writes that if Barack Obama “pretends that we can resolve this by revenues alone, he is part of the problem, not the solution.” David Brooks echoes that point in an op-ed today, saying “there are no conceivable tax increases that can keep up” with rising Medicare spending. This sounds very hard-headed, but it’s not really correct. America has one of the lowest tax burdens of any advanced country. We may not want to fix our debt problem solely by increasing revenues, but if we wanted to, we could….
In other words, by gradually increasing our total tax burden by 7% of GDP through 2023, we could balance the budget; we might eventually have to raise it by perhaps 10% of GDP. That would leave us with a much higher tax burden than we have now, but it would still be only 34% of GDP, as high as Britain’s is today. And that’s assuming we don’t change a penny of our wasteful spending habits on Medicare and defence.
Look, I’m no economist, but I can look at it from the micro point of view that I see in my house. My wife has her own photography business. She just started it, and last year it ran a meager loss, which is to be expected when one first starts out. Also, we purchased a home. I should note here that we bought one below what the mortgage people told us we should, because I don’t want to live on Kraft Macaroni and Cheese (wonderful product, but not for every meal) forever, I did that all through the 2000′s. So let’s start there.
Despite a 2 percent COLA this year, my take home pay will be going down, thanks to the Social Security going back up to 6.2 (or whatever it is) and a higher cost for my health insurance. So, my net pay goes down, but my mortgage won’t. So, let’s assume that this happens for everyone. I will have less money, which means I will have to curtail some of my expenses that are “frivolous.” For me, that means Amazon.com. (I buy 3 books a week, plus various videos, like “Arrow” that I am now hooked on.) So, less Amazon purchases means that Amazon needs 1 less person to box and ship my stuff. Amazon is here in Indiana. So now the rolls of unemployed go up by 1, and I am spending less money, which means the tax revenue from me goes down.
Meanwhile, pictures of families is not exactly a mandatory staple of a financial diet. So, less people will be spending money on their family pictures, and so my wife gets less business. Which in turn lowers her revenues, and profits etc. Which means the tax revenue for her business goes down. So, I will be paying a higher percent of my income to the Gov’t, but will it be enough to offset not only my diminished sales taxes (less books purchased) but also cover the poor Amazon guy who is now unemployed?
Every time I see one of these static tax rate/revenues things it makes my cringe. It’s just like the taxes on Cigarettes that would be the panacea for rising health care costs. What happened? People started quitting, which means that you have less revenue. Or they buy their stuff illegally.
Sooner or later they’ll hit a point of taxation where I can’t keep my house. I’d say right now it is about 5% more than what they are taking now. And then I lose my house. Which means less taxes for Marion County.
(For an interesting discussion of Reagenesque v. JFK tax cuts, Slate does a pretty good job.)
I guess in short my point is that I am uncertain that increased tax rates would lead to higher revenue. For me at least it is entirely possible that higher rates would lead to diminished revenue, because despite the fact I bought a house well within my budget, to do as the Economist suggests would seem to price me right out of my home.