THE ISSUE: The federal surpluses from 1998 through 2001 have disappeared in a sea of red ink. Billionaire investor Warren Buffett and others have suggested that the United States raise taxes on those with the highest incomes to help balance the budget.
Is it time for the nations wealthy to contribute more in taxes?
Pia Lopez: Yes
The American people have two options for financing their government: borrowing or taxes.
Congress and the president chose to finance the wars in Iraq and Afghanistan through borrowing. They also financed the 2001 and 2003 tax cuts through borrowing – adding $1.7 trillion to deficits from 2001 through 2008 and $200 billion in interest payments on the national debt.
The nations tax collections also took a big hit with the biggest economic downturn since the Great Depression. Historically, tax revenue has been 18 to 20 percent of gross domestic product (GDP). Today, it is at 14.8 percent.
How to get back to normal 18 to 20 percent levels, paying for government without jeopardizing a fragile economic recovery?
Warren Buffett, in a column for the New York Times on Sunday, has captured the issue in his own inimitable way. He notes that people at the high end “have it better than weve ever had it” in making money. Theyve also seen their federal tax rates drop significantly – paying effective tax rates of 29.2 percent in 1992 but dropping to 21.5 percent by 2008.
“My friends and I have been coddled long enough by a billionaire-friendly Congress,” he concludes. “Its time for our government to get serious about shared sacrifice.”
The bipartisan deficit reduction commission co-chaired by Erskine Bowles and Alan Simpson said the same thing: “Though reducing the deficit will require shared sacrifice, those of us who are best off will need to contribute the most. Tax reform must continue to protect those who are most vulnerable, and eliminate tax loopholes favoring those who need help least.”
1. Begin with tax loopholes.
Martin Feldstein, chairman of the Council of Economic Advisers under President Ronald Reagan, has written: “Cutting tax expenditures is really the best way to reduce government spending.” These are deductions, credits and exclusions that litter the tax code and benefit people who itemize on their tax forms. Once in the tax code, these tax expenditures automatically continue without annual congressional review or approval – i.e., they become entitlements.
Feldstein recommends capping the tax reduction from tax expenditures to 2 percent for each taxpayer. This would raise $278 billion in 2011.
2. Allow 2001 and 2003 tax cuts to expire in December 2012 for the highest earners.
Buffett would go further. He would immediately raise tax rates on households making more than $1 million. His view: “If you get $100 billion more of taxes … from people like me at the top, it means you borrow $100 billion less out of the economy.”
While adjusting taxes alone wont solve the nations budget woes, it will help stabilize federal finances. That provides room for policymakers to tackle long-term cost-drivers in the nations budget – primarily meeting the needs of our aging population – with deliberation and reason.
Pia Lopez is an editorial writer at The Bee.
Ben Boychuk: No
Warren Buffett is without question one of the savviest investors in America, and a generous fellow, too.
The Sage of Omaha famously pledged the bulk of his $50 billion fortune to charity – namely the Bill and Melinda Gates Foundation, which has dedicated billions of dollars to health care and education reform, a few million of which may have actually done good somewhere.
But investing and amassing wealth, and freely giving it away, is one thing. Demanding the government expropriate more of other peoples money is another matter.
The altruistic Mr. Buffett and his wealthy friends could, if they wanted, cut a check to the Treasury. You can, too!
Simply make your check payable to “Gifts to the United States,” and mail it to the U.S. Department of the Treasury, Credit Accounting Branch, 3700 East-West Highway, Room 6D37, Hyattsville, MD 20782.
But whatever you do, please dont forget to include a little note in the memo line specifying the gift is for “debt reduction.” Otherwise you never know where the money will end up – cowboy poetry festivals or Predator missiles. Its hard to say.
Buffetts appeal notwithstanding, raising tax rates on “the wealthy” wont save us.
Its not just that higher taxes would have a detrimental effect on our gross domestic product – although that much is true. According to President Barack Obamas former top economic advisor, Christina Romer, “an exogenous tax increase of 1 percent of GDP lowers real GDP by roughly 3 percent.” No, the trouble is we dont have enough rich to soak in order to float a government this enormous.
The federal government could confiscate the wealth of the 400 richest Americans down to their 600-thread-count sheets and solid-gold commodes and it wouldnt even cover the current $1.6 trillion federal budget deficit, let alone make a dent in the $14.6 trillion national debt.
I agree with Pia that if Congress did nothing else, it should set about closing some gargantuan loopholes in the tax code.
At 39.2 percent, our official corporate tax rate is the second highest on earth, but the effective tax rate for companies such as General Electric is zero.
But low taxes arent the problem. Spending is. Federal, state and local governments spend too much and have committed generations to hundreds of trillions in unfunded liabilities.
Pia says Americans have only two options for financing our government. I would suggest we have a third: Lower our expectations for what government can do, and rethink what government should do.
Original Source: http://www.sacbee.com/2011/08/17/3842472/is-it-time-for-the-nations-wealthy.html