Before hiking taxes on the wealthiest Americans, start by slashing the spending that goes to them.
As structural budget deficits grow to trillions of dollars and politicians promise even more spending, “tax the rich” has become a progressive rallying cry. Meanwhile, conservatives typically prefer spending cuts to reduce the deficit.
There is a simple bipartisan compromise: Cut federal spending on the rich. This would accomplish both the progressive goal of increasing government redistribution from the rich to the poor, and the conservative goal of shrinking government.
Beyond representing a healthy bipartisan compromise, this approach, which is the topic of my new Manhattan Institute report, “Cut Spending for the Rich Before Raising their Taxes,” is also sound policy. While economists debate the magnitude, there is a broad consensus that steep tax rate increases reduce incentives to work, save, invest, and be productive. Taxes distort economic decision-making, incentivize expensive avoidance and evasion schemes, and often drive income away from the jurisdictions doing the taxing. Reducing federal spending on the rich can achieve the same redistributive goals as taxing them, without all these broader economic harms.
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