Just raise taxes
It's a little simpler than I thought. Details and various links at the bottom of this post.
While we’re not as bad off as the folks on the Titanic, the math is about the same. Let’s just get it over with and raise taxes.
After playing an online game simulating the budget debate called The Fiscal Ship, here is what I’d suggest:
-A wealth tax on large fortunes, only kicking in on the portion of fortunes above $50 million, with a small increase on the portion of fortunes above $1 billion.
-A 5 percent tax on the just the value added at each stage of production, called a value-added tax.
More on why these have appeal later, but first let’s talk about why we’re in this mess.
Start with two numbers: 20 percent and 16 percent.
In 2000, when we had a budget surplus, we collected federal taxes roughly equal to 20 percent of our economy.
Now, we collect taxes at a rate of about 16 percent of our economy.
Folks with motivation will come up with ways to make it complex, but these numbers explain the problem. Think of it this way: If our economy is $100, we’d collect $20 in the year 2000. We could spend about $20 on our federal budget.
Because of tax cuts since then, we collect $16 and still spend about $20 or a bit more.
So we need to find $4 to balance the budget. We borrow it. We keep borrowing $4 a year and it adds up to a big number. In this example, that number is $125.
Economists debate how much we can borrow before it’s a problem. The Fiscal Ship game is conservative, or prudent if you prefer. It asks players to keep debt at about the same percentage of the economy. That means, as the economy grows, you can borrow some money by spending more than you take in. But not much.
The game is credible, by the way. It was created by the Brookings Institution, a centrist think tank doing serious scholarship, and supported by the Peter G. Peterson Foundation, a think tank focused on federal budget issues. I recommend taking a look at it because it forces you to deal with actual political proposals, figure out what your goals are for the government. Even though there are a few bugs — its summary of your plan phrases a few things oddly — it’s quite useful.
Details on taxes, effective and otherwise
Here are the details on the taxes I chose:
-A wealth tax on large fortunes. Once somebody has more than $50 million in liquid assets, there would be a 2 percent tax on the part above that. Once a fortune hits $1 billion, everything above that would be taxed 3 percent.
All of us who don’t live on the street pay a wealth tax called property taxes — homeowners directly, tenants through their rent. But most of us at lower income levels pay a bigger percentage of our wealth in these taxes because more of our net worth is tied up in our homes. This would start to share the burden more equally because rich people have a lower percentage of their income in real estate and more in stocks, business investment, and the like. Some of them don’t work and don’t pay income taxes at all.
-A 5 percent value-added tax. This is a tax on the value added to an item at each stage of production. For example, if a business buys $100 of material, makes a widget that it sells for $150, it would pay a $2.50 value-added tax. This is a tax just about all of us will pay — it’s a form of sales tax — but it’s a common one in advanced economies and studies who it’s not noticeably inflationary.
These two taxes alone would stabilize our debt. The wealth tax would level the burden some between most of us and the ultra-rich. The other would be broad-based enough that we’d all be sharing some of the burden.
I’m horrible at figuring out what is politically possible. Neither of these taxes may have a chance at passing. Still, I’m sure there is no way to cut our budget enough to be any more politically acceptable. You’ll have to start starving seniors and making sick kids go without health care to do it with cuts.
How we got here
These were the key decisions that drove our deficit up and added to our debt:
-The Bush tax cuts of 2003. We had recovered from the tech crash and 9/11, so there was no need for stimulus. But the GOP won the midterms and decided to cut taxes anyway.
-Medicare prescription drug plan. It was popular and necessary, but Republicans didn’t raise taxes to pay for it.
-Obama-Republican deal in 2013 to extend Bush tax cuts. Usually, the GOP gets around budget rules by saying their tax cuts are temporary, as they did in 2003. This time, they insisted on extending them in order to keep paying for their debt.
-Trump tax cuts of 2017. These came as the economy had just about fully recovered (finally) from the housing crash of 2008. Normally, that’s a good time to reduce the deficit rather than reduce taxes.
These decisions were unforced errors. There were no emergencies or economic problems to be solved by a tax cut or extra spending.
A few decisions were forced by circumstances:
-Wars in Iraq and Afghanistan. Of course there’s a good debate whether we had to go to war, or to the extent we did. But in respect to those who felt them necessary, and that’s a lot of us, I’ll call these necessary expenses.
-The housing crash of 2008, or the Great Recession, and our response to it. This was the biggest downturn since the Great Depression.
-Covid. We spent a lot of federal money keeping people alive and afloat financially.
We can quibble over details, but frankly our problem was caused mostly by the GOP. Just imagine what would have happened without the 2003 tax cuts and our budget returned to surplus, raising some taxes to pay for seniors’ pharmaceuticals, letting the Bush tax cuts expire, and not doing the Trump tax cuts.
Instead of trying to stabilize a debt that’s larger than our economy, it’s reasonable to say we’d be dealing with one that’s about half the size of our economy.
As Kathryn Anne Edwards of Bloomberg described it:
“Historians will view the first 25 years of the 21st century as an era of fiscal irresponsibility. It will have to come to an end eventually. Whether it does before or after this bill, or with or without a crisis, remains to be seen. But watching congressional Republicans carry on undeterred and unbothered by this fiscal reality is like seeing the holdouts at the end of a concert. The lights are on and the music has stopped, but they’re awkwardly dancing in the bright silence, insisting the party can go on forever.”
Why did I write this? I spent thousands of hours figuring out government budgets as a journalists and carried that on as a hobby, sadly, after leaving the field. I’m in the stage of life that I can just say what I have concluded without worrying about consequences. One of my pastimes is playing the Fiscal Ship game. Feel free to click through and do your own research.
Here is a graphic showing the correlation between tax collections and deficits. The solid blue line is total federal revenue of all kinds and the dotted line is the annual deficit, both as percent of the total economy (Gross Domestic Product, or GDP).
Here is a link to a Washington Post story on the history of our debt growth this century.
Here is a link to Wikipedia explaining value-added taxes:
Value-added taxes
Based on the Fiscal Ship game, here is how various tax proposals will help or hurt the goal of stabilizing debt, by percent it will make it better or worse:
Trump’s two big proposals:
10% tariff: 30 percent better
Extend his tax cuts: 50 percent worse
Others:
19 percent minimum corporate tax rate: 7 percent better
28 percent minimum corporate tax rate: 12 percent better
$25 per ton carbon tax: 11 percent better
Raise taxes on income higher than $400,000 by 3 percentage points: 3 percent better
Raise taxes on income higher than $100,000 by 2 percentage points: 9 percent better
A 20 percent flat tax on everyone: No change
Increase all tax rates 1 percentage point: 18 percent better
A 25 percent minimum tax on the increase in value of investments, even if they aren’t sold: 6 percent better
A .1 percent tax on financial transactions: 5 percent better
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Various and sundry stuff:
Vaccines: danger ahead
Vaccines are going to be harder to get because the folks in charge are relying on bad information:
“The rapid rise in autism cases is not because of vaccines or environmental toxins, but rather is the result of changes in the way that autism is defined and assessed — changes that I helped put into place.”
Autism diagnosis criteria in the New York Times
The experts and RFK Jr. say mercury in vaccines isn’t safe. But it isn’t the form that our bodies absorb. That’s basic chemistry. Like all elements, mercury hooks up with other elements to form compounds. The one that causes problems happens mostly in environments with low oxygen levels and lots of bacterial decomposition, like swamps.
Mercury basics in Scientific American
RFK Jr.’s position of responsibility over our lives hasn’t made him more responsible. Instead, he’s still lying, but he has a bigger megaphone now: Newsguard on a dozen of his most-common fibs.
Kayaking and rivers freed from dams!
Among all the commotion, it’s nice to read heart-warming stories. This one combines my love of whitewater kayaking, rivers, and respect for indigenous cultures. A group of youth from all the tribes with cultural links to the Klamath River learned to kayak. They are now on the way to be the first group to kayak the entire stretch of the river after it was freed from obsolete dams.
Modern plastic whitewater kayaks and ancient cultures melded. Wish I were there to cheer them on.