In the United States, we’re in the midst of a heated political debate about the national deficit — Congress was locked in such ideological gridlock over spending cuts that it almost brought about a government shutdown. That crisis was averted, barely, but the fact remains: Our deficit climbs every year, and we’re doing little to seriously curb its growth. Now, many economists would argue that, seeing as how we’re in a fragile state of recovery from the Great Recession, it’s not a smart time to tackle the deficit — creating employment should be the chief concern.
But budget talk won the day, and the topic permeates news cycle after news cycle. So, how do we seriously trim the deficit? Simple — either make drastic spending cuts; cuts that significantly reduce the amount of funding for our biggest cash hogs (the defense budget, Medicaid, Medicare, or Social Security, essentially), or find new sources of revenue. As in, raise taxes.
We hear plenty of talk about the former — austerity is the buzzword of the day — but next to nothing about the latter. And why not? It’s a serious option, however politically infeasible it may seem at the moment — and it’s one that at least deserves to be part of the discussion. It’s also an idea that the political science professor Thomas F. Schaller thinks will work. In his most recent column in the Baltimore Sun, he argues that raising income taxes on the rich would not only do little damage to the economy at large, but would be welcomed by the majority of Americans as well.
… don’t higher tax rates for the wealthy slow economic growth? Nope.
Using Bureau of Economic Analysis data, the Congressional Research Service last October produced a report comparing economic performance from 1993 to 2000, under the tax policies enacted by George H.W. Bush and Bill Clinton, with 2003 to 2007 after two rounds of income tax cuts shepherded through Congress by George W. Bush.
The results? The gross domestic product growth rate during the first period was 3.9 percent but 2.7 percent in the second; median real household income growth in the first period was 1.7 percent but just 0.6 percent in the second; private-sector employment growth was 2.7 percent before the Bush 43 tax cuts, but it fell to 1.2 percent after.
Schaller also notes that “In the three decades since the 1980 Ronald Reagan-led tax revolution, only the top 20 percent of Americans realized net after-tax wealth gains.” For the bottom 80%, income has actually fallen. He also points to the fact that polls consistently show that the majority of Americans want to see the Bush tax cuts expire — the equivalent to enacting a tax bump. He concludes with the following: “Raising taxes on the wealthiest won’t lead to socialist redistribution, improves economic growth, is popular, and would reduce the deficit. Why, then, do politicians climb over each other to extend these tax cuts? Short answer: The wealthy exert disproportionate power in our political system. There’s no other conclusion to reach.”
So what say you, Utopianists? In a more perfect society, do we tax the rich to a greater extent, in order to improve income equality and bridge the deficit without killing the economy?