5 Reasons Why the “Supercommittee” Must Consider Tax Increases

[웃 910]

5 Reasons Why the "Supercommittee" Must Consider Tax Increases

The congressional "supercommittee" that the debt limit deal establishes to recommend more deficit-reduction measures not only can consider revenue increases, but must consider them if it's going to produce a balanced plan. Here are five reasons why:

1. President Bush's tax cuts are a significant contributor to projected deficits, as this well-known chart shows. Letting the tax cuts expire would save up to $3.8 trillion over the next decade, including the savings on interest payments on the national debt.
   Moreover, claims that we must extend the tax cuts to avoid seriously harming the economy are incorrect. The Congressional Budget Office (CBO) has found that extending the tax cuts would be the least effective of all spending and tax options that CBO examined for boosting the weak economy and creating jobs. CBO also pointed out that permanently extending the tax cuts without paying for them would, on balance, weaken economic growth in the long run because of the large increases in deficits it would produce.
2. Higher-income people can and should share in the sacrifices needed to reduce long-term deficits. Elderly Medicare recipients, soldiers, working-class college students, and many others may have to take a seat at the budget-cutting table. Basic fairness dictates that the most affluent people in the country take a seat as well.
   Over the past couple of decades, taxes on people at the very top have fallen dramatically, even as their incomes have soared. Recent IRS data on the nation's top 400 households — whose incomes averaged $270 million in 2008 — show that the average share of their incomes that they paid in federal taxes dropped from 26 percent to 18 percent between 1992 and 2008, while their annual incomes shot up by over 700 percent, after inflation (see chart). Moreover, many high-income Americans, such as the group Patriotic Millionaires, are willing to help reduce deficits by paying more in taxes.
3. Taxes are low both in historical terms and in comparison with other countries. While taxes have fallen disproportionately for high-income people, they also are at or near historically low levels for middle-class people, as we've explained. That's true whether you count just federal income taxes or all federal taxes, including payroll and excise taxes. Moreover, the United States collects less in taxes than nearly any other developed country when measured as a share of the economy, according to data from the Organisation for Economic Co-operation and Development.
4. A large chunk of federal spending takes place through the tax code. The federal government spends more than $1 trillion a year on "tax expenditures" — credits, deductions, and other targeted tax breaks. That's more than it spends on either Social Security or on Medicare and Medicaid combined. There's growing bipartisan interest in curtailing tax expenditures to help reduce deficits, and if done right, it could also make the tax code more efficient and equitable. The bipartisan Bowles-Simpson commission, the Rivlin-Domenici task force, and the Senate "Gang of Six" have all recognized tax expenditure reform as a significant source of deficit reduction. The "supercommittee" should do the same.
5. Taking taxes off the table would force crippling cuts in entitlement programs. To achieve $1.2 trillion in savings over the next ten years (as the debt limit deal requires) from the spending side alone would require cutting an average of roughly $110 billion annually, starting in 2013. That's more than the federal government plans to spend each year on all of the following combined: the FBI, the National Institutes of Health, the Centers for Disease Control and Prevention, Head Start, and Pell Grants to help students afford college.
   The large majority of the cuts would presumably come from entitlement programs, since Congress is making roughly $1 trillion in cuts in discretionary programs under the opening phase of the debt limit deal. And, as we've noted :
   If the joint committee were only to cut entitlement programs to reach its target, how deep would those cuts be? The deal that President Obama and Speaker Boehner were negotiating several weeks ago would have raised Medicare's eligibility age, raised Medicare cost-sharing charges, shifted significant Medicaid costs to states, modified cost-of-living adjustments in Social Security and other benefit programs (and in the tax code), and instituted other entitlement savings. Those steps would have saved $650 billion to $700 billion over ten years. The joint committee would have to produce cuts
   twice as deep
   — and roughly twice as deep as those in the Gang of Six plan.
   
   

   Fortunately, the supercommittee can avert this outcome by including meaningful revenues in its deficit-reduction proposals.

http://www.offthecha...-tax-increases/

Edited August 4, 2011 by Lord Infamous

[^_^ 5,021]

They won't. 6 out of 12 will be GOP, so there will be no additional revenue.

[Mr. Big Dog 10,747]

They won't. 6 out of 12 will be GOP, so there will be no additional revenue.

That's right. Because the punishment for failure to reach an agreement are simply more cuts. Which is all the GOP wants to begin with. What incentive do they have to sit down and negotiate in earnest? None. They know that they're not going to shift those cuts away from defense. The only way they have to soften the blow (which isn't really a blow to begin with) to those defense cuts is finding revenues to offset them. Not gonna happen.

[slim 1,514]

What they ought to do is just shut the government down for a while. Problem solved!

[Mr. Big Dog 10,747]

What they ought to do is just shut the government down for a while. Problem solved!

They just did that with the FAA. As a result, we lose $30MM in revenues daily and some 70,000 private sector employees are out of work. What problem does that solve, exactly?

[one...two...tree 2,762]

from Tom Sito:

Best line heard in the deficit debate, was from James Carville about Pres. Obama's negotiation strategy " If Pres Obama was invited to a game of strip poker, he'd show up in a Speedo."

[웃 910]

Letting the tax cuts expire would save up to $3.8 trillion over the next decade, including the savings on interest payments on the national debt.

If this is true then that is a nice chunk of change. $380 billion a year for 10 years approximately? Sure, it is nothing right now considering we have $1.5 trillion deficits but if those deficits were more reasonable (<$500 billion a year) then it becomes quite nice.

Same applies to raising revenues on the top 2% (maybe it is top 5%)....A savings of $700 billion over 10 years. Sounds like nothing because we have nearly $2 trillion deficits. But $70 billion a year is a huge sum of money.

Take a globe, spin it around, and let your finger randomly stop on a country. I bet a $70 billion per year deposit into that countries government bank account (for ten years) would do wonders.

And even here, if our deficits were more under control $70 billion a year still becomes quite massive.

[mawilson 2,133]

They won't. 6 out of 12 will be GOP, so there will be no additional revenue.

Even if 12 out of 12 were Democrats, any tax increases will not pass the House.

[one...two...tree 2,762]

Even if 12 out of 12 were Democrats, any tax increases will not pass the House.

I hope you're wrong or we're screwed.

[Mr. Big Dog 10,747]

I hope you're wrong or we're screwed.

The latter.

[SMR 368]

Perhaps tax increases are necessary; I'm not yet convinced one way or the other. But one way or the other these 5 "reasons" are bunk.

1. This argument is true on a superficial level but doesn't really mean what it seems to imply. Any expenditure (if you feel to call tax cuts an expenditure) contributes significantly to the debt. Pick any program you want and run the budget with and without that program and the costs look better without it. Compound the effects over 10 years of interest payments that you blame exclusively on the program and that program begins to look ridiculous. But since this can be done with any 'expenditure' it does nothing to point to one cut over another.

As to the second part of this 'reason' the CBO always assumes by its rules that a tax cut will never be offset in any way by a change in collective income. Now, I'm not of the camp that suggests that cutting taxes will raise government revenue. But it will have an effect on the size of the economy. When the CBO ignores this, the credibility of its conclusions doesn't exist.

2. Let the patriotic millionaires donate to the general fund. I don't think anybody is stopping them. This appeal to justice is very subjective since the very rich are already paying much more in taxes than they use in services.

3. I'm not sure we should be looking to Europe for advice on good tax levels. In another thread with the top ten tax charts, a list of countries with higher tax rates is included. Which of those countries are we trying to emanate? Probably not Greece.

4. This is based on the bogus assumption that there is some level of taxes that the government owns and then everything that it collects less than that is 'spending.' It's based on the same flawed assumption as #1 (that tax rates don't affect the economy), and on an arbitrary definition of what the government revenue is if there weren't any 'tax spending.' What is that number? Can anyone tell me?

5. What's the point? The government has been over-promising for decades and the bill is finally coming due. Anyone who expected the government to be there to pay for everything he or she needed is naive. People need to take care of themselves.

[B_J 2,752]

Higher-income people can and should share in the sacrifices needed to reduce long-term deficits.

I hear President Obama saying that "millionaires and billionaires need to pay their fair share". Do the almost 50% who pay no income tax need to share in the scrifice and pay their fair share? What exactly is considered fair?

[mawilson 2,133]

Taking taxes off the table would force crippling cuts in entitlement programs.

Crippling cuts in entitlement programs are inevitable. We can either do it now or do it 30 years from now when we're all taxed at a rate of 90 percent of our income.

[mawilson 2,133]

I hear President Obama saying that "millionaires and billionaires need to pay their fair share". Do the almost 50% who pay no income tax need to share in the scrifice and pay their fair share? What exactly is considered fair?

And the top 5 percent paying nearly 60 percent of all federal income taxes while having less than 35 percent of the nation's taxable income is fair how?

[one...two...tree 2,762]

Crippling cuts in entitlement programs are inevitable. We can either do it now or do it 30 years from now when we're all taxed at a rate of 90 percent of our income.

That's not accurate. Modest increases for Social Security and Medicare taxes would keep them sustainable for the next 50 years. We could also raise the retirement age and limit it to only those who need rather than it being an entitlement.