Why Raising Taxes Will Help Our Economy and...
Imagine trying to bail out a sinking boat, one thimbleful of water at a time. That's exactly what trying to cut the deficit without raising taxes would accomplish- in other words, nothing.
Republican and Libertarian thinkers are up in arms about President Barack Obama's plan to halve the federal deficit by raising wage and capital gains taxes. They argue that the best way to reduce the federal deficit is to reduce government spending on social services and to cut so-called "pork barrel spending."
While it's always important to cut government waste, it's ludicrous to believe that the only way to cut the deficit is to cut services and spending. In a deepening recession that may any day turn into a depression, the last thing that the government should do is cut already strained social services.
Moreover, cutting every dollar of pork barrel spending (assuming this is even politically possible) would save the government $17 billion in the 2009-2010 fiscal year, according to the Office of Management and Budget. That's 0.17 percent of the projected $10.5 trillion dollar federal deficit projected for 2009. Talk about a thimbleful of nothing!
Reducing the federal budget line by line is neither a politically feasible or economically sensible way to cut the deficit. The two most important revenue streams for the government (and therefore the best source of income for cutting the federal deficit) are individual income taxes, which account for 45 percent of US federal receipts, and corporate and capital gains taxes, which account for 16 percent of US federal receipts. Increasing capital gains taxes to Clinton-era levels of 28 percent, (as opposed to their current rate of 15 percent) as suggested by President Obama, would result in approximately $120 billion of federal revenue in the 2009-2010 fiscal year, assuming the stock market stays in it's current slump.
Raising capital-gains taxes, if coupled with a Clinton-era increase in tax rates for the top 1 percent of American wage earners, (those earning over $250,000 annually) could potentially raise $1 trillion after the 2011 fiscal year, paying off 10 percent of the federal deficit. Raising capital gains taxes and income taxes for the top percentage of wage earners as well as cutting government spending was instrumental in helping Clinton close Bush Senior's budget deficit.
The Obama budget seeks to duplicate this fiscal success by taking a nuanced approach to the deficit-cutting the budget line by line and increasing taxes.
The German philosopher G.F Hegel wrote that "what experience and history teach is this-that people and government have never learned anything from history." He seems to be speaking directly to those modern thinkers who ignore the history of the Clinton-era success in cutting the federal deficit by raising capital gains and income taxes.
No mariner has ever successfully bailed out a boat with a thimble; no government will ever successfully cut their federal deficits by cutting spending without raising taxes.