| A recent article by David Leonhardt, "Why Taxes Will Rise in the End", directly reinforces the points made earlier in: "The Looming Compromise on Revenues." Leonhardt paints a picture in which revenue increases of some sort have to be an elemental part of fiscal reform, whether they be closing loopholes, the elimination of tax subsidies, an outright increase in taxes or any combination thereof. He points to several factors that make revenue increases inevitable for those who are serious about addressing America's looming fiscal crisis. Lets take a look at his analysis.
1. No Free Lunches: "If only we could get back to the past - get spending under control, as the cliché goes - we'd be O.K. The debt ceiling, with its harsh finality, offers the chance. Unfortunately, this nostalgic view depends on a misunderstanding of the budget. It imagines a budget in which the United States indefinitely has the world's highest medical costs, its largest military, an aging population and, nonetheless, taxes that are among the world's lowest. Economists have a name for that combination: a free lunch... Free lunchism is ultimately the problem with the no-new-taxes pledge that so many politicians have adopted. A refusal to raise taxes, no matter how principled, cannot take us back to the good old days. It would instead lead to a very different American society. For taxes to remain where they are, Washington would need to end Medicare as we know it, end Social Security as we know it, severely shrink the military - or do some combination of the above." The aforementioned situation has led Douglas Elmendorf of the Congressional Budget Office to point out that those who are hewing to the "no new taxes" line are simply not seeing the true parameters of the overall situation: "The aging of our population and the rising cost of health care have changed the backdrop for federal budget policy in a fundamental way."
2. Paul Ryan's Plan is D.O.A.: "Early indications are that Americans don't like Mr. Ryan's plan all that much. In upstate New York this spring, a Democrat won a typically Republican House district by campaigning relentlessly against the plan. National polls show huge majorities favor keeping Medicare and Social Security in something approaching their current form - much larger majorities, tellingly, than oppose an increase in the debt ceiling. In the near term, Congressional Republicans have decided to play down the Ryan plan. Most continue to oppose new taxes, without going so far as to explain the consequences. They will have little trouble sticking to that position through the current debt ceiling fight, because the deficit does not need to be solved immediately. Eventually, though, drawing up a credible deficit plan with neither Ryan-like cuts nor higher taxes will be impossible. And you can already see the start of a potential Republican compromise." To underscore the fact that the Republican leadership in Washington is edging towards a compromise position, Leonhardt points to the fact that Speaker Boehner signaled his willingness last week to shrinking individual and corporate loopholes, as just one example. Likewise Conservative economists like Martin Feldstein and Gregory Mankiw favor addressing loopholes as well. There also seems to be renewed interest on the right regarding the approach of the bipartisan Simpson-Bowles deficit commission which includes revenue increases in any wide ranging attack on the deficit. To wit: "One obvious compromise along these lines would follow the outline sketched out by the Simpson-Bowles Plan. Marginal tax rates could actually fall. But the closing of loopholes would more than make up for the loss in revenue from lower tax rates. Conservatives might accept the deal, partly because it would satisfy their longtime desire for a simpler tax code with lower rates and partly because spending cuts would still make up the bulk of any deal. Liberals might accept the deal because tax loopholes disproportionately benefit the wealthy, and a simpler code - even one with lower rates - could be more progressive."
3. How Might It All Play Out?: "So what kind of tax increases do Americans support? The old-fashioned kind. Seventy-two percent support raising taxes on income above $250,000, according to a recent NYT/CBS poll and a large majority likewise favor raising Social Security taxes on the affluent. In the end, the most likely tax increase may be the one that's already on the books. On Jan. 1, 2013, all the Bush tax cuts- on the affluent and nonaffluent alike - are set to expire, which would solve roughly one-quarter of our long-term deficit problem."
Again, in the final analysis there is simply no way that we can get spending and deficits under control by drastic cuts to social programs alone. Moreover, that's a hypothetical argument to make in the first place as the Democrats will never abide such a thing so other than for the scoring of political points with their base, particularly the Tea Party, what realistically did the Republican leadership hope to achieve? The G.O.P. leadership may seek to avoid dealing with revenues in the short run by allowing Barack Obama to get what he wanted in the first place, an increase in the debt ceiling free of any spending cuts. However, in the long run the Republicans will still be in a no win situation when it comes to raising revenues, unless of course they chose to abandon their goal of overall deficit reduction.
SJG
7/15/11
Sources:
The Looming Compromise on Revenues
http://open.salon.com/blog/ste...
Why Taxes Will Rise in the End
http://www.nytimes.com/2011/07...
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