Thursday, April 15, 2010

Tax Day and Why You Should be Paying MORE

Tea parties are for kids. Adults deal with the tough problems. And we have a very tough one in the US - almost $13 trillion total deficit and headed quickly up and away. Try leaving this real time debt clock as the background on your computer screen for awhile to give yourself a sense of the problem. Or just look at these facts:

The Congressional Budget Office projects that total federal revenues will be about $2.2 trillion in 2010

The Congressional Budget Office (CBO) projects that if current laws and policies remained unchanged, the federal budget would show a deficit of $1.35 trillion for fiscal year 2010

We are spending $3.55 trillion on $2.2 trillion of revenue. That is, we only earn 60% of what we spend.

That is not sustainable. Full stop.

And cutting spending won't be easy. You aren't going to take benefits away from baby boomers, not all of them anyway (not all the benefits, not all the boomers). And for the doves out there, military spending going to zero (impractical) would only cut the deficit in half.

So while we should spend less, and there are certainly lots of opportunities to do so, the only practical solution (sorry tea party kids) is to INCREASE REVENUE.

There are two ways to do this and we must do BOTH:

1. The economy (GDP) must grow.

2. Taxes must be a higher percentage of GDP.

Take a look at this chart from the revenue outlook page of the CBO's report:

Federal taxes as an average of GDP from 1970 to 2009 averaged roughly 18%. Taxes in 2009 however were just 15% of GDP a 60 year low. Tell me again what the tea party folks are complaining about? The overall federal tax on the economy as a whole is at a 60 year low! Even when including state and local taxes, the overall burden on consumers and businesses is at historic lows.

How much of a difference does that make? 2010 GDP is projected to be almost $15 trillion. An additional 3% (just to bring us back to the 30-year average) is another $450 billion in revenue. That doesn't solve the hole in the budget but does close it by 1/3.

What do we do to get the rest of the money we need? Or even start paying back the deficit? Or putting money against mounting health and retirement benefits?

First we need to invest in the growth of the economy. Growth from a $15 trillion to an $18 trillion GDP would alone (at the 18% average tax rate) add $540 billion in revenue.

But we also need to anticipate a period of higher taxes while we grow our economy (and control spending). At current spending levels we need to increase taxes by about 2% over historical average levels, to 20% of GDP.

An $18 trillion economy taxed at 20% would generate $3.6 trillion in federal revenue -- just enough to pay for current programs. Cut spending and you can pay off existing debt.

Lets put that in perspective - what are the tax rates for other countries that we might look to as a model (From the Organization for Economic Co-operation and development) Note that the US rate is shown including state and local taxes (so about 28%):

We don't have to become the highest taxed nation on the developed world (or anywhere near) in order to close this deficit problem and begin to take care of our children.

Join me in opposing the tea party and calling our representatives to ask for higher taxes!

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