Taxes

Apparently, Minnesota is getting along well without a government (at least, without parts of one), and the Democrats and Republicans are still wrestling over the budget. It seems the Democratic insistence on redistributing wealth from private to public hands is the sticking point.

I'd like to take a closer look at a couple of articles I linked that discuss conservative tax proposals. First, Steven Hayward's proposal:

But here’s the case: one problem with our current tax policy is that at the moment the American people as a whole are receiving a dollar of government for the price of only 60 cents.  (I don’t say a “dollar’s worth of government,” but let’s leave that snark for another time.)  Any time you can get a dollar of something at a 40 percent discount, you are going to demand more of it.  My theory is simple: if the broad middle class of Americans are made to pay for all of the government they get, they may well start to demand less of it, quickly.

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In other words, if you want to limit government spending, instead of starving the beast, serve the check.

Indeed, tax forms sent to each individual should include an itemized receipt for the goods and services the taxpayer is purchasing, showing where every penny will go. Where the citizen has received services paid for by others, that should also be shown clearly on the receipt. When there is a proposal to increase government expenses, the cost to each citizen should be published well in advance in the form of "If bill XYZ passes, your taxes will go up by $X each year."

Hayward goes on to note that:

Back in the Reagan years, there was a vigorous internal debate about whether to resist tax increases because “starving the beast” would hold down spending.  But evidence is now in: this strategy doesn’t work.

Why? He cites a 2006 CATO study that showed that decreases in federal funding correlate to increases in federal deficits. Politicians don't stop spending; when the amount of public money available decreases, they just borrow more. In addition, the author points out that Reagan raised taxes and increased federal revenues.

If tax increases are on the table, then, what kind of tax increases should we support? Let's take one more slice from Haywood as our starting point:

A debate on how to raise taxes might actually be fun to have with liberals, because their only idea—eat tax the rich—doesn’t produce anywhere near enough revenue to fund their programs.

Indeed. HotAir covers that angle, showing that if we took 100% of what the top 10% of earners in the US make, it would not be close to covering Obama's budget gap. (More: WSJ, one of HotAir's sources for their article; Walter E. Williams; Steve McCann.)

Now let's shift our attention to Reid J. Epstein's article in Politico, Debt Blogs: Out of Left (& Right) Field Ideas:

While President Barack Obama and congressional leaders are gridlocked in their attempts to negotiate an agreement to raise the nation’s debt limit, there is no shortage of wacky ideas from the nation’s online peanut gallery.
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Glenn Reynolds at Instapundit proposed a 50 percent surtax on the post-administration private sector incomes of top government officials and excise taxes on movie tickets, DVDs and digital music downloads.

But this isn't nearly enough. In the comments to Haywood's article a number of commenters take the position that everyone should pay taxes, even if it's just a few dollars a year for the poorest. This isn't a bad idea, and I've heard it in a number of other conservative forums, but again, it isn't enough. I don't have the answer, but there are two forms of tax increase I would like to see.

First, end virtually all federal corporate welfare and government subsidies of various industries through tax breaks, etc. While overall tax rates would remain the same, this would increase federal revenues.

Second, end or substantially reduce the number (or where that is impossible, the size) of public-private Frankenstein's like Fannie and Freddie. These organizations allow a few top people to take millions by risking taxpayer money; Fannie and Freddie were a key part of the housing crisis, and yet their top executives got away with millions and no condemnation, unlike executives in entirely private companies. This too, while avoiding increases in overall tax rates, would end tax subsidies to semi-private, wealthy, and powerful companies and individuals, effectively increasing taxes on them.

All of these proposals together would not be enough. At some point, there will have to be broader tax increases. However, except for ideas like the above, government must cut first. The federal government has continuously proven that it cannot handle money responsibly; it has left Social Security full of IOUs, it has wasted untold billions on pork barrel projects, and it has stuffed the pockets of big donors with public cash for decades upon decades. Federal profligacy is the reason for the crisis we are in now.

Therefore, in order to prove that tax increases will not be wasted, the federal government must now demonstrate that it can act responsibly by making deep and lasting cuts, and it must show that new tax revenues will go toward solving our financial crisis, not to the pockets of big donors or to useless "public works" projects just to buy votes for incumbents by drastically increasing transparency on the finances of the United States.