As one who experienced the wage/price freezes of the early 70s, I don’t care to revisit that era. Just for a point of reference, in those days an entry level drafting job started out at less than $2.00/hr. Combine that with the lines for gasoline…oh yea, those were fun times…
I can’t recall if those freezes grew from the public sector into the private, or if they were a blanket order, or if it was all a smoke screen used by employers to keep wages low.
You may be right but I think, in the long term, it would be viewed favorably by the right and right-leaning independents. In the end it depends on whether people see it as the government firing people or the government reducing the size of government.
Because, under the current tax structure, people can choose other forms of compensation that may be taxed at a lower rate, look for tax shelters or make tax exempt investments in order to avoid thei increased rates.
I see what you are saying. My apologies. The question, then, is what would an unchanged tax rate have done for the economy.
There are two different points here. One is that the government spends more than it takes in. The other is the assumption is that the government would take in more revenue due to a tax increase. Tax revenues have consistently been around 19% of GDP regardless of tax rate since WWII. Tax cuts are generally, but not always, associated with an increase in growth of GDP
The very people responsible for capital formation and job creation will have an incentive to find shelters for their money as opposed to putting their capital to work in pro-growth investments.
And yet, this is not the case for other countries (List of sovereign states by tax revenue to GDP ratio - Wikipedia - note this cite includes state and local taxes). Do you think that there is something unique about American that puts some sort of ceiling on the amount of tax revenue available?
Except we are currently at ~15% or GDP as federal tax revenue (according to the Heritage cite). When we were running surpluses it was ~20%. Is it your claim that those higher rates are just not sustainable? That they somehow lead directly to economic collapse? (I would counter that the lower rates of the Bush era didn’t exactly prevent the last recession).
Personally I think the current situation calls for about a 50/50 split on tax increases and spending cuts. I’d like to see the upper bracket rolled back, an even higher bracket added (say, 1 million in AGI and higher), and a $1 increase in the federal gas tax.
I would also support a more dramatic overhaul if such a thing were feasible, and sufficiently progressive - something like the no-exemptions, no-deduction, two or three bracket, large refundable credit plans might work better, especially from an avoidance perspective.
On the spending side, I’d look at some structural changes to SS (in particular the growth factors), and perhaps a one-year increase in the retirement age. Add a flat cut to DoD expenses. Medicare is the big problem, of course, and can only be solved by moving to a more sane health-care system.
Somewhat random aside - does anybody have a number for what the estate tax roll-back (and current-year elimination) has cost in terms of federal revenue?
He’s the Chief Executive of an entity drowning in red ink. He’ll get all the credit he deserves if this proves to be anything more than talk.
However, in the minds of many, it probably won’t offset the union giveaways of the last two years.
You really have no idea what you are talking about. Nothing exists in a vacuum and to ignore the economic condition of the times is, well, ignorant. The bigger point is that, regardless of tax rates or economic conditions, tax revenue remains at about 19% of GDP.
The chart has nothing to do with economic growth. It has everything to do with the fact that tax increases simply do not result in increased revenue. Tax cuts generally result in a growth in GDP and, since tax revenue is linked to GDP, tax revenue tends to increase with a tax cut. Tax policy is relevant to economic growth…just not in the way you seem to think it is.
Just because a tax rate on the very wealthy is higher does not mean that the very wealthy pay that tax rate. Are you familiar with tax avoidance techniques?
It seems like you want to have it both ways. You claim increasing taxes on the rich will bring in more revenue but then dismiss the notion that this increase would even be noticeable.
What is the benefit…other than sticking it to the rich. No increase in revenue and a damper on the economy…that’s a great plan!
Yes. America does not have a VAT. America is a federation of states which set their own tax policy. The dollar is the world currency. There are many differences between America and other countries.
I think the big difference is the lack of a VAT. Trying to raise revenue through marginal rate increases is difficult, because the higher rate brackets represent a smaller population, and money is fungible. Raising marginal rates at the top just increases tax avoidance and non-productive behavior.
A VAT is a broad-based tax that everyone pays. The revenue from a VAT is large and stable. That’s why a lot of tax experts agree that if you really need to raise revenue to cover the deficit, a VAT is the only way to go. Chasing marginal rates just isn’t going to get you there.
If a VAT is politically impossible, then your only other option for balancing the budget is going to be to cut spending.
I believe federal government spending is now close to 24-25% of GDP. So if revenue returned to its historic norm of 19%, you’d still have a 5-6% of GDP deficit.
I think you can make a case that the last decade was a result of the Bush Administration engaging in the same kind of Keynesian pump priming the Obama administration is engaged in, and the result was that a sharper, deeper recession in 2001 was replaced with years of low growth and low job creation. But then reality asserted itself and the recession hit anyway.
As soon as you go after people with income of $1 million or more the tax base starts to get really thin. I posted the numbers in another thread, but if you look at the IRS’s data for tax filers, you’ll see that there’s just not much revenue there. If you could increase the taxes paid by 10% for everyone who made over $500,000, you’d raise about $34 billion, as I recall. A drop in the bucket. If you’re going after people who make more than a million, you can cut that estimate substantially.
And to raise 10% more in revenue from that small group, you’re probably looking at a much bigger marginal rate hike. Raising the marginal rate from 39% to 45% wouldn’t cut it. You might have to raise it by 15% or more. That will start a lot of serious avoidance activity.
The real money to be had is in the middle class. Unfortunately, the U.S. has been on a path of giving the middle class tax reductions.
Making the tax code more progressive would be a bad move, since the world is moving in the other direction. You’ll be setting the U.S. up to be even less competitive.
In Canada, we’ve lowered our top marginal rate rate to 29%, cut our dividend and capital gains taxes, and lowered the corporate tax rate (to 12.5% by 2012). We made up the gap by cutting the size of the government from 53% of GDP to 35% of GDP (that’s for all forms of government - and it’s lower than the U.S.), and by instituting a Goods and Services Tax nationally. Those changes made our tax code less progressive, but they also made it more stable, and made our economy more competitive. As a result, we started running surpluses right up to the recession, and we’re forecast to be back in surplus territory in a few years.
This has been the policy of both Liberal and Conservative governments, and it’s serving us really well. You should try it.
I’ve been a civil servant for almost 25 years, and I applaud the decision.
As tough as things are now, with so many people out of work or working at stagnated wages, it isn’t fair for civil servants to receive blanket cost-of-living adjustments (COLAs).
It wasn’t clear from the article: does the pay freeze apply to promotions and within-grade-increases (WGIs), and not just to COLAs? The answer won’t affect me, since I don’t expect to be promoted, and am at the top step in my grade - just curious.
I might have been unclear - I didn’t mean more progressive than it currently is, just sufficiently progressive (obviously everyone’s definition of sufficient will vary).
What does the exemption/deduction system look like in Canada? I can’t find anything at http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html. Also, from what I can tell, there are comparatively large province income taxes (maybe some of the health-care costs are borne by the provinces?). I must admit to being somewhat unfamiliar with Canadian tax policy 
Your point re: VAT is well taken. I am certainly not opposed to exploring it as a more stable source of government funding.
$28 billion over five years? That’s barely a fart in the wind!
The best way to reduce the deficit (aside from eliminating tax breaks for rich people and termimating corporate welfare…but c’mon, that’s never gonna happen) would be to immediately cut off financial aid to foreign countries who don’t need it, including Israel. Especially Israel. It would be political suicide, of course…but people will forget all about it over time.
Ending farm subsidies will help, too. There aren’t any individual farmers left anyway, no matter what John Cougar Mellencamp says. Slash the defense budget, shut down all our overseas military bases (keep Guantanamo for rendition purposes) and focus on keeping our own borders more secure. Get rid of pork-barrel endowments like the NEA, Amtrak, payouts to Native Americans, and many of those silly national parks & preserves in places nobody cares about. Start a national sales tax. Raise the SS retirement age to 72.
Will any of this happen? Hell no…but that’s what it will take to save our economy. (Assuming it’s even worth saving…)
As much as I could use the increase I’m in agreement with you. I’ve worked for the feds for the last 10 years and I thought about writing my representatives until I realized that here in MD the dems wouldn’t care if I didn’t vote for them or not.
I’m not sure if it impacts the grade increases or not.
I’ve been a federal employee for 5 years now, and when I heard the news I was pretty upset. Then again, my agency is pretty notorious for giving out lousy raises anyway, so I guess it won’t have too much effect on me. I suppose I’ll just wait and see how it pans out for us.
I think this sense of shared sacrifice among federal employees is going to fly relatively well. I think what bothers federal employees more is the sense that Obama is either throwing them under the bus or is buying into the nonsense that federal employees are almost categorically overpaid.
I would also say that while the pay scale at the top of the pay scale is not too bad the folks at the top of the pay scale are usually the ones that are most UNDERPAID while the ones at the lower end of the pay scale are slightly overpaid if you include benefits.
I don’t think the Republicans will care. In dollars I believe it amounts to $2 billion dollars over 2 years.
When it comes to cutting the size of government, the military, social security and medicare/medicaid are the most important peices of the puzzle and without them you just can’t get to where you want to be. Even with deep cuts to these three areas, we will need to increase taxes.
With that siad, sure we could cut some spending in almost every agency. It all depends on what level of government service (or even functionality) you want.
I think most federal employees will take this in stride, as a general rule, they care more about this country than the average citizen and if money was what was really driving them, they would work in the private sector anyways.
Ermm we can’t tax our way to a balanced budget. We will need some spending cuts, especially in medicare.
Why do you hate the troops?
In my field, I think this probably costs more money than it saves. I know at least one person for whom this tips the balance on deciding whether to accept her government offer or make much more money in the private sector. I can’t say for sure that she’d save the government more money than the person who replaces her, but I think there’s a substantial chance of that being true. ETA: This assumes it affects level jumps.
And, of course, even if it works as intended, it’s more a symbolic gesture than anything. Given that the GOP has taken pretty much every serious cut off the table in their proposals, now is an opportunity for Obama to take the high ground on spending: embrace phased-in increases in the FICA cap, means-test social security, add copays for veterans benefits, further cut defense spending, and all of the rest of the things the GOP would do if they were serious, but don’t do because they are not.
Well we get pretty good value and it punches above its weight (same can be said of the department of energy) but I would have thought that there were more valuable departments in the government.
The non-military/security federal payroll is about 100 billion dollars. How much of the workforce do you think we should cut to make an impact on the federal deficit? I don’t think we should increase the federal payroll for its own sake but I don’t think we should cut it for cutting’s sake either. We can probably reallocate some resources. There are probably some useless functions and some that are grossly understaffed.
I’ve heard this statistic thrown around quite a bit and I always thought it was a little bit squirrelly. The statistic is frequently based on all federal revenues. As income taxes decreased over the last few decades other taxes increased, primarily SS and medicare. Increases int he federal income tax rate results in increases in federal income tax revenue and reductions in rate resulted in reductions in revenue. First the economy is not THAT responsive and secondly its not anywhere that elastic.
Well our debt would be smaller.
If you look at your chart again, the blue line tracks the top marginal federal income tax rate and the red line tracks federal revenue from all sources.
So one tracks the rate on the top 1% of Americans while the other measures all federal tax revenue form every source, including medicare, tariffs, corporate taxes, everything. The statistics on federal income tax revenue is readily available, why do you suppose they use total federal revenue?
In fact the federal income tax raised from the top 1% or 10% of the population is also available, why do you think they decided to make this particular graph?
They are trying to get folks like you to fill int he blanks and reach the conclusion that changes in top marginal rates don’t affect taxes collected.
At some point I hope to wake up and realize that Obama has been rope-a-doping the Republicans. Letting the Republicans tired out their arms beating in his head and then he’ll have them right where he wants them.
I should have voted for Hillary. At least she has balls.