US Congress should raise taxes sooner rather than later

Great Debates
1

We shouldn’t be putting off raising taxes on the top 1% of Americans. I know this is counter-intuitive, due to the current depression.

But…[ul][li]I think the US Congress needs to drastically raise spending to get the economy moving.[]We’re carrying enough debt already.[]About 50% of US assets are in the hands of 1% of population.[]If the US Gov’t borrows even more money at interest & goes into debt to those who can afford to lend right now–that same 1%, then long-term we continue the concentration of a contracting money supply, & we make things worse for the economy down the line.[]So it makes sense to balance new expenditures with higher tax rates.[]New taxes would give us the funding stream to cover new expenditures & avoid the appearance of defaulting on debt.[]Taxing the hyperrich would force money back into circulation through government stimulus.[]High taxes on the top 1% would create anti-inflationary pressure at the top, which would take some of the inflationary pressure off land prices. (Which are, I know, already de-ballooning, but it’s a good idea in general.)[/li]
This next one’s kind of counter-intuitive, but bear with me.[]We need investment in infrastructure, commercial ventures, local governments, etc. We should not be issuing more US Treasury bonds & sucking potential investment money up that way.[/ul]Where are the holes in this argument?

2

I’m confused… are you going to spend the extra money, or pay down the debt?

Assuming that this is a problem, a simple rise in the income tax is not really going to change this all that much. You’d probably be better off taxing assets instead of income. Are you ready to propose that?

Zev Steinhardt

3

I want to keep from owing more interest on more debt. We should have paid down the debt before this. Right now, paying it down isn’t the main concern.

Sure. Wealth taxes are rational at the upper extreme. I’ve been pondering how to approach them for a while.

4

Here in Sweden we used to have a wealth tax of about 1.5% of everything above 1.5 million SEK (~$190k). The wealth was seen as the sum of bank accounts, real estate, shares, vehicles etc. I think this was a good thing, but unfortunately our new government abolished this tax some year ago.

5

We don’t need increased taxes. We need a cap on government spending. The government currently spends like drunken sailors; we don’t need them spending more.

6

I’ll go through them in order, shall I?

Doing this would not raise spending, since every dollar you take is a dollar the rich cannot spend or invest themselves.

Then you can’t raise spending, unless you have some type of “make the economy more efficient” trick up your sleeve.

That is how you thank people for lending your government money when they need it? You don’t want to pay fair market value for their loans, so you want to just take it?

No, instead you want to suck up potential investment money by taking it from its owners without compensation.

7

A common misconception. But government spending is much of the economy, & much of why the economy works.

Even if you don’t believe that, consider this: Much of the “government spending,” & even more of its projected growth, is actually in Medicare & Social Security, which are politically impossible to abolish, no matter what the “Starve the Beast” faction thinks.

And, oh, yeah, a cap on spending would be impossible to enforce, & a good thing, too. That would be mortal.

8

:rolleyes: Because private spending is exactly like public investment, & just as efficient? As if.

To the contrary: Monies spent in the private sector have an amazing capacity to get stuck to private-sector middlemen, even when they’re trying to get to the right place. And the free market has no big-picture intelligence, no direction. It’s impossible to build a constructive plan for nationwide recovery when you have a handful of scared richies just acting in their own panicked perceived self-interest.

I’m talking about raising government spending on public goods. If you can’t tell the difference between the interstate highway system & private airfields, please stop voting.

I don’t intend to “thank” anyone with interest. And I certainly don’t see tax monies as borrowed from the rich. It’s (almost) never a good idea for the government to borrow what it can afford to tax; because the government only makes money through taxes, & thus borrowing & repaying with interest costs the gov’t, the taxpayers, the public, **more **in the long run.

Yeah. That’s what taxes are. That’s what paid for the army that defends you, the hospitals that may treat you in an emergency, the roads you drive on. You aren’t really going to be richer without public investment.

9

Not when we are heading into an economic depression; spending cuts will make the problem worse. The consumer has stopped spending, industry has stopped spending; unless you want the economy to grind to a total halt, the only solution is for the federal government to spend, and spend big. We need to increase the national debt by a trillion or three, or this downturn will become permanent.

10

We need both. This is not a dichotomy, after all.

11

If raising taxes were a good idea during an economic downturn, then surely Hoover’s tax increases in 1932 would have netted some positive benefits, would they have not?

After all, government revenues had fallen by about half over the previous decade, and the budget deficit at the time ($2.7 billion) was a far greater percentage of the total budget ($4.7 billion) than we find today (est. $455 billion deficit for $3 trillion in spending). Do you think raising taxes at that time was the right thing to do? Why was it not successful… or do you think it was? And why would now be different?

12

Only if he had spent them on the kinds of things FDR did.

13

Some history of the income tax:

I’m not suggesting a spike from 24% to 77%. Short term, I’m suggesting a raise from 35% to somewhere between 39% &–say–48%. Long-term (as in, as the depression passes) I could see a top rate of 60% as reasonable–simply because rates in the 50-60% range maximize revenues & we would need to pay down some of the debt.

As a redistributionist, I have no theoretical objection to confiscatory rates (over 70%) at the very high end of the scale–those with incomes & net worths both hundreds of thousands times the median. But that’s not what this thread was proposing, nor meant to be about.

14

What makes you think that a tax rate of 50 to 60 percent maximizes revenue? We dumped a 50% top rate down to 38% in 1986 and income tax revenues went up by 10% in a strong economy.

Also, I’m not sure you really addressed my questions in your response. Could you explain why raising taxes in 1932 was a good thing, or not?

15

The economy was strong enough that cutting taxes by (let’s see, 24% of–number from an orifice–30% would be) around 5% of total taxable income didn’t prevent revenues from going up 10% in an inflationary environment. So what? :rolleyes:

Raising taxes as much as Hoover did as quickly as he did was bad. Hence my use of the term “spike.” I’m sorry, I was unclear in the OP. I’m talking about getting getting taxes back to around 40%, which is supposed to happen when the Bush tax cuts expire. That’s a small hit to the economy but a big boost to the government’s bottom line. Then, maybe gradually taking them to about 50% will solve our deficit problems.

16

There is a larger economic issue as well. Right now, working-class & wealthy Americans both pay taxes, but wealthy Americans also fund the government by buying bonds. I think they should pay higher taxes instead.

Ready availability of Treasury bills deforms expectations of the investment market, & indirectly pushes sellers of stocks & junk bonds into difficult positions. It changes how money is lent, & what is asked of borrowers. That worries me.

17

OK. Here’s the nut of the argument. Higher taxes are a way to force higher spending without creating higher government debt.

18

You’ll notice that post #16 was two different (if loosely related) points. I’ll try to expand on the first:

Right now, working-class & wealthy Americans both pay taxes, but wealthy Americans also fund the government by buying bonds. I think they should pay higher taxes instead.

A flattish tax regime in combination with government borrowing actually becomes regressive at the high end. Those with more income to invest can spend it on T-bills, thus making money from the government & mitigating their tax bills; thus those at the lower end of the tax bracket end up paying more. In what way is this desirable? “Fiscal conservatism” that doesn’t require balanced budgets is regressivity. Deficits high enough would evoke reverse redistribution. :eek:

19

Now the other point. I’m thinking that a proliferation of T-bills is not only bad for the taxpayer, but perhaps bad for the economy. This is a shaky argument still, I’m just sounding it out here.

Ready availability of Treasury bills deforms expectations of the investment market, & indirectly pushes sellers of stocks & junk bonds into difficult positions. It changes how money is lent, & what is asked of borrowers.

In this sense, it is not so much how much money is available for investment, but what the investment climate looks like. Investors that are used to comfortable guarantees from the Federal Government have a different attitude toward risk. They benefit from “socialized investing,” if you will.

By comparison, privately issued stocks & bonds do not come with such guarantees. Might this mean, in a climate with a lot of government bonds, there is a temptation to increase the payout from stocks to make them more attractive?

So, perhaps (& I am speculating wildly here) it’s better to contract the investment demand-side by tax increases rather than expand the supply-side by issuing more bonds. In that contracted market, stocks & junk bonds become somewhat more attractive, & their price may go up as a share of investors’ purchasing power even if their price does not rise in nominal dollars. That might not be a bad thing. It might in fact be a good thing.

Why should we encourage more buying of Treasury bills, & thus more investment in federal tax increases, when we can encourage more investment in the private sector?

…

Now, that said, there are still state, county, & municipal bonds, which are also tax funded. But in many cases (It’s like this in my state at least) there are laws about how those are issued to the effect that the public have to approve a new bond issue, & taxes are designated for that purpose. There’s a public accountability.

By contrast, the federal gov’t doesn’t even try to tie taxes to bond issues. It just borrows money & hopes the Federal Reserve allows the money supply to inflate enough it won’t hurt too much to pay the interest. This has worked so “well” that public debt has increased fivefold–from under 2,000,000,000,000 to just about 10,000,000,000,000–in the last thirty years of an expanding economy. This is madness.

…

So I’m not keen on more of this.

20

The rich don’t actually spend all the money they make, though, do they?

It seems the comment you replied to was arguing that the money should be taken for the government to spend on things. That is, after all, how taxes work: the government takes money from you and spends it, presumably on different things than you would be spending it on as an individual.

But even if we were talking about taking money from the rich and giving it to the poor, isn’t it obvious that this would result in more money being spent as opposed to hoarded? The poorer you are, the more likely you are to have to spend every cent you make just to take care of basic necessities.