Taxes - Right wing, Left Wing, Broken Wing
Read on, as I argue both sides of an issue! This is admittedly amateurish, and my research mainly consisted of internet searches for argument and facts, but hopefully I captured some main points from both sides of the aisle. If I missed a point, let me know.
The Congressional Budget Office estimates that if we do not change course, tax revenues will cover only 80 percent of federal spending, which means we will have to borrow 20 cents for every dollar we spend. As a result, publicly held debt, measured as a share of our national economy, will rise from about 73 percent today to nearly 90 percent by the end of the decade, according to current projections.
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The debate is how to deal with this crisis. The issue of whether to tax or not to tax is the question that comes up frequently in this discussion.
Liberal side:
I found two main points as I did research on this topic. The first is that because government spends a lot of money, we need to increase taxes in order to pay for government spending; current tax revenue isn't high enough to pay for it all.
The trend of the nation in the last few decades is that we
vote for politicians and therefore policies that cause increased spending while at the same time voting for policies which decrease taxes. This obviously is problematic because the government is living above its means, and hopefully we all agree that's not a good idea. The liberal solution is to raise taxes.
AmericanProgress.org points out why government spending (and thus tax revenue) is important:
" [Taxes] pay for services that only the government can effectively perform, such as national defense and ensuring clean food, safe consumer products, and clean water. Taxes make it possible for us to meet our societal obligation to care for our veterans, our aged, and our impoverished. And taxation allows us to overcome national challenges and achieve extraordinary feats. Apollo 11, the Hoover Dam, and the Internet were all financed with tax revenues."
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We benefit from public services - the average middle class household gets 10-16,000 dollars from public services.
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The government can provide more welfare. ThinkProgress.org states "Everyone’s welfare is improved if a tax change allows the government to compensate them with enough wealth so that they are at the same level they were before the change, but the government still has money left over. There are trade offs to such a policy change. About 10 percent fewer people would enter the labor force and consumption would decline in the long run by about 7 percent. But most of this would happen at the very top and not impact most Americans. "
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Historically there hasn't been a correlation between lower taxes and increased economic growth. After World War II, higher economic growth occurred alongside higher top tax rates, averaging 2.23 percent while the top rates were above 70 percent between 1950 and 1980 but just 1.68 percent when the rates were lower between 1980 and 2010.5
Bernie Sanders argues "If you have seen a massive transfer of wealth from the middle class to the top tenth of one percent, you’ve got to transfer that back"
This leads to the other main argument which is that higher taxes aren't that big of a deal and we can certainly handle it. We tend to overestimate how much we are really paying in taxes - less than 1% of the population pay over 20% of their income in taxes.
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We've had much higher taxes previously and the case is that we can handler higher taxes again. In the 1950's the tax rate for the wealthiest was 87 percent, john f kennedy lowered it to 70 percent, ronald reagan lowered it to 50 percent and then 28 percent. Bill Clinton raised it to 40 percent and George W. Bush lowered it to 35. Under Obama it's currently sitting back at 40 percent.
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Much of the liberal arguments are rebuttals to the conservative idea that lower taxes will increase economic growth. A short summation of the counter argument is that higher taxes would cause people to work harder in order to earn more money to keep more money, thereby boosting the economy. Of course some economists predict this tactic will become counter productive somewhere between the 50 to 70 percent range.4 Others say the level is higher - around 90 percent. These '90 percent' economists also believe also found that a 90 percent tax rate for the 1 percent could significantly reduce the Gini index, a measure of income inequality.
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Conservative side:
Higher taxes never close budget deficits because, in the short term because Congress will spend all the extra revenue it receives from higher taxes. Congress always spends every dollar of tax revenue it raises and however much it can borrow from credit markets. In the long run, the extra revenue will disappear as individuals "adjust their behavior to minimize their tax liability".
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For example, several years ago, Argentina decided to increase their revenue by seizing private pensions in order to to help cover government budget deficits. Government spending subsequently soared 40 percent.
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A higher tax rate promotes lobbying a special favors. The higher that tax rates go, the more incentive various interest groups have to lobby for special treatment. Politicians always need more campaign contributions and are generally eager to oblige lobbyists. The more complex the tax code, the more arbitrary exceptions will be made to those who push for them.
Higher taxes don't actually work as expected. Heavy taxation in France in 1795 caused people subject to the tax to transfer assets out of harm’s way, and the tax yielded only about a fifth of what the government had anticipated.
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Jim Powell, contributor to Forbes asserts "the history of taxation abounds with struggles among interest groups, each of which has tried to push tax burdens on somebody else. For example, the Medici family that controlled Renaissance Florence manipulated progressive tax rates to ruin their rivals."
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Taxation tends to spread to those who were previously thought the taxes were only for a specific group and that they are exempt. The progressive income tax became law in 1913 and 98 percent of the people were exempt. During World War II in 1942, the amount of tax returns received by the government increased by 1300% than the previous decade. These taxes remained after the war was over and taxes were increased again during the Korean war.
An increase in government spending does not equate to an increase of quality services. As one of many examples, we spend more money on public education than any other industrialized country in the world, and our students rank 36th in the world.
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There is a correlation between lower taxes and higher economic growth. After Reagan drastically lowered taxes, the economy turned away from the slump it had been and exploded for the next 25 years. There was 3.3% growth per year, an increase from the 1.8% of the previous decade. Unemployment dropped from 11% to 5%. Stocks increased by 15 fold.
As a rebuttal to the economists who point to no correlation between economic growth and taxes, Conservatives argue that these economists measure growth from the year 1980 to the year 2010, which doesn't show impressive growth, but if you change the years from 1982 to 2007, growth during this period was phenomenal.
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A paper by Karel Mertens of Cornell University, published by the National Bureau of Economic Research, finds that cutting tax for the top 1 percent boosts the average incomes of the bottom 99 percent by 15 per cent when the policy first kicks in and up to 35 percent in the third year.
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Additional thoughts:
I'm fiscally conservative, and I did my best to research the opposing liberal view. I found the most common argument had to do with the fact that rich people can handle higher taxes. In other words, I found the arguments were that it
can be done, not
why it should be done. I felt it a shame that I had to dig a little bit to find the deeper arguments. There are some good arguments that liberals can make, and I would encourage them to spend more of their efforts on those.
10 http://www.heritage.org/research/reports/2010/09/obama-tax-hikes-bad-for-all-americans
9 http://www.nber.org/papers/w19171 & http://www.cityam.com/article/yet-more-proof-high-tax-rates-are-bad-economy
8 http://behl.berkeley.edu/files/2014/10/WP2014-03_londono_10-3-14.pdf
7 http://policyinterns.com/2012/05/08/tax-revenue-as-a-percentage-of-gdp-a-flawed-metric/
6 http://www.forbes.com/sites/jimpowell/2012/10/17/class-warfare-the-mortal-enemy-of-economic-growth-and-jobs/2/
5 http://www.dissentmagazine.org/online_articles/revenue-blues-the-case-for-higher-taxes
4http://www.washingtonpost.com/blogs/ezra-klein/post/a-rich-guys-case-for-much-higher-taxes/2012/04/17/gIQA384rNT_blog.html
3 http://economix.blogs.nytimes.com/2011/05/27/the-case-for-higher-taxes/
http://www.governmentisgood.com/articles.php?aid=17&p=4
1 https://www.americanprogress.org/issues/tax-reform/report/2012/12/04/46689/reforming-our-tax-system-reducing-our-deficit/
2 http://thinkprogress.org/economy/2014/10/21/3582346/tax-rate-90-percent/
