Now that we are done with federal spending cuts, it’s time to look at tax increases that can be pushed through Congress. A substantial part of the public feigns heart attack when they hear the words “tax increase”, so we all know that getting tax increases passed is dicey territory. However, we can move tax increases through Congress by tying them to specific spending programs that have such overwhelming support that opposing them would be political suicide for members of Congress.
What can we tie tax increases to that will always go through Congress?
The most obvious spending we can tie tax increases to is spending for overseas deployments. This was about $130 billion in the FY 2010 budget. We should insist that going forward all money paid for deployments should come out of current revenues. This has a number of beneficial effects.
The biggest strategic win is that it moves us away from borrowing money from China and other foreign governments to support foreign wars. When those other countries loan us money to fight these wars it gives them leverage over our foreign policy. It also gives them essentially a veto on our national security. So, just on national security grounds alone, we should not be borrowing money to fight wars.
The taxes raised for this should be raised in proportion to the stake in the issue. Some people in our society disproportionately benefit from these wars. Those with large asset holding have their assets protected by our military. In addition, those with large equity in businesses get additional benefit because our military is helping secure the resources they use and protect those resources as they are manufactured into goods and brought to the U.S. So, whatever increase in taxes we are talking about, they should be very progressive because those in the top brackets get the most benefit.
At the same time, fiscally-responsible progressives are extremely concerned about our borrowing and would like to see the deficit eliminated. To do that, we need tax increases. Anyone that believes we should be spending money on these overseas deployments (which apparently includes President Obama and the majority of the Democratic leadership) should be willing to make sure that this program is revenue neutral. It should not be adding to our deficit. Any member of Congress that claims to be fiscally responsible must be in favor of making this spending revenue neutral, and this implies increasing taxes to pay for it.
So, the first thing progressives should put on the table is a bill that makes up the difference. As we are borrowing something like 50% of the money we are spending, that would imply a tax increase of at least $65 billion a year to pay the difference. This additional tax should be distributed by income levels in the income tax system so that the effective tax rate of each important income group is proportional to their asset holdings. For example, the top 1% hold 43% of assets. The proportion of the funds raised from the top 1% should be about 43%.
Another proposal should be a tax increase that eliminates subsidies to the energy companies. This is an easy target because these subsidies are inherently unfair and many Republicans would like to get rid of them. This tax increase should be tied to infrastructure spending. This is because infrastructure spending increases energy consumption.
For example, when the government builds a new road or bridge, or expands capacity, it means that more people can travel. In addition, better infrastructure allows businesses to expand, and those businesses need energy to operate. It is to the advantage of an oil company, for example, to see infrastructure increase. So, a package that ties reductions in these subsidies to spending in areas that benefit the same industry blunts lobbying by these companies to stop it. If they see a net benefit to allowing this money to be taxed and spent, then they will at least not be able to effectively oppose the package.
So, progressives need to propose legislation that increases spending in infrastructure and build in payment for it from tax increases coming from elimination of subsidies. Such legislation is fiscally responsible because it allows us to fund spending that we need from revenue increases that also remove distortions in the economy. This type of taxation is business-friendly, which makes it very difficult for Republicans to oppose. To oppose this tax increase is to open yourself up to the claim that you are anti-business. I’m not sure how Republican politicians survive that charge.
Finally, one area that needs a lot of work is our healthcare system. It is soaking up enormous amounts of money, but Republicans have been tasked with preventing any kind of fix. This is because we talk about the problem in the wrong way. The problem to address is our competitive position in the world. Spending on healthcare weakens every company in the country that is trying to produce for export or that competes against imports.
When we talk about healthcare in terms of our competitive position, then it becomes a business question. The current system is anti-business. It offloads an enormous burden for healthcare on companies, both by making them offer packages themselves and by forcing them to pay higher wages so that their workers can pay the added expense of our healthcare system. The extra 7% that the U.S. pays for healthcare over costs in, say, Europe (our main advanced competitor) means that everything in this country costs more than it should. Companies must pay workers extra, and those companies pass those costs on in their products. This makes them less competitive against products from other countries.
The way to address this imbalance is for the U.S. government to provide publicly-funded healthcare. The U.S. should make it policy to pay for all essential healthcare out of income tax funds. This means a tax increase (maybe 2% added to each tax bracket, for example) that replaces what people now pay in premiums. This would allow us to define a funding level, such as 15% of GDP, that brings down costs while eliminating tremendous amounts of wasted money: unnecessary profits, excessive executive pay, most administrative costs, and many other types of waste.
The key is to tie this tax increase to a specific benefit. This means that the debate revolves not around tax increases or spending cuts, but rather, “does the public see the benefit as outweighing the costs?” We can then focus on the benefits. In terms of convincing the American people to support a tax increase it is important to show the benefit and hammer away on that until they are willing to pay the cost. A tax increase is merely a consideration that people have about the proposal. If they want the benefit enough they will overcome their considerations to get it.
A publicly-funded healthcare system has such vast benefits that it can overwhelm any opposition to raising taxes.
A serious mistake that progressive have been making is to talk about revenue in the abstract, as if it were only an economic consideration whether we raised taxes. We have to tie increases to specific benefits. By tying the increase to a specific benefit we can focus the discussion not on the funding but on the benefit. Then Democrats need only say that they will not sign on to providing this benefit unless doing so is fiscally-responsible, and that means that Republicans will need to sign on the increase in taxes that go along with the package. This puts Republicans on the defensive to explain why they oppose giving the American people what they need and clearly want.