Time to Talk Tax Hikes

Raising America's taxes is an excellent idea.

House leaders deserve credit for beginning the debate on exactly who should pay how much more and when. Regardless of the outcome, it will make our politics slightly more honest while relieving some internal pressures on the Democratic Party.

The latter issue is raised by those on the left who are disturbed by how income has tilted toward the top in recent decades and believe the tax system should take a more aggressive role in offsetting that trend. That the revenue raised could finance programs they like or reduce record anticipated deficits is icing on the cake.

White House efforts to mend capitalism rather than end it have troubled this group, which notes that responses have been more successful in saving banks than reducing foreclosures and that executives in semi-socialized firms are still making big bucks.

So asking the rich to pay a bit more sends a reassuring signal to this group while providing a way to fund our government, which is spending quite a bit more than it is currently taking in.

Whether such a tax increase is actually included in the health package ultimately approved -- and my personal bet is that at least a sliver of it will be -- isn't terribly important. What is important is that this faction of the Democratic Party has an opportunity for a public test of something it thinks should be on the agenda.

At best, they'll win something. At worst, they'll have a clearer picture of who's unsympathetic to their views. A final benefit is that this avoids a sticky debate about taxing employer-paid health insurance premiums, a disruptive move of unpredictable benefit that they see as a dagger aimed at one of their key constituencies, union members.

Raising this issue can also start a debate about our chronic deficit issue. Few argue with the need for red ink now given the economic stresses of the moment. But fewer yet think that the deficit problem will solve itself over time. And some think America is becoming increasingly vulnerable to a potential lenders' strike. If others decide to stop loaning us money, we'd confront a real crisis.

Balancing the budget is one of those questions that's simple, but not easy. Either we spend less or bring in more. Today's debate in California suggests that waiting for the arrival of the revenue fairy or outlawing waste, fraud and abuse are faux strategies that deflect attention from the tough decisions that ultimately will be required.

When the House votes on legislation to raise taxes as part of health reform, we'll see the opening chapter of that overdue debate.

Comments

[bannorhill]

Higher taxes discourage businesses from moving to California. California ALREADT has the 6th highest tax rate in the US. The proplem is not income. It is spending.

[nee]

So true bannorhill!

[Jim Jaffe - Huffpost Blogger]

Hi, thanks for writing and raising an interesting and provocative point. So what you're saying is that 2500 who made on average more than $20 million and owed, on average more than $2 million in state taxes each, fled the state, thereby causing the problem of the moment. Wish I'd seen that reported in the press where they make the process seem so much more complex. anyway, wonder where these folks went. perhaps to a state that doesn't tax income because it appears that many other states confront similar problems.

[robinhood1]

The Lake Tahoe Region of Nevada is favorite destination. Many of the wealthy already have second homes there. It isn't that complicated to change your residence status and beyond a certain point, it is very sensible for very rich people to do so. Here is a listing for a home currently for sale at Zephyr Cove: http://www.trulia.com/property/35906737-Single-Family-Home-Zephyr-Cove-NV-89448
Get your head out of the sand, Mr. Jaffe.

[Senzasord]

I concur but let's start by rolling back the obscene tax cuts for the wealthy that have been doled out willy-nilly since the Reagan administration. This is a separate issue from raising taxes and probably could be accomplished more easily. The Republicans and conservatives will scream no matter what you do, but the average American will more easily accept a tax cut roll back than anything that can be framed as imposing a new layer of taxes.

[OkieMon]

no tax hikes but time to raise interest rates...

[LiteSleeper]

Not even close

[PlasmaX]

I've never really felt overtaxed living in American. The strengths of a nation - military, roads, schools, the well being of its citizens, have to be paid for. Sure I pay as little tax as required, that's my right, but the American aversion to taxes baffles me sometimes. My biggest gripe is the inequity of the tax code, not that I have to pay my fair share. I pay my taxes but many at the top of the economic ladder do not - and the nation suffers for it.

[nee]

I don't have an "aversion to taxes". We pay taxes. CA is #1 in the nation in income tax and sales tax and #6 in overall taxes and we were just handed the LARGEST tax hike in HISTORY. We pay our share. The government isn't using our money wisely. They need to make CUTS! They need to spend only what they have. There isn't a revenue problem there is a SPENDING problem!

[FogBelter]

Mr. Jaffe, I think you are correct about taxes but there is an 800 lb Gorilla that is not being discussed. Business was doing quite well during the Eisenhower era with much higher taxes than today. Over the years taxes have consistently been altered to benefit business and yet business has been struggling more and more to stay in the game. Even with subsidies and the ability to outsource labor to cheaper foreign labor pools business is still in dire straits ... probably far worse than Accountant Alchemy currently allows to be revealed.

If you add it all together, although raising taxes is a necessity, the real problem is that American Corporate Capitalism is failing, and most American Companies would collapse in the "Free Market" if it were not for backdoor Government support thorough generous tax policy which is not sustainable.

[Jim Jaffe - Huffpost Blogger]

good point. far as I know, though, no one is advocating raising taxes on business. the share of revenue the government gets from corporate taxes is declining over time and no one seeks to reverse that. whether American business is adequately competitive is another good topic, but one for another day. In any event, it is hard to see how raising taxes on a Wall Street type making $1 million a year would somehow make us less competitive, tho I'm certainly willing to listen to arguments.

[FogBelter]

At some point money ceases to be a tool of commerce and becomes a narcotic. There is absolutely no reason not to raise taxes on the absurdly wealthy, who I would classify as little more than resource hoarders who are trying to amass wealth as a hedge against their own mortality. Definitely taxing them for the good of the Nation would be the appropriate thing to do, but it would be like trying to wrest the needle from a heroin addict's frantic grip.

[Noelle Cigarroa Perese - Huffpost Blogger]

I'm in full agreement with this post. It's necessary to raise the taxes of the wealthy to help pay for health care reform. It's a politically popular idea for raising tax revenue, whereas the idea of taxing people's employer health benefits isn't a politically popular idea. Sure, it may make sense to tax people's employer health benefits, but it's a negative political effect that Americans feel right in their pocket. The idea of raising the taxes of the wealthy isn't something that ordinary everyday Americans feel because they know their regular income doesn't come anywhere close to that of the wealthy.

Where the average American family makes over $40K in income, taxing their employer health benefits would be immediately felt, and they'd blame politicians for that. They wouldn't blame politicians for taxing the wealthy. And it's the truth.

[arrowrod]

It might not occur to Jaffe, but people with money will adjust their income to reduce taxes. The result of this is less jobs created, less taxes collected.

How many times does this have to be done?

[Jim Jaffe - Huffpost Blogger]

thanks for a provocative theory. so if folks with big jobs work less, doesn't that mean someone will have to do the work they reject, thereby creating new jobs. that would be helpful in several ways, including upping tax revenue.

[co2dog]

Mr. Jaffe ... California ... the first $5 billion shortfall was due to 2,500 high tax families leaving. Calif has no captial gains tax ... taxed as ordinary income. Anyone with money legally avoids taxes. Buffet, Gates, etc. create a foundation, etc. Over tax the smartest will not work.
The tax laws nab the people mostly "middle class" who cannot move or hire accountants.
The real problem are monopolies ... unionized government employees (fed, state, city, BART, etc.) paid incredible wages compared to private industry. Industry must show their income, the union leaders are exempt & greed is not public.
Open all govenment positions to competitive bids ... FedEx and UPS compete against the Post Office ... they force the Post Office to be competitive. Police, Fire, teachers ... open these to competition.
Stop endless welfare by stopping all of the businesses and political leaders that live off of welfare.
Yes, Healthcare can be reformed but the trial lawyers and unions and the welfare and illegal immigration crowd that have been sucking the value from the current system will suffer ... also will lower the profit of some insurance companies. But we can get better healthcare ... but not from the Democrats or Obama ... the high cost groups voted them in. There are examples of large healthcare organizations that function effectively ... copy these. Don't copy the VA or Medicare ... Obama should fix these to show that he can fix something.
Bottom line --- don't raise taxes. Make

[HarmonyAlexandria]

Rule 27 of investment - Don't fear the tax man.

I'd rather pay tax on a GAIN, than suffer a loss. Nobody in the history of humankind has ever gotten or stayed wealthy by shorting themselves just to spite the taxperson.

[propitiousmoment]

Thank you for a common-sense answer to that absurd argument.

[ldsb]

Exactly!

[faceplant]

This is the old Laugher, er, Laffer Curve argument. It doesn't hold water. Reagan reduced taxes on the top tax brackets. So did Bush II. Did revenue go up? No it did not, and job creation was anemic.

[levitrain]

Amen. Even Laffer himself explained that this arguement was purely theoretical - he never suggested actually putting it into practice.