With April 15 and our tax deadline looming, this is probably not the time to say this, but one of the biggest reasons for the federal deficit is that Americans are under-taxed. Republican John Boehner and his colleagues have managed to focus the debt discussion on expenditures when the issue also involves revenues, while it appears that President Obama plans to propose new taxes in his long-term deficit reduction plan. At least somebody in Washington knows how to add and as well as subtract, though selling a tax increase to the American public will be a major test of the president's leadership skills.
The radical right in the House of Representatives came within 90 minutes of closing the federal government this past week and will play that game again in about five weeks when the debt ceiling must be raised. According to the New York Times:
Once the limit is reached, the Treasury Department would not be able to borrow as it does routinely to finance federal operations and roll over existing debt; ultimately it would be unable to pay off maturing debt, putting the United States government -- the global standard-setter for creditworthiness -- into default. The repercussions in that event would be as much economic as political, rippling from the bond market into the lives of ordinary citizens through higher interest rates and financial uncertainty of the sort that the economy is only now overcoming.
Wall Street and the American banking community are alarmed by the possibility that this step in Congress could set in motion a global financial firestorm. To inexperienced and highly ideological Tea Party Congressional representatives, the vote on the debt limit is yet another opportunity to dominate the media and reinforce the idea that only radical spending reductions can stop us from going broke.
It is true that the deficit is far too high. While Bill Clinton left office with a budget surplus, George W. Bush cut taxes and spent enormous sums of money on a range of military actions. Bush left Obama with the worst economy since the Great Depression and a growing federal deficit. But while the deficit is too high, government expenditures might actually be too low. Over a year ago I wrote that "under-taxed Americans are too broke to finance sustainability infrastructure."
As I said at that time:
The total tax rate in the United States is much lower than the of most European nations. In 2006, total taxation in the U.S. came to 28% of our GDP. This is compared to 44.2% in France, 37.1% in England, 35.6% in Germany and 33.3% in Canada. The Japanese and Koreans pay slightly less taxes than we do, but most developed nations have higher tax rates than the U.S.
In fact we collect so little in fuel taxes, there is not even enough money in the federal highway trust fund to keep our highways in good repair. Our inability to save and invest in the future seems to be matched only by our inability to build government institutions that we trust. It is true that government could be much better managed than it is. Government must continue to improve its own operations and do a better job of sharing its tasks and resources with private and non-profit organizations. However, by not collecting sufficient tax revenues we are starving critical functions that only government can fund: basic scientific research and development, education, infrastructure and aid to the poor, disabled and elderly.
There are a lot of reasons that health care and Social Security costs are rising. The key ones are that people are living longer and health care is getting better. We all use more and better health care than people did 50 years ago. On average we live longer and healthier lives. When you get more of something and it is growing in quality, it often costs more. Republican Congressman Paul Ryan's proposal to cut the deficit advocates capping Medicare and Medicaid spending. If that happens, either the states will have to pick up the slack, individuals will need to pay more, or poor and elderly people -- especially poor old people -- will go without care. What does that mean? It means that national policy is that when grandma gets sick, she will go untreated and die. Why bother with death panels when we have a death policy?
To a stunning degree, the anti-tax advocates have come to dominate our political dialogue. Taxes were once seen as a patriotic, civic obligation. No one ever liked them, but few Americans questioned their legitimacy. Now they are seen as unnecessary and too large by definition. Increased taxes cannot get on the political agenda. As a result, the great challenges our nation faces cannot be addressed. We are in danger of ending up as an inhumane country where poor people are reduced to begging in the streets. Poor children will grow up in a society of amnesiacs who have long forgotten the American Dream. Capping the funds for sick people and old people is not an abstract accounting exercise. Real people will suffer.
The deficit is a major problem for America. But there are two parts to the problem. One part is waste in government. The second is insufficient revenue. We are under-taxed, especially our corporations and our rich.
The Republicans in the House must be confronted with the impact of their actions. Failing to raise the debt limit can endanger the still fragile American and global economies. A resumed recession would hurt a lot of people. Capping Medicare will result in pain and death for the elderly.
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