Obama’s press secretary has attacked Republican efforts (supported by some moderate Democrats) to extend all of the Bush tax cuts calling that “continued support for the failed policies that got us into this mess.” But Obama himself aggressively supports extending the portion of the Bush tax cuts that would go to families making less than $250,000. In dollar terms, that’s hardly a small portion. It’s close to 80% of the total. Any policy that’s 80% successful would appear to justify a grade of “B” — not an “F”.
Even if 20% of the Bush tax cuts were properly cast as a wasteful sop to his well-heeled base, that’s not bad as government programs go. Its highly doubtful that the stimulus act or Obamacare could meet the standard of being only 20% politics and 80% sound economic policy.
Ironically, the primary Democratic criticism of extending the tax cuts for “the rich” is that too much money would be saved not spent. Lower and middle income Americans — they argue — would spend their tax cuts, not save or invest them. That’s certainly an argument in favour of limiting a temporary extension to lower and middle income Americans — but its an absurd justification for a permanent tax extension.
Everyone agrees that we consume too much as a nation. But to really understand how bad the problem is, it is essential to stop thinking of the government as separate from the people. Every dollar of “government” deficit represents a dollar that must ultimately be collected in the future at the expense of some U.S. individual — either through a future tax increase or sufficient spending cuts (say, in social security or Medicare) to generate a budget surplus that could be used to retire the debt. Like it or not, the government’s expenditures — everything from social security to the post office — must ultimately be paid for by the people of the United States.
We can decide which people have to pay more taxes or suffer spending cuts. But we can’t foist the problem onto some other people or some other country. Even corporate taxes are only imposed on corporations that are organised in the U.S. or decide to do business here. If we “soak” these corporations with higher taxes than are imposed by other countries we are ultimately “soaking” U.S. consumers and workers. No one will be willing to invest in a corporation subject to high taxes on its activities in the United States unless its labour costs are lowered or the prices it charges for goods are raised. Ultimately, it all comes down to people.
Yes, liberals and progressives concede, but they argue that the way to solve our “over-consumption” problem is to impose higher taxes on upper income Americans, who are spending too much on goods and services that most Americans consider luxuries. Raising taxes will cause these individuals to reduce their “excessive” spending. That’s a better approach — liberals and progressives argue — than reducing social security or Medicare payments or forcing lower and middle-income Americans to reduce their personal consumption expenditures, by paying more in Federal taxes.
Let’s ignore whether this is “fair” to upper income workers. Let’s even ignore whether it will have any negative effects on their incentives to work hard. The problem is — if 80% of government spending benefits lower and middle income Americans — and 80% of the resulting tax burden is borne by “the rich” — the incentives will always be to increase spending and taxes, and never to control the vast majority of public and private spending that is enjoyed overwhelmingly by the vast majority of rank and file Americans. As any household or business knows, unless the costs of spending and its benefits are at least somewhat aligned, there can never be any hope of meaningful budgeting.
Donald B. Susswein is a Washington lawyer who practices and writes in the areas of taxation, tax and fiscal policy, and financial institutions and products. He served as an advisor on these issues to the Committee on Finance of the United States Senate. He writes a weekly column for Benzinga every Tuesday.
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