We the people have been lied to about taxes for many years. One of the great political myths of the last 40 years is that cutting taxes, on the wealthy in particular, will create prosperity. It’s simply not true. Looking back we didn’t start having an out of control debt problem until the 1980’s. But what most people don’t understand is why. It’s not about out of control “gument” spending. This shows pretty clearly that the “trickle down” never happened. And it’s easy to see from this, Federal Individual Income Tax Rates History, that up until 1987 we still had a “progressive tax system”. Meaning there were many more levels then there are now, and the more that was earned the more that was owed in taxes.
Cut taxes, don’t cut spending, and deficits skyrocket…who would have thought that was going to happen? Well there was a theory or two that are now known to be false, Starve the Beast: Just Bull, not Good Economics.
A prime reason why we have a budget deficit problem in this country is because Republicans almost universally believe in a nonsensical idea called starve the beast (STB). By this theory, the one and only thing they need to do to be fiscally responsible is to cut taxes. They need not lift a finger to cut spending because it will magically come down, just as a child will reduce her spending if her allowance is cut — the precise analogy used by Ronald Reagan to defend this doctrine in a Feb. 5, 1981, address to the nation.
And contrary to another commonly-held Republican idea — that all tax increases reduce revenue via the Laffer Curve — revenues rose from 17.5 percent of GDP in 1992 to 20.6 percent in 2000.
There’s much more about what’s happened in our country regarding taxes over the last 40 years. Here and here in particular. But with all the “serious” talk we’ve been having about the deficit since a Democrat was elected President in 2008 – and for some reason the deficit isn’t a big deal when a Republican is President – the tax part of finding a solution to our deficit needs much more attention.
This column from Ezra Klein does a great job of showing how that discussion has narrowed to almost nothing by both parties, Washington’s Counterproductive Consensus on Taxes.
The two parties spent most of this week, as they tend to spend most of every week, arguing about taxes. Democrats are for ‘em. Republicans, against. Right?
Wrong. These tiresome debates obscure the near-consensus in Washington on taxes: Republicans don’t want to raise taxes on anyone, and Democrats don’t want to raise taxes on almost anyone. The argument between the two parties rages over that sliver of territory between “anyone” and “almost anyone.”
There are currently at least two irresponsible tax pledges governing Washington. The first is Grover Norquist’s now- infamous pledge that keeps Republicans from ever raising taxes on anyone, for any reason, at any time. But Democrats have their own pledge: President Barack Obama’s promise never to raise taxes on anyone making less than $250,000 a year. That’s 98 percent of the country.
And lately, Washington has been seized by an even narrower argument than that. The “Buffett Rule” looks to impose a minimum tax rate of 30 percent on annual income of more than $1 million. That’s not the top 2 percent. It’s not even the top 1 percent. It’s a fraction of the top 1 percent.
Republicans view taxes with an almost religious fervor: They are profane and must always be fought. Get thee behind me, revenues! Democrats see them as a kind of moral cause: They are about “fairness,” and should be used to help rectify some of the most glaring inequities in the economy. Lost on both sides is a more practical view of taxes: They are how the government pays for itself.
You can see this in the deficit-reduction plans proposed by the two parties. Representative Paul Ryan’s budget includes a tax-reform component that details trillions of dollars in tax cuts but not a dollar in offsets. Obama’s budget includes $1.5 trillion in tax hikes, all of them on earners making more than $250,000. Looking at just these two plans, it really does seem that the two parties are very far apart on taxes.
But in the long run, this anti-tax orthodoxy is likely to harm both parties. Democrats cannot, in the coming decades, pay for the social welfare state they say they support by raising taxes only on the rich. Yet sharply raising taxes only on the rich — the most noxious and counterproductive kind of tax increase, according to Republicans — is all but guaranteed if Republicans continue to oppose any and all attempts at revenue- raising tax reform and force future tax hikes to come entirely through Democratic votes.
That may be the final irony: The longer they cling to their ridiculous tax pledges, the more both parties lose their ability to shape public policy on the issues they claim to care about most.
There’s more in the article. Specifically about how there used to be bipartisan agreement on taxes to pay for certain things, roads in particular.
In other words, from 1956 to 1993, there was a bipartisan consensus on the federal gasoline tax: Both parties agreed that it occasionally needed to be raised in order to help pay for the nation’s infrastructure. But since 2000, there has been a bipartisan consensus against raising the federal gasoline tax.
And we’ve seen that same thing play out here in Texas, where the gas tax hasn’t been raised in nearly 20 years. But it’s not just roads. During the last legislative session in Texas this kind of thinking began moving to other areas that used to have bipartisan support – public education, health care, as well as care for the disabled, elderly and poor.
It all goes back to the lie. The lie was that we could all pay less taxes and not have to cut government spending. That’s simply not true. If we want to continue spending at current levels or higher, in defense, health care, education, infrastructure ,etc.., and erase the deficit then we all are going to have to pay more taxes as we once did. But especially those at the upper income levels. If cutting taxes has created our deficit, then raising taxes will erase it. We the people, have to understand that, because until we do our elected representatives will continue to turn a blind eye, afraid that doing the right thing will cost them at the ballot box.