Forget raising taxes on the very rich. What about me?
A sobering piece in today’s Wall Street Journal argues that, if President Obama is to maintain his current level of spending, it’s going to mean an 11 percent tax increase even for those earning less than the magic $200,000.
Glenn Hubbard, chairman of the Council of Economic Advisers under George W. Bush, gives an alarming account of the increase in federal spending since 2008. The president’s stated plan of dealing with this massive spending is by raising taxes on the rich. Problem: soaking the rich won’t bring in nearly enough money.
Hubbard writes:
Maintaining the president's higher spending will require raising taxes for all Americans. Assuming the president favors raising marginal tax rates over broadening the tax base (consistent with his failure to consider the tax proposals from Bowles-Simpson), an across-the-board tax increase of 11% for taxpayers with incomes under $200,000 would be required to raise the money the president proposes to spend.
And the entitlement problem? Failing to slow the growth of Social Security and Medicare spending would require a large, across-the-board increase in the payroll tax for both programs.
Yes, President Obama and Mitt Romney have budgets with competing visions. But Gov. Romney's budget makes tough choices—tax reform that will require broadening the tax base, spending restraint to return federal spending to 20% of GDP by 2016, and reform of Social Security and Medicare to slow the rate of spending growth for more-affluent individuals.
President Obama's budget fails to identify the choices he will ask us to make. But the arithmetic is clear: His path means large tax increases for all Americans.
We need a debate over what we want government's role in society to be. Voters also must have a menu with prices—showing the true cost of the special on offer.
The presidential debates would be a good place to do this. In a vacuum, most Americans probably assume government should be providing all sorts of services the Founding Fathers could not have seen as appropriate. But if they get the costs, not just the supposedly delicious items in the menu, they might be willing to rethink this.
Also writing in today’s Wall Street Journal, Andrew Biggs has a plan that might help us with the looming insolvency of Social Security: a payroll tax cut. And he doesn’t mean the phony payroll tax cut that Congress enacted last year:
The annual Social Security Trustees Report, released on Monday, confirms that the program is significantly underfunded. After decades of delay, Congress and the next president will need to take steps to restore Social Security's finances and improve Americans' retirement income security. Although it might seem counterintuitive, one positive step toward achieving both goals is to cut the 12.4% payroll tax for workers nearing retirement, say, at age 62.
Biggs explains that the current system encourages many to retire early, thereby putting more pressure on Social Security. But, if they were earning more money, they might decide to work longer.
[T]he gains to individuals and the economy could be substantial. Working one additional year would boost average private pension income by almost 5%. And all Americans would benefit from the extra goods and services that older workers could provide.
Why do I think President Obama is unlikely to see it this way?