Need something to talk about? Text us for thought-provoking opinions that can break any awkward silence.ArrowRight
Republicans propose cutting taxes and regulations enough to ignite economic growth so rapid and constant that a gusher of revenue will restore fiscal health. This approach is marginally less implausible than the Democrats’ proposal, because one can at least postulate a sufficient growth rate — say, 5 percent, forever. But given the bipartisan normalization of enormous annual deficits — $2 trillion and heading up — substantial borrowing probably would be needed to supplement revenue streams, no matter how large they are.
The Democrats’ proposal is even less realistic: “Tax the rich” until they pay their “fair share.” The Republican approach ignores political and economic probabilities. The Democratic approach ignores arithmetic. The Manhattan Institute’s Brian Riedl explains this in his recent study “The Limits of Taxing the Rich.”
Advertisement
The Congressional Budget Office’s much-too-optimistic projection is that within a decade annual budget deficits will approach $3 trillion (7.3 percent of gross domestic product). This assumes, as the CBO is required to do, wildly improbable things: that tax cuts set to expire soon will be allowed to, that there will be no new spending initiatives and that low interest rates will minimize debt service costs. Still, looking out three decades, the CBO sees Social Security and Medicare costs exceeding revenue by $116 trillion, pushing annual deficits past 10 percent of GDP.
Follow this authorGeorge F. Will's opinionsFollow
President Biden, embracing populism’s playbook, says the burden of paying for increased government spending should be borne entirely by unpopular entities, corporations, and an unpopular minority, the rich, understood as the 2 percent of the population with annual incomes over $400,000. Riedl, who does not argue that high-earners’ taxes should not be raised at all, says:
Primarily because of cuts to lower- and middle-class income taxes (essentially half of all families are off the federal income tax rolls), the income tax has become “sharply more progressive” over the past 40 years and is the most progressive of the 38 developed nations of the Organization for Economic Cooperation and Development. In 2023, the bottom 40 percent of earners will pay, collectively, no income tax and will receive a $123 billion tax rebate. The middle-earning quintile will pay an effective rate of 2.2 percent. The top-earning quintile (at least $686,100 for a two-person family) pays 90 percent of all income taxes. The top 1 percent pays 40 percent of all income taxes — not self-evidently an unfairly small share.
Advertisement
Obviously, at some tax rate below 100 percent — somewhere between 50 percent and 70 percent; say, 60 percent — revenue peaks, and higher rates would reduce revenue and increase costs to the economy. These “spillover effects” include reduced work, investing and entrepreneurship. The current top marginal tax rate, counting state and local taxes, is about 50 percent, leaving little room for aggressive income taxation to raise substantial revenue from the wealthy, who receive much of their income from capital gains rather than wages and salaries.
Biden’s proposed increases in capital gains taxation would produce only 0.1 percent of GDP. Just restoring the pre-2017 corporate tax rate of 35 percent (nearly 40 percent counting state taxes) would, Riedl says, “vastly exceed the rates of competing nations.” Remember, capital is mobile, going where it is wanted and staying where it is well-treated. As for wealth taxes (administrative nightmares tried and largely abandoned in Europe), Riedl says: “Even seizing all $4.5 trillion in wealth owned by America’s billionaires — every home, car, investment, and business — could finance the federal government one time for just nine months.”
Taxing high-earners and corporations at revenue-maximizing levels conjecturally might raise at most $7 trillion over a decade, but, Riedl warns, probably significantly less. This is because taxes on those entities and individuals — they do the most investing and job-creating — would reduce incomes, wages and economic growth. The moral of Riedl’s story is:
Advertisement
“While the highest marginal tax rate has steeply fallen over the past 80 years, federal income-tax revenues have risen as a share of the economy.” And nearly $1 trillion could be saved in a decade by curtailing subsidies to agribusinesses and trimming Social Security and Medicare benefits for wealthy retirees. The two parties could sheath their daggers and achieve progressive redistribution goals without the economic harms of large tax-rate increases. Something they might consider — tomorrow.
Share Comments
Popular opinions articles
HAND CURATED
- Opinion|No, Liz Cheney. You should not run for president.December 5, 2023Opinion|No, Liz Cheney. You should not run for president.December 5, 2023
- Opinion|Enough with all the fatalism about a Trump dictatorshipDecember 5, 2023Opinion|Enough with all the fatalism about a Trump dictatorshipDecember 5, 2023
- Opinion|The Trump dictatorship: How to stop itDecember 7, 2023Opinion|The Trump dictatorship: How to stop itDecember 7, 2023
View 3 more stories
Loading...
The two parties disagree even when they agree, as they do about this: Federal spending is on an unsustainable trajectory under current law. They also agree that altering the most important drivers of this trajectory — Social Security and Medicare — is for tomorrow, which is always a day away. The parties propose, solemnly but implausibly, radically different solutions.
Republicans propose cutting taxes and regulations enough to ignite economic growth so rapid and constant that a gusher of revenue will restore fiscal health. This approach is marginally less implausible than the Democrats’ proposal, because one can at least postulate a sufficient growth rate — say, 5 percent, forever. But given the bipartisan normalization of enormous annual deficits — $2 trillion and heading up — substantial borrowing probably would be needed to supplement revenue streams, no matter how large they are.
The Democrats’ proposal is even less realistic: “Tax the rich” until they pay their “fair share.” The Republican approach ignores political and economic probabilities. The Democratic approach ignores arithmetic. The Manhattan Institute’s Brian Riedl explains this in his recent study “The Limits of Taxing the Rich.”
The Congressional Budget Office’s much-too-optimistic projection is that within a decade annual budget deficits will approach $3 trillion (7.3 percent of gross domestic product). This assumes, as the CBO is required to do, wildly improbable things: that tax cuts set to expire soon will be allowed to, that there will be no new spending initiatives and that low interest rates will minimize debt service costs. Still, looking out three decades, the CBO sees Social Security and Medicare costs exceeding revenue by $116 trillion, pushing annual deficits past 10 percent of GDP.
President Biden, embracing populism’s playbook, says the burden of paying for increased government spending should be borne entirely by unpopular entities, corporations, and an unpopular minority, the rich, understood as the 2 percent of the population with annual incomes over $400,000. Riedl, who does not argue that high-earners’ taxes should not be raised at all, says:
Primarily because of cuts to lower- and middle-class income taxes (essentially half of all families are off the federal income tax rolls), the income tax has become “sharply more progressive” over the past 40 years and is the most progressive of the 38 developed nations of the Organization for Economic Cooperation and Development. In 2023, the bottom 40 percent of earners will pay, collectively, no income tax and will receive a $123 billion tax rebate. The middle-earning quintile will pay an effective rate of 2.2 percent. The top-earning quintile (at least $686,100 for a two-person family) pays 90 percent of all income taxes. The top 1 percent pays 40 percent of all income taxes — not self-evidently an unfairly small share.
Obviously, at some tax rate below 100 percent — somewhere between 50 percent and 70 percent; say, 60 percent — revenue peaks, and higher rates would reduce revenue and increase costs to the economy. These “spillover effects” include reduced work, investing and entrepreneurship. The current top marginal tax rate, counting state and local taxes, is about 50 percent, leaving little room for aggressive income taxation to raise substantial revenue from the wealthy, who receive much of their income from capital gains rather than wages and salaries.
Biden’s proposed increases in capital gains taxation would produce only 0.1 percent of GDP. Just restoring the pre-2017 corporate tax rate of 35 percent (nearly 40 percent counting state taxes) would, Riedl says, “vastly exceed the rates of competing nations.” Remember, capital is mobile, going where it is wanted and staying where it is well-treated. As for wealth taxes (administrative nightmares tried and largely abandoned in Europe), Riedl says: “Even seizing all $4.5 trillion in wealth owned by America’s billionaires — every home, car, investment, and business — could finance the federal government one time for just nine months.”
Taxing high-earners and corporations at revenue-maximizing levels conjecturally might raise at most $7 trillion over a decade, but, Riedl warns, probably significantly less. This is because taxes on those entities and individuals — they do the most investing and job-creating — would reduce incomes, wages and economic growth. The moral of Riedl’s story is:
“While the highest marginal tax rate has steeply fallen over the past 80 years, federal income-tax revenues have risen as a share of the economy.” And nearly $1 trillion could be saved in a decade by curtailing subsidies to agribusinesses and trimming Social Security and Medicare benefits for wealthy retirees. The two parties could sheath their daggers and achieve progressive redistribution goals without the economic harms of large tax-rate increases. Something they might consider — tomorrow.
login
who are we?
contact us
qosheapp
Toi Staff
Gideon Levy
Belen Fernandez
Andrew Mitrovica
Mort Laitner
Rami G Khouri
Nikkei Editorial
Ali Fathollah-Nejad
visit website
