People Who Think Taxes Will Have to Go Up

David Leonhardt has started a new club, which has already attracted some additional members.

Count me in, in spirit at least (there must be dozens of more prominent people for the Times to bother with). Because, ultimately, I think we Americans are a decent people (or at least a squeamish people), and we will not be able to endure the sight of millions of seniors being thrown onto the streets or deprived of medical care. And so the looming combined shortfall of Medicare, public pensions, private pensions,  and individual savings will at some point motivate us to raise taxes on ourselves.

By James Kwak

51 responses to “People Who Think Taxes Will Have to Go Up

  1. If you have such confidence that Americans are too decent/squeamish to endure the (inevitable, I take it?) sight of “millions of seniors being thrown onto the streets or deprived of medical care”, then you should have no problem with leaving the prevention of this sight up to the generosity of Americans as expressed through private charity.

    Saying that you believe taxes “will have” to go up is, on the contrary, an admission that you don’t have the belief in the decency of the American people that you claim to.

  2. Please explain your conclusion.

    Thanks.

  3. Assuming raising taxes means raising taxes on the rent-seeking, unproductive rich (i.e. the rich as a whole), I think you’re being optimistic, given that we currently have:

    1. Pure obstructionism to ALL proposed reforms (Republicans);

    2. Capture, corruption, and corporatist ideology which together strangle all reform in its cradle (Republicans and Democrats);

    3. A president who is either a hard-core corporatist ideologue, or an appeasementist coward, who either way absolutely refuses to push for reform on any front, let alone go over Congress’ head to mobilize the people for Change, even though Change was his electoral mandate and the platform and promise he ran upon.

  4. “I think we Americans are a decent people”

    Yes. Absolutely. As long as the victims do not have vaguely islamic names or mustaches.

    Wait a minute, did you say taxes? Oh, well, hmmmm. That’s something else again. I think there is a subcommittee working on that. We will refer it to them.

    And we have a large supply of celebrities who can die on short notice if anybody threatens news coverage of seniors being thrown into the streets.

  5. Thanks for pointing this out James. In the UK, we (at a small think-tank, ‘liberal’ in the 19th century way) think that the debate has gotten a bit unbalanced: you can’t expect ALL the burden to fall on public spending, it is neither fair nor efficient. And letting the inflation genie out of the bottle would have serious long-term costs.

    By coincidence, we have published today a piece on Britain’s fiscal mess, and some modest solutions to it. I hope you don’t mind me posting a link here?

    http://www.freethink.org/index.php/news-blog/4-news-blog/394-a-balancing-act

    Wealthy people have really benefited from the government standing in the way of the deflationary crunch – why should they not help to pay it back?

  6. Which part didn’t you understand?

    By saying Americans will “have to” be taxed (even more) to prevent certain events he somehow foresees (e.g. “seniors being thrown onto the streets”), James Kwak is implicitly saying that left to their own devices, Americans would stand and watch seniors be “thrown onto the streets” etc without voluntarily lending a helping hand in the form of aid or charity – the traditional method, and ironically, one that Americans have historically engaged in quite a bit – to prevent such an occurrence.

    But James also implicitly says that decent people would not do this; he equates decency with not tolerating the sight of millions of seniors kicked onto the streets.

    By basing his argument on an assumption that (without being forced via taxes) Americans would tolerate this sight, James demonstrates he doesn’t believe in the decency of the American people as he claims to.

  7. I am a s/w engineer in Bay Area in CA. I’m not a rich guy, you might call it “upper middle class”, but in Bay Area this is more like “average”.
    I consider myself a decent guy, but look: federal and state income tax, Social Security, state and county sales tax, gasoline tax, tobacco and liquor taxes — the government(s) already takes half of what I’m making.
    Dear economists, I know you all are very smart people. How much higher taxes are you talking about? Don’t tell me 50+% is not enough. Could it be possible to close the loopholes exploited by corporations and the “filthy rich” individuals? How about raising tax on capital gains and introducing a tax on all financial transaction, as Ralph Nader and other people proposed? (Don’t they have it in U.K.?)

  8. Hi sz

    Though not the same pedigree as this blog’s authors, I will give you my reply: in the UK, we don’t have much property tax. A man with a £2m house pays the same as one with a £320k house. We could do more in that way. We also fail to tax capital gains on housing profits if it’s your major residence – a real loohole.

    A tax on all transactions would be inefficient though. Part of our recommendation is to scrap our 50p/50% level of tax in the UK

    giles

  9. You are a productive, hardworking, non-troublemaking member of society, but with little power, sz. Therefore: They want as much of your money as they can snatch from you.

    It’s pretty much that simple, even for many of the supposedly “very smart” “economists”.

    If “economists” are so “smart” they would figure out that Not Spending So Much Money is an equally, symetrically-good method of dealing with revenue shortfalls. Haven’t seen that possibility raised here yet, however.

  10. Petter J. Karal

    “I’ll happily do my share for the needy, but only if you do the same. It is not MY responsibility, it is a shared responsibility. But since I can’t see you doing your bit, I won’t do mine.”

    Oh, and by the way, if you think you have high taxes you should try moving to my country (Norway). I am personally one of those who gets hit absolutely hardest (I make a good wage, but have minimal capital gains). But I have a good life here, and I can say that for more of my countrymen than you can about yours. We have the worldwide highest GDP per hour worked (excluding our oil income).

    I am on the free-markets-lower-taxes side of things here, but I can still recommend the USA to try a bit more of what we call “social security nets” – government provided programs that help people back on their feet when they fall too hard. Yes, there is the occasional “welfare queen”, but I challenge you to point out a desirable social system that is not in some way flawed (hints: capitalism, philanthropy, democracy).

  11. If government is going to do more stuff – like manage all the banks, pay the bankers, make good on insurance company losses, guarantee private investments, etc., then it is going to cost a lot more.

    Of COURSE taxes will go up, and it has little to do with medical care or any other traditional social program. The big money is carried off in trucks, not handcarts.

  12. Isn’t our current approach to health care reform to implement an “income tax” on the health care benefits received by employees? Removing cash from paychecks of workers who’ve seen their wages remain stagnant since Reagan?

    Imagine the consumer spending freeze THAT kind of new policy will generate! Workers are squeezed considerably today – so diminishing their take home pay even further seems an absurd “fix” to the problem of health care reform – and will do nothing at all to solve the problem of swiftly rising costs.

    I suppose that the CEOs of United HealthCare and other insurance companies will do their patriotic duty to pick up the spending slack. The UHC CEO made $124 million in 2005, so he’s probably got some extra dough to spread around….

  13. Petter,

    Are you sure you have much higher taxes? When I look at income tax, I’m at 27%. Not bad. Your point made, no? But wait, there’s more.

    When I add in property tax – another 6%
    When I add in sales tax – another 5% (say 4% on post tax)
    When I add in social tax – another 7%
    I should add in health care premiums at least – another 3% (vs. having it flow thru taxes to state provided care)

    Well, that totals nearly half my income. Is that really super super low? And going WAY up from here. Great. And for what? I’m unconvinced of the benefits we’ll see here in return.

  14. I think it might be our civic duty to pay taxes.

  15. “I’ll happily do my share for the needy, but only if you do the same. It is not MY responsibility, it is a shared responsibility. But since I can’t see you doing your bit, I won’t do mine.”

    A person who thinks this way is not as decent as James claimed to think (but doesn’t really think) Americans are. Therefore, asserting that Americans will think this way (and would go so far as to let seniors “be thrown out on the street” using such logic) is admitting one doesn’t think Americans are so decent. This is precisely my point; thanks for illustrating.

    Oh, and by the way, if you think you have high taxes you should try moving to my country (Norway).

    I didn’t say this. I was making a very specific point. But since you brought it up, you should not speak with such certainty that you are more highly taxed than I.

    but I can still recommend the USA to try a bit more of what we call “social security nets” – government provided programs that help people back on their feet when they fall too hard.

    We have those up the wazoo. It would be good to learn something about the United States if you’re going to “recommend” things for us. Just a tip,

  16. then you should have no problem with leaving the prevention of this sight up to the generosity of Americans as expressed through private charity.
    .
    Though a lens we could use charity to avoid a collapse in modern access to care. However I think that we are institutionally bankrupt ‘at least alot of smart people seem to think so’.
    .
    So the idea there is enough ‘wealth’ in the system to fund in a orderly manor senior health with charity is a demanding hope to wish for.
    .
    with all the central planning going down and the obsticles toward keeping the dollar strong ‘more cheap stuff’ i cant reasonably see how we can have a future without higher taxes even though i think taxes are VERY high. All inflation can do is destabilize and gut the economy to pay off debt. at least taxes are still a form of wealth in the world of dollars.
    .
    our government is mostly excuses bad management and very high hopes, reality costs money. Never would be nuf’ charity to pay a mans bills as i see it

  17. Tippy Golden

    Maybe you need a better tax lawyer.

  18. I’m with Petter on this one. The United States, the most powerful nation in the world, should be more like Norway and Canada. It would make the planet a much nicer place to be on.

    Noting here: the World Economic Forum says Canada has the best banking system in the world. While the United States gave the world Zombie banks.

  19. Tax the rich: they’re the ones who have money.

  20. We would not need to raise taxes if we did the following:
    1) Cut Defense Spending By 1/3
    2) Ended the War on drugs
    3) Instituted a Guaranteed Income
    4) For Health Care:
    A. Have the govt buy Catastrophic Care for Everyone: Imagine the bargaining power.
    B. Have a Deductible based on income, which would be confined to medical expenses that can be priced and shopped by consumers.
    If we did these things, we’d drastically cut expenses, while providing a social safety net that is concentrated on the poor.

  21. Agoraphobic Kleptomaniac

    Private donations can only do so much

    Shriner’s Hospitals, who have operated entirely on Donations for 90 years, is now being forced to ask for insurance when patients have some sort of insurance.

    http://www.kutv.com/content/news/local/story/Shriners-Hospitals-Survive-By-Taking-Insurance/RQTQ22QCeUCfsA53uyD6ZA.cspx

    clicky

    There are always gaps in “private donations”, mostly because donations are made by a group with an agenda, looking out for a common group.

  22. sippycupnation

    Charity is truly not enough to support all the people who need services.

    There are a host of social services organizations in Illinois being threatened with closure because the state can no longer fund them. As soon as we get a budget passed, we’ll find out the true extent of the crisis.

    My only concern, however, is that our federal tax structure seems devoted these days to propping up the free market with the massive bailouts of any number of private industries, instead of offering social services to the poor.

  23. David Nowakowski

    There is a lot to be done on the revenue side, too. Eliminating loopholes is certainly a place to start.
    On the spending side… subsidies, please begone (we can feel good about helping the developing countries with this, too).

    Simon, please take a time-out from plutocrat bashing and spend some time on topics like this!

  24. The problem with raising taxes on capital gains is that it requires gains. With money invested when the Dow was at 13,000, it will be years before those investments break even. California’s reliance on capital gains taxes is one of the causes for its current plight. A tax on consumption might be useful, but will probably not suffice on its own. While I favor heavy taxes on the wealthy, the idea that we can support our entitlement schemes based entirely on heavy taxes on the wealthy may ultimately fail.

  25. Can we wait until the recession is over to end the war on drugs? It really is some fine Keynesian deficit-spending. Hundreds of billions of dollars spent every year employing hundreds of thousands of people using millions of dollars of equipment to run around in circles. It’s the economic stimulus package we never knew we had.

  26. The problem is really very simple. The terms of the debate are always set as the top quinitile, the top 1%, etc.

    Using terms like that, the wage-earner like you – one of the working “rich” (Ha, Ha) – is dumped together with Bill Gates.

    So everyone from a working family making 375K (which, as you said is barely middle class – kids go to public school, after school/day care & mortgage eats up all the income, shop at Walmart – kind of income) to the billionaires (who don’t need a paycheck) is dumped into one tax bracket – The RICH.

    The disparity **among** the so called RICH group leaves in the dust the disparity between the RICH and the not-RICH.

    That’s the dirty secret. The billionaire pussies hiding under the skirt of the salaried professionals.

    Even information about this chasm that exists among the RICH is kept secret. You have to piece it together from various sources. None of the IRS, the CBO, the Tax Policy Center kind of public sources will talk about this chasm.

    Even the Politicians will not talk about it – because almost all of the Senators and most of Congress, being multi-millionaires, are using the same tactic to hide under your skirt.

  27. Sonic Chamber: “If you have such confidence that Americans are too decent/squeamish to endure the (inevitable, I take it?) sight of “millions of seniors being thrown onto the streets or deprived of medical care”, then you should have no problem with leaving the prevention of this sight up to the generosity of Americans as expressed through private charity.”

    Americans, largely in Red states, rose to the occasion and sent a lot of help to victims of Katrina. Unfortunately, that charity was not well organized, as it was, of necessity, ad hoc. The mechanism that we had set up in this country to deal with such emergencies, FEMA, bungled the job.

    “Saying that you believe taxes “will have” to go up is, on the contrary, an admission that you don’t have the belief in the decency of the American people that you claim to.”

    To meet needs of such proportions we need well-functioning, organized assistance, as well as individual and collective charity. There is no need to set up a false dichotomy. FEMA did not have to fail because of incompetence. Ad hoc, unorganized, private charity is not enough. Income, capital gains, and estate taxes fall more upon the rich than the rest of us. And that is fair in terms of charity, because, despite the existence of wealthy philanthropists, the bulk of charity comes from average and even poor people, while the rich do not, as a group, do their part.

  28. Anonymous Jones

    Sonic Charmer apparently missed the day in school during which the concept of a “free rider” was explained. Someone help him, please…

  29. By the way, we tried relying upon private charity back in the 19th century. Guess what! We realized that it was not enough.

  30. I hadn’t considered that. Take care, Don

  31. Social Security, Medicare, and Medicaid have not been properly managed for many years…so the idea is to throw more money at these?

    This approach is in line with how the government has dealt with bankers, but we agree reform/regulation is needed in the banking sector.

    Why wouldn’t we call for the same in these government programs?

  32. LOL, Doug. You’re right!

  33. Jacob: “Social Security, Medicare, and Medicaid have not been properly managed for many years…so the idea is to throw more money at these?”

    Err, what makes you think that Social Security has been mis-managed? All the scare rhetoric? Social security is the soundest part of the Federal gov’t isn’t it?

    As for Medicare and Medicaid, costs are escalating. But costs are escalating for health care in general, and not just in the U. S. Obama’s idea is to contain the superinflation in health care, not to throw money at it. (OC, the Congress is not through drafting the legislation yet. We will have to wait and see.) And in general Obama is taking a pay as you go approach to budgeting beyond the present crisis. That’s not just throwing money at anything, either.

  34. “But economists these days wil stop at nothing.” How you gonna keep ’em down on the farm?

  35. Shriner’s Hospitals, who have operated entirely on Donations for 90 years, is now being forced to ask for insurance when patients have some sort of insurance.

    Oh no!

    There are always gaps in “private donations”,

    Meanwhile there are no gaps whatsoever in things provided by the government.

  36. What about free riders?

  37. Meanwhile government services, by contrast, are enough and work perfectly well while being perfectly fiscally sound at the same time. That’s why this blog post and entire discussion doesn’t exist.

    Oh wait.

    Anyway, private charity was working better than most people think. It has been crowded out over time a bit by government, of course – but that’s my point. How would private charity be doing if 40+% of middle class families’ incomes weren’t garnished off the top by the government?

    But more to my original point, if you don’t think private charity would be “enough”, to prevent (for example) “millions of seniors being thrown onto the street”, that’s fine. You might be right, I guess. But such a view is not consistent with claiming to believe the American people are “decent”. It is, rather, an opposite view, that they are indecent.

    For one thing: all these “millions of seniors” that are supposedly going to be thrown on the street – where are their families? Their children? Their children wouldn’t let them come stay with them in a pinch? “Sorry we need that room it’s the video game room”? That’s the point of view being implicitly promulgated here. Again: right or wrong, it is simply not a view consistent with the American people being “decent”.

  38. Unfortunately, that charity was not well organized, as it was, of necessity, ad hoc. The mechanism that we had set up in this country to deal with such emergencies, FEMA, bungled the job.

    Sorry, was this supposed to be an argument that government should be more entrusted with charitable enterprises? As you know FEMA is a government agency.

    To meet needs of such proportions we need well-functioning, organized assistance, as well as individual and collective charity. There is no need to set up a false dichotomy.

    Fair enough, agreed. It’s a false dichotomy and both are important.

    The view that “taxes will have to go up” however precludes (and indeed, actively inhibits) charity from being part of any approach to the issue. In other words it makes an assumption that the solution lies entirely with government. So, as you and I agree, that’s a false dichotomy.

    Income, capital gains, and estate taxes fall more upon the rich than the rest of us. And that is fair in terms of charity,

    What do you mean? Taxes are not “charity”. The two terms are mutually exclusive.

    the bulk of charity comes from average and even poor people, while the rich do not, as a group, do their part.

    This is just false. Or, I guess it could depend on what you mean by “doing their part” but that begs the question.

  39. Government can find the way to reduce tax burden. For example, FDIC should increase the fee for the banks to cover all costs including capital support and interest cost in the future and this policy or system of loss sharing between banking system will protect the loss of taxpayers and reduce the risks in the financial system. If there is commitment by all financial institutions to support all loses from the failure of the others, it will create the system that protect loss to outsiders like taxpayers and it will also protect every bank to take care themselves not to cause the excessive risk and collapse in the system. Now major banks start to have profit from low interest cost supported by FDIC; therefore, government should build the this kind of system. Surely, it guarantee that all the loss of financial institution will not be the burden of taxpayers, that is good thing.

  40. Where to begin?

    The last several tax cuts going back to at least Prop 13 in California, increased not decreased revenue. Often increased revenue dramatically. And the inverse has also shown to be true, higher taxes depress economic economic activity. It has been shown over the last eleven years the top ten high tax states have lost on average 1100 people a day combined to low tax states.

    Higher taxes unless they are very regressive will not yield greater revenue. Period. Get over it.

    So why are all you people still trying to raise taxes in the worst recession by far since the Depression?

  41. Sigh… one more reason why tax-deferred retirement accounts may turn out to have been a mirage.

  42. The ‘throwing millions the seniors out into the street” is a false choice.

    When Social Security began in 1937, lifespans averaged 55 years and the retirement age was set at 65. Now average life expectancy is 78, and we still think people should retire at 65!

    The age where benefits begin should have risen with life expectancy; then Social Security and Medicare would have been much closer to solvency. Asking those younger than retirement age to pay for a cushy retirement for those not elderly is absurd, but that is what we are doing.

    Both Social Security and Medicare are thoroughly broken without major actuarial changes. No amount of new taxes will fix them. New taxes, particularly in this economy, will only throw millions out on the street, and shove this economy off a cliff.

    A better question actually would have been ” do we really want to throw millions out on the street” to fund the early retirement of people not really elderly?

  43. Why are you, middle class, fighting how much the tax should be, while upper class rides with very little taxes (tax heavens, other than salary income)? They have lower effective tax percent everywhere, and most ability to pay taxes without it hurting their lives at all.

  44. It’s not just a financial problem, it’s a demographic problem, as well. If everybody retires at 62 or 65, the percentage of the population under 62/65 will decline. Not only are they taxed, they are spending more of their time servicing the older group. Hardly a recipe for robust growth.

    We should raise the age for Social Security to 72 over time. Phased retirement should be encouraged: work hard until 62 but then wind-down over the next 10 years into less demanding jobs.

    Also, I doubt many senior citizens will be thrown into the streets. Some are quite wealthy overall and we’ll probably means-test Social Security first. (All you Progressives should be for that!) Also, the healthy ones will get a job. Finally, what about the immediate family helping? It’s the poor and disabled that have been adandoned by their families that we really need to worry about.

    Countries with large welfare nets may be comfy and cuddly, but they are boring and stagnant, too. We need dynamic growth to address the problems on this planet, not more welfare.

  45. Not to mention that the financial industry owes us a quid pro quo for cleaning up the mess they created and hitting the reset button for them. A swingeing tax on the overcompensated is the minimum that is due us.

  46. Paul: “When Social Security began in 1937, lifespans averaged 55 years and the retirement age was set at 65. Now average life expectancy is 78, and we still think people should retire at 65!”

    That’s the trouble with averages, they don’t always mean what you might think they do. Life expectancy is greatly affected by child mortality, which has gone down greatly since the 19th century in the developed world. A better statistic would be life expectancy at 20, which his gone up only slightly in the developed world in the past 100 years.

    As for the retirement age, the Japanese are right. We should retire at 50. What good are labor saving devices if they don’t save labor?

  47. I propose that we increase taxes immediately to give a balanced budget! Is additional yield required 1 trillion $’s?

    Why? All folk will realise reality of the Fed’s spending and will seek to distance themselves from such bureaucratic determination to give our money to the poor bankers.

    Also don’t forget to hike state taxes to balance for same effect.

    What support can we garner for this eminently sensible solution?

  48. Fix the derivatives hangover immediately. Declare ‘Force Majeure’ and cancel all derivatives! Why not? They are only virtual insurance and reality would still exist if the derivatives overlay was stripped away.

  49. Stop worrying folks. Uncle Sam will not indeed cannot become bankrupt! With the US$ as global reserve currency even safer!! Why? Well say some of our Asian buddies want to redeem their treasury paper, Ok we pay them out in what? Of course, global reserve currency scrip. Yes, US$’s HaHaHa. Come on Beijing man have a dollar, hot off the press and what would you rather have? Printed dollars or interest earning treasury paper?

    Same for all treeasury holders so this is an ironclad, copper-bottomed sure thing, we cannot lose!

    Feeling better already? There, I knew I could help you have a better day.

    Any other problems? Just let me know.

  50. 1. Causation – Paying Taxes Contributes to Everyone’s Success
    Paying taxes supports America’s infrastructure and improves the chances of success for all its citizens. This contradicts the claim of CWCs that cutting taxes, like Nixon, Reagan and Bush did, will solve our problems. Cutting taxes, especially for the rich, only increases the chances of success for the rich – like bonuses and/or continued employment for the CEOs of banks too big to fail – while it reduces the chances of success for the rest of America’s citizenry – now losing their jobs and homes.

    http://the-wawg-blog.org/?p=1846

    Freedom Isn’t Free – What Are We Willing to Pay For It?
    What are we willing to pay for freedom? How about our fair share of citizenship dues – taxes not unlike those of WWII? I suggest we raise the 33 percent tax rate to 35, let the 35 return to 39.6 percent, and add several more brackets for those making more than $500,000.
    http://the-wawg-blog.org/?p=1963