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The debt ceiling, taxes, and tariffs
May 7, 2011 - Mike Maneval
Eric Wasson of The Hill reports that Republicans in congress are debating amongst themselves what budget-cutting initiatives upon which they'll insist for lifting the debt ceiling later this month. It's a move I've lauded in my previous two posts here, and continue to laud. It was President Barack Obama himself who observed in 2006 that repeated votes to raise the debt ceiling is "a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies."
By compromising with the Republicans on spending cuts now, the White House and Democratic allies in Congress strengthen their hand in pressing for tax reform in the future. Any reform package that increases revenue to reduce the spending deficit or debt, by necessity, takes money out of the economy - and this will be a contentious point for conservatives and Republicans. The best solution would be to increase revenues collected enough that the money can be split, between deficit reduction and replacing other methods of taxation, allowing for a countervailing impact on the economy.
One radical approach would be to group all the myriad forms of unearned income under one progressive tax code, with heavy rates - say, 65 to 85 percent - on the top brackets. The earned income tax then could be flattened to one low rate of 5 to 8 percent. The elimination of credits and deductions and an end to some constituents collecting more in such credits and deductions than their tax bills themselves total also would facilitate a serious cut to the earned income tax, the rate of taxation on the hard work of Americans.
Another solution - which may seem radical under President Barack Obama, until you remember candidate Barack Obama spoke often early in the summer of 2008 about revising NAFTA and other trade policies - would be to increase tariffs on foreign goods from societies that respect neither the hard work of the labor that provides goods and services nor the rights and liberties of the men and women who provide that labor. This solution would both increase revenues collected by the federal government, which again should be split between deficit reduction and relieving the tax burden on earned income, and incentivize bigger and better paychecks worldwide. Here in America, that means more money in the wallets of the majority of Americans, whose consumer spending is the catalyst to job creation.
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