2012-12-06

Give the taxpayers what they ask for

Karl at the US political site Hot Air has a proposal so simple that it's genius. Cutting through the Democrat-Republican cat fight about what mix of tax raising and spending cuts should address the deficit, he proposes that noted Republican "shock jock" Rush Limbaugh should back raising taxes to fund current and planned spending with no cutbacks:

If the Democrats want to increase taxes and leave entitlements unreformed, why not propose that the federal government raise the taxes necessary to fund these purportedly essential programs?
It sounds like it might just work - but what levels of tax raising would be required?

The four year plan he proposes would be popular for at least the first couple of years: households with over $250K annual income get nailed in the first year, and those with over $100K in the second year. However, by year 3 all the "rich" have been squeezed as hard as possible, and the spending deficit is still 3% of GDP. So it's time for every other taxpayer to pay up:

In 2019, increase all tax rates on ordinary income 5 additional percentage points, phased in over 10 years. Increase both tax rates on capital gains 10 percentage points (to 20% and 33.8%), phased in over 5 years.
But that still doesn't keep spending under control, so the only thing left is year 4:
Impose a 10% national value-added tax, phased in over 5 years.
This will actually give a balanced budget, finally. Obviously the US still has $20tn or so of debt, but at least it's not adding to it. Everyone who pays taxes is then bearing the spending burden of the state. And in 2016 it's election time once more...

This, I think, expresses the essential dishonesty of people clamouring "tax the rich" as a solution to the current deficit crisis - and this is true in the UK quite possibly as much as in the USA. You can't fix the deficit and keep spending at the present level without hitting everyone who pays taxes, hard. Now perhaps that's what people want, but it would be interesting to make the decision very real for them. "Do I as an average taxpayer want a 60% hike in what I pay in taxes, or should I start demanding that the government stop pissing away so much money?"

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