Lowenstein on Needed Tax Hikes

Wed, 18 Jun 2008 23:37:40 +0000

Roger Lowenstein had a good op-ed in Sunday's Washington Post, "Read My Lips: We Need These Taxes." I liked the way he started it:

Let's imagine an alternate universe. The U.S. government is running a large and growing deficit. Not far down the road it faces huge increases in Social Security and Medicare costs. Naturally, the candidates for president want to remedy this by raising revenue. They don't want us to bequeath bigger deficits to our children or stake our future on foreigners' willingness to keep lending us money.

But have you heard this speech? "My fellow Americans, I have a plan to raise taxes so that the budget will be closer to balance and future Americans won't have to worry about their retirement security." Neither have I.

That's the speech that should appeal to those on the Left. He lists five key tax changes he would make to help close the deficit and increase equity:

  1. End preferential treatment for private equity fund managers.
  2. Raise the cap on the payroll tax.
  3. Reinstate a meaningful inheritance tax.
  4. End unfair deductions (e.g., mortgage, health insurance).
  5. Repeal the Bush cuts in income and capital gains tax rates.

He acknowledges that #1 has mostly symbolic value, but I agree with him that there is no excuse for it. I have suggested #2 as part of the LMS plan, but I have reservations about it in the absence of personal accounts. Given the loopholes that already exist with the tax treatment of capital gains (e.g., taxation on realization rather than accrual and basis step-up at death), some version of #3 is justified. He has a point on #4 with health insurance. With mortgages, the equity point is less compelling, since renters presumably share in the incidence of the deductibility of interest paid by the property-owner, but the efficiency point is valid. And #5 shouldn't even be discussed as a repeal but a sunset.

It's worth pointing out, though, that we also haven't heard the complementary speech from the Right that lays out legitimate spending cuts so that the budget is balanced. Over the course of a business cycle, if taxes are bad, then deficits are worse--they are your children's taxes. Right wingers who refuse to or are unable to cut spending have very little by way of fiscal policy to recommend them for office.