The deficits being rung up by the United States year after year have become structural in nature. Even if the absurd sums of money being spent on uselessly trying to justify the colossal blunder of Iraq were eliminated quickly (and they won't be), the impending retirements of the baby boomer generation and their entry into Medicare assure that at current rates of taxation deficits will not disappear. The arguments by the Kudlow school of economics (admittedly, an oxymoron) that we will "grow" are way out of the deficits are absurd; they depend on economic assumptions that are beyond rosy and give no credence to the scope of the recession that we now face.
I will briefly propose a way out that can accomplish deficit reduction at the same time as fiscal stimulus. It is favorable to lower-income taxpayers and would be largely neutral to upper-income taxpayers if the assumptions of the Kudlow clowns were correct. Because I am too lazy to actually do the calculations, the numbers I propose will essentially illustrate the idea rather than necessarily being workable. There are, however, real numbers which can accomplish what I propose.
Prevailing economic wisdom holds that you do not raise taxes during a recession. Instead, you cut taxes to stimulate the economy. Unfortunately, if you are a Republican, you never see fit to raise them again once they have accomplished their purpose. They become part of the right-wing world of entitlements.
When Clinton raised tax rates on higher-income families in 1993, the right-wing predicted dire consequences. The "consequence" turned out to be the greatest economic expansion since the post World War II period. Now the Kudlownian Klowns tell us that we certainly can't raise taxes given the current economic climate, and they are partially right. We cannot do it without an appropriate offset.
Consider what would happen if we changed tax rates in the following way: 1) Do away with the Bush tax cuts for those whose family income exceeds, say $200,000. Restore the Clinton marginal tax rates. 2)Keep about half of the Bush tax cuts for those whose family incomes are between $100,000 and $200,000. 3) Keep the Bush tax cuts for those whose family income is less than $100,000. This would, of course, represent a tax increase as far as republicans are concerned, notwithstanding that taxes would be lower than they were when they were lowered to stimulate the economy after the first GW Bush recession.
However, most or all of the increased revenue could be used as fiscal stimulus. Imagine a negative sales tax on all goods purchased. For the sake of argument, say 5%. You buy gasoline, you get 5% off. You buy food, you get 5% off. You buy clothes, or a car, or furniture, you get 5% off. In fact, the government rebates 5% of the value of all retail sales. If the "Kudlows" were correct (which they are not) and the wealthy spent their tax cuts, then this would be largely revenue neutral even to the
very rich. Importantly, however, retail sales, which are the backbone of our economy, could be expected to rise sharply as prices were essentially reduced. This could reduce the duration and intensity of the recession which is now just beginning.
It would be possible to have a different (and higher) level of rebate
on goods which could be certified to be, say 70%+ American in origin. I have not included services in my proposal because the administrative nightmare that would exist in the government reimbursing the service providers. Most of those who sell goods already deal with the adminstrative burden of reporting sales taxes to their state govenments.
As I have already stated, I am too lazy (and unknowledgeable) to do the calculations showing how the numbers I have proposed would have to be modified in order to work. Nonetheless, I think that this proposal is sound economically and if so, should be proposed by the Democrats as a way of providing real relief to families that need it