A taxing issue

Apr 13, 2012 by Peter Dizikes

Simon Johnson and James Kwak had good news and bad news for the hundreds of people who turned out to hear them talk about the U.S. national debt at MIT on Tuesday.

The good news, Johnson said, is that, contrary to many public claims, the U.S. level does not constitute a crisis right now.

“We don’t think it’s a panic situation or an imminent disaster,” said Johnson, who with Kwak has written a new book about the debt issue, White House Burning, which was released this month by Pantheon Press.

The bad news, however, is that there is no guarantee the debt situation will improve. As Johnson noted, the United States can shoulder its current debt load partly because of historically low interest rates on government bonds, which it issues to finance that debt. Should rates climb, growing interest payments on the debt could force painful cutbacks in other areas of the budget.

“This is a very unusual moment,” said Johnson, the Ronald A. Kurtz (1954) Professor of Entrepreneurship at the MIT Sloan School of Management.

More significantly, Johnson and Kwak believe, the solution to the debt problem involves something politicians in Washington have been unwilling to enact in about two decades: substantial increases.

“We need the revenue, or you need the government to get out of the social insurance business,” Johnson said, alluding to Social Security, Medicare and other popular federal programs.

‘Call to action’

White House Burning takes its title from the 1814 torching of the White House by the British, part of the War of 1812, which the United States declared on Britain (and eventually won, in 1815). Then as now, Johnson noted, Americans suffered from a “mismatch between what they wanted the government to do … and the revenue they were willing to provide.”

In the book, Johnson and Kwak, a law professor at the University of Connecticut, outline what they believe is a reasonable, mainstream solution to the U.S. long-term debt: the restoration of previous, higher tax rates, especially on the wealthiest households, combined with modest cuts in social programs.

At Tuesday’s event, before a large crowd in Tang Auditorium, Johnson termed the book a “call to action” where none has been taken over the last decade, as the United States has moved from an annual budget surplus to a deficit, and the long-term debt has grown.

The Republican Party has turned wholly against tax increases of any kind, partly due to pressure applied to it by the anti-tax group Americans for Tax reform, and its head, Grover Norquist, who have gotten most elected members of the GOP in Washington to sign a pledge stating they will not seek revenue increases of any kind.

Democrats are much more likely to say they support tax increases, especially on the wealthy — President Barack Obama has campaigned on that issue in 2008 and 2012 — yet, as Johnson noted, they have not followed through with legislation. When the Democrats had a chance to let taxes on the well-off increase, by letting former President George W. Bush’s tax cuts expire at the end of 2010, both parties ultimately agreed to renew the cut for another year.

Kwak said the Republicans have a “coherent, well-articulated” position on revenues: that society would be better if government, and thus taxes, would simply shrink. By contrast, Kwak added, in recent decades Democrats have never been able to settle on a coherent message about the need for greater taxes.

“The counter-argument to the conservative vision has not been spelled out,” Kwak said.

Giving the people what they want

In their remarks, Johnson and Kwak both emphasized that the political impasse over the size of government partly reflects a public that is “of two minds” about the issue. In public-opinion polling, substantial portions of the public will categorically say that government is too big, but then demand to keep intact its major social programs, most notably Social Security and Medicare. Indeed, as Kwak pointed out, 40 percent of Social Security recipients, in recent polling, said they had never benefitted from a government program.

“People don’t know what the government does,” Kwak said.

As Kwak noted, about 20 percent of the federal budget goes toward , while 20 percent is allotted for defense spending, 15 percent funds Medicare, 10 percent funds Medicaid, and about 8 percent pays down the interest on the . All other spending amounts to about one-quarter of the federal budget.

As a policy remedy, Johnson and Kwak noted that they do not just want to raise marginal tax rates on high earners, but instead reform the tax system a little more broadly, eliminating loopholes and certain benefits, such as the home mortgage interest deduction.

“If you refuse to raise tax revenue, to close loopholes, to eliminate tax expenditures, it will be very difficult to bring our fiscal house in order,” Johnson emphasized.

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User comments : 17

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Squirrel
not rated yet Apr 13, 2012
"part of the War of 1812, which the United States declared on Britain (and eventually won, in 1815)". No, historians judge it was a draw with the conflict leaving native Indians big losers.
Rob137
5 / 5 (1) Apr 13, 2012
That would be an interesting way to perform a survey - tie social programs directly to the responder's taxes. Such as, "Would you be willing to pay 3% more [or whatever the number] in taxes this year in order to extend unemployment benefits?" I think too often people lose track of the fact that most of the money the government spends was taken through taxes. It's easy to say "College education should be free for everyone" but how would people respond to "College education will be free for everyone, but you will pay 5% more in taxes every year."
Vendicar_Decarian
0.3 / 5 (39) Apr 13, 2012
"... the Kochs are libertarian. But libertarianism has many variations. Grover Norquist is a libertarian, and he has also decided to work entirely through the Republican Party and the conservative movement. " - http://www.tnr.co...norquist

Pieces of lying filth... Every one.
rwinners
1 / 5 (3) Apr 13, 2012
First step: Increase the tax rate in interest income for those earning more than $10 million dollars a year to 95%.
I mean, hell, if they can live easily on their wealth, not matter how they got it, then at this time they should... and should volunteer to do so.
rwinners
1 / 5 (2) Apr 13, 2012
Second step: Increase the 'death' tax to 100% minus a minimum of $5 million dollars per direct descendent, if they would otherwise be entitled to such amount.
rwinners
1 / 5 (2) Apr 13, 2012
Third step: Require all corporations who do business with the US government be located in the United States and all of the products sold by said corporations be produced in the US. A 50% tax would be do on all profits from sales of items produced outside the US.
ryggesogn2
3 / 5 (2) Apr 13, 2012
"If you refuse to raise tax revenue, to close loopholes, to eliminate tax expenditures, it will be very difficult to bring our fiscal house in order, Johnson emphasized."

And if the govt refuses to stop punishing wealth creation there will no more wealth to plunder.

BTW, you know that if a Harley is sold in Japan, Harley must pay tax to Japan AND the USA. When Honda sell a Gold Wing in the USA, only the USA receives any tax. US law double taxes export sales.
ryggesogn2
3.7 / 5 (3) Apr 13, 2012
"The power to tax is the power to destroy."
"In his decision, Chief Justice Marshall said: That the power of taxing it [the bank] by the States may be exercised so as to destroy it, is too obvious to be denied (p. 427), and That the power to tax involves the power to destroy [is] not to be denied (p. 431)."
http://www.bartle...798.html
Vendicar_Decarian
0 / 5 (35) Apr 14, 2012
And is a power granted to the U.S. government by the U.S. Constitution.

"The power to tax is the power to destroy." - RyggTard

Poor RyggTard. So old... So Randite... So hopelessly confused...
Vendicar_Decarian
0 / 5 (35) Apr 14, 2012
In 1952, following their application to the US Tariff Commission for a 40% tax on imported motorcycles, Harley-Davidson was charged with restrictive practices

"BTW, you know that if a Harley is sold in Japan" - RyggTard
Vendicar_Decarian
0.1 / 5 (36) Apr 14, 2012
Hmm.. The power to destroy by taxation is not to be denied...

"That the power to tax involves the power to destroy [is] not to be denied" - RyggTard's reference

Well done Libertarian Boy.
Vendicar_Decarian
0 / 5 (35) Apr 14, 2012
Wouldn't that be the wealth creation that Libertarian Economic policy outsourced to China and other second world nations in order to increase corporate profits at the expense of American Jobs and wealth?

Why... Yes it would...

"And if the govt refuses to stop punishing wealth creation" - RyggTard
AWaB
not rated yet Apr 18, 2012
To stay on topic, I think the article was very good. I want to read the book now. It seems that the authors actually have a pretty good grip on the situation. I'm interested in seeing what they propose to close the gap b/w what people want and what they're willing to pay for. Hopefully this will get some traction and help fix the debt problem.
ryggesogn2
2.3 / 5 (3) Apr 18, 2012
"If you refuse to raise tax revenue, to close loopholes, to eliminate tax expenditures, it will be very difficult to bring our fiscal house in order, Johnson emphasized."
Coolidge, JFK, Reagan, Gingrich all demonstrated how to raise revenue, cut tax rates.
But then Congress takes the extra revenue and uses it to leverage more borrowing to spend more.
The only solution short of revolution is to follow the letter and intent of the Constitution and limit the size and scope of the Federal govt.
But the socialists WANT to plunder more. How are they to be stopped?
Vendicar_Decarian
not rated yet Apr 18, 2012
"Coolidge, JFK, Reagan, Gingrich all demonstrated how to raise revenue, cut tax rates." - RyggTard

JFK, Reagan, and Gingrich kept spending while lowering taxes, and since a dollar in the economy doesn't care where it came from this was the functional equivalent of keeping taxes steady and raising spending.

The results were the same. Massive federal deficits, as the return to the government was lower than the deficit spending, along with the habituation of the national economy on deficit stimulus that has now driven America into bankruptcy.

The Libertarian plan to free Americans through the destruction of America has nearly been completed.

Vendicar_Decarian
not rated yet Apr 18, 2012
The U.S. constitution places no limit on the size of the Federal Government.

Poor RyggTard. He doesn't even understand his own nation's constitution.

Perhaps that is why the world sees the U.S. constitution as an unworkable document for the modern era.

"The only solution short of revolution is to follow the letter and intent of the Constitution and limit the size and scope of the Federal govt." - RyggTard

Do you think that this is why George Bush Jr. referred to the U.S. constitution as "just a piece of paper"?

Vendicar_Decarian
not rated yet Apr 18, 2012
To get America's fiscal house in order with simple tax reductions, spending will have to be reduced by 50% without bankrupting the individual states.

RyggTard should specify how he intends to cut (below) to bring his total to 50%.

"As Kwak noted, about 20 percent of the federal budget goes toward Social Security, while 20 percent is allotted for defense spending, 15 percent funds Medicare, 10 percent funds Medicaid, and about 8 percent pays down the interest on the debt. All other spending amounts to about one-quarter of the federal budget." - Article