As we continue to grapple with the hard math of not only balancing the budget, but also paying down the national debt, I think it’s fair to say that cutting Federal spending alone will not resolve the equation. While it is certainly a start, the only other way to balance the book is to raise revenues.
Just the mention of raising taxes in America appears to be a sure political death knell. Politicians that advocate raising taxes seldom win elections, while sitting politicians that consider raising taxes often fail to retain their seats.
Last year President Obama signed the Tax Relief, Unemployment Insurance, Reauthorization, and Job Creation Act of 2010which is a very fancy name for the continuation of the Bush Tax Cuts for an additional two years. The cost of passing this bill added an additional $800 billion to the national debt. We, as a country, chose to borrow $800 billion for the next year rather than raise taxes on households earning more than $250,000 a year – after deductions!
Late in the debate, when compromise was no longer an option, some Democrats floated the idea of raising the threshold on earnings for tax relief. A round figure of $1 million was proposed (vice $250,000), and yet soundly rejected by Republicans. Our conservative leaders argue that a restoration of the 2000 tax rate will “cripple” job creation in this country – especially as we claw out of the last recession.
Here’s the rub – the economic principles embraced by the Republican party for the past 30 plus years do not work! Period. Trickle down economics, or the idea of providing the wealthy with more money means more jobs for the rest of Americans is simply a lie. Those that choose to espouse it are either lying to themselves (and their constituents) or worse, if they actually believe it, they belong in the Special Olympics and not in Congress.
You can look up the economic data for the last decade – it represents the slowest Gross Domestic Product growth in modern American history – this all while the Bush Tax Cuts were supposed to generate more jobs, and in conjunction, more taxpayers to raise revenues. Compare and contrast with the 1990’s during the onerous Clinton tax years, when Clinton raised taxes in 1993 the Republicans, as they always seem to do, cried (no, John Boehner was not in the House at the time) that it would kill the economy and destroy jobs. See if any of these sound familiar:
- Rep. Newt Gingrich (R-GA), February 2, 1993: We have all too many people in the Democratic administration who are talking about bigger Government, bigger bureaucracy, more programs, and higher taxes. I believe that that will in fact kill the current recovery and put us back in a recession. It might take 1 1/2 or 2 years, but it will happen. (Congressional Record, 1993, Thomas)
- Rep. Bob Goodlatte (R-GA), July 13, 1993: Small businesses generate the bulk of this Nation’s new jobs. And they will be the hardest hit by the Clinton tax-and-spend budget. Because, when you raise taxes, you kill jobs. (Congressional Record, 1993, Thomas)
- Rep. Christopher Cox (R-CA), May, 27, 1993: This is really the Dr. Kevorkian plan for our economy. It will kill jobs, kill businesses, and yes, kill even the higher tax revenues that these suicidal tax increasers hope to gain. source
The Clinton tax hike was unofficially known as the Deficit Reduction Act. Deficit Reduction Act. Deficit Reduction Act – let’s say it over again a few more times. We must reduce the budget deficit now, but we also must begin generating budget surpluses that can begin addressing the principal of the national debt (remember – $14 trillion and rising…).
The GOP was wrong in 1993 and they continue to be wrong today. Cutting taxes on the wealthiest of Americans has nothing to do with crippling small business, as we’re often told. Please find five small business owners that have taxable earnings of over $1 million a year – I dare you. If you can find them, I guarantee they will take a slight pay cut on earnings to just under that $1 million cap (or find a way to increase charitable donations). Not only that, but in today’s global economy, new job growth – even by American businesses – does not favor the American economy! New job creation is tracking the emerging markets – China, India, anywhere but here. All the Republicans are doing is simply providing more capital to be invested in foreign labor markets. They are able to get away with this heinous absurdity for two reasons – middle-American anger at government and “excessive” taxation and value voters that tend to affiliate with Republicans based on their religion. For additional reading on this issue click here.
If we would have made hard decisions in the last Congress, instead of kicking the problem down the road for another year or two, we might have had an opportunity to balance the budget this year. Had the government taken in $800 billion in revenues rather than borrow it, gross receipts would have been pushed to approximately $3 trillion. Had Congress done their job, they could have cut roughly $700 billion in spending this year. $800 billion plus $700 billion equals $1.5 trillion – the amount of money we the public will borrow in 2011 to run the government! While this may simplistically fix this current years’ budget, this article does not even begin to address the systemic problems with mandatory spending items such as Social Security and Medicare that will both require massive reform before long term budget issue can be resolved.
There are options for generating revenue. One that is readily available is to declare victory on the War on Drugs. We currently spend $15 billion a year on drug enforcement. In 2009 1.6 million arrests were made for “drug abuse violations.” The money we spend on enforcement, court costs, incarceration costs, rehabilitation costs, etc. could easily be compounded by the legalization of marijuana and the taxation and regulation of its sale and use. While I’m sure there are numerous studies available on the cost benefit analysis of legalization, it is probably a conservative estimate that the government could realize a net savings of well over $100 billion by adopting a legalization approach.
Another area of untapped revenue is prostitution. There is limited available data on the revenue models for prostitution, but in Nevada, where the practice is legal in 10 of the state’s 17 counties, it accounts for roughly 25% of county revenues in taxation, licensing and fees. While Nevada does not have a state income tax, taxation on prostitution is nearly an annual pastime. In 2009 Nevada proposed a $5 tax on legal sex acts that was to generate an estimated $2 million in government revenue. Some brothels are required to purchase operating licenses for up to a $100,000 fee as well as annual licensing fees. Societal benefits such as regular testing for sexually transmitted diseases, proof of age and/or citizenship for prostitutes could also cut the rate of STD transmissions, minors involved in the sex trade as well as human trafficking. Over 70,000 non-violent arrests involving prostitution were made in 2009. Again, the net cost benefit realized between enforcement and legalization would likely lead to tens of billions, if not $100 billion annually.
Ultimately, the budget is a reflection of the country’s priorities and values (as well as the interests of well-funded lobbyists). We can continue pretending that we are conducting a war on drugs, or show our disapproval of prostitution by making it illegal, but both of these activities will continue unabated long after we are gone from this earth. Prostitution didn’t earn the moniker “the world’s oldest profession” without reason. As soon as we place more value on the fiscal health of the United States than we do in punishing people for sex and drugs we can begin to move forward down a path of fiscal responsibility. I find it amazing that the same people that scream for less government and personal liberties and freedoms are always the ones that demand the government take action to protect the citizenry from sex, drugs, and homosexuals. Think about it for a moment…