Taxes are in bad political odor these days. True, there has been no era in which taxation was popular, but we seem to have reached a moment of particular confusion. We have one major party dedicated to the bizarre principle that nothing that is not taxed now should ever be taxed again, and another dedicated to the equally bizarre principle that taxes are a magical elixir that will eliminate the nation’s indebtedness while touching only those who happen to own private jets.
In this strange and wondrous atmosphere, I would like to say a word or two in defense of taxation, and then to suggest that each party is on the track of an important truth, even if, in the rush for partisan advantage, each also misunderstands the virtues of its own position.
Taxes will inevitably go up. The Democrats are right about that much. Alas, they get the reason wrong every time they try to explain. The reason taxes must rise is not that millionaires and billionaires have too much money, or that corporations aren’t paying their fair share. It’s that the federal government, under the joint leadership of the two parties, has fallen so deeply into debt that its need has grown desperate. Under no plausible scenario are we going to grow ourselves out of the remarkable hole we have dug. In what ought to be a national embarrassment, our government needs more revenue to pay not for a more glorious future but for a tragically wasted past.
The Republicans, too, are wrong, in their opposition to any increase in any taxes for any reason. But they are right that the Democrats have made an absurd fetish of progressivity, and that the constant chatter about asking the rich to sacrifice makes it sound as if taxes are the punishment one suffers for success. And they are right in admitting, in their unguarded moments, what the Simpson-Bowles Commission pointed out: that the tax base is too narrow.
The middle of a fragile recovery may not be the proper time to increase taxes. This is particularly true given that Americans are, at the moment, highly leveraged, and many might have to take on additional debt in order to pay additional taxes. Perhaps we would be wise to wait until what Harvard University economist Kenneth Rogoff calls “the Great Contraction” ― getting rid of debt ― has run its course.
But rise taxes eventually will, and, if we are smart, they will cover a broader base. Indeed, it is at once amusing and depressing to hear all the talk of shared sacrifice when we are discussing tax increases mainly on those earning more than $250,000 a year. Part of the magic of this figure may be that few federal employees get paid as much. But one in five earns upward of $100,000 a year.
This is worth mentioning because there isn’t much in the way of shared sacrifice when a taxpayer who makes, say, $275,000 a year has to pay an extra 3 percent on the amount over $250,000 ($750) while a civil servant earning, say, $175,000 a year retains all of her income. Bear in mind that a tax increase is, in effect, a reduction in income. If sacrifice is to be truly shared, why not ask federal employees to accept an across-the- board salary reduction of, say, 2 percent?
True, this wouldn’t yield much revenue. The most recent publicly available figures, for 2009, put federal nondefense salary spending at a bit more than $15 billion a month, or $180 billion a year. Even if (as seems likely) the figure has now reached $200 billion, a 2 percent cut would save a mere $4 billion annually. Yet, as a symbolic gesture, it would do far more than any presidential address to convince voters that the government is serious about shared sacrifice.
I don’t suggest this plan because I think federal employees are overpaid. I don’t. But neither are the vast majority of those who happen to earn more than $250,000 in the private sector. Still, if cutting federal salaries in return for cutting the income of other taxpayers seems too much to ask, perhaps we should consider another way of sharing the sacrifice: We should broaden the tax base. Simpson-Bowles suggests reducing rates as part of the broadening, while also removing most deductions. Many liberals object that the plan would reduce the progressivity of the tax code. But this response is a non sequitur.
The progressive tax structure rests upon the eminently sensible notion that those who earn more should be taxed at a higher rate. Those of us who have benefited more ― whether because of hard work or good luck or, probably most often, some combination of the two ― ought to pay a larger part of the revenue burden. We can afford it, and, as my late father often reminded me (borrowing without attribution from Oliver Wendell Holmes), to pay taxes to the government of the U.S. is a privilege.
But progressivity is merely one factor in working out tax rates. It isn’t the reason taxes exist. They exist to raise revenue, a point easily forgotten in the rhetoric of the day. And there isn’t nearly enough income in the upper bracket to make a serious dent in the nation’s debt.
Liberals are fond of quoting from a 1936 speech in which President Franklin Roosevelt decried “a small but powerful group which has fought the extension of those benefits, because it did not want to pay a fair share of their cost.” Nice line. But it’s easy to forget that FDR, in the very same paragraph, reminded his listeners of the “vast majority of citizens who believe the benefits of democracy should be extended and who are willing to pay their fair share to extend them.”
Precisely right. A vast majority of Americans should be willing to pay taxes. All but the very poorest should contribute financially to the great American experiment. The shared sacrifice should certainly be progressive, but it should also be shared. When almost half of households pay no federal income taxes, the concept of shared sacrifice vanishes, and America becomes not that to which we contribute but that from which we receive.
(It is frequently said, in response to this argument, that almost all employed Americans are taxed by the federal government, because they pay Social Security and Medicare taxes. But these, at least in theory, are special-purpose levies, flowing into accounts that will someday benefit the payer personally. If in fact these fees simply constitute a part of the tax burden for general purposes of governance, Washington is free to confess at any time to decades of misleading the public.)
Taxes are in themselves neither good nor evil, and both parties should stop talking as though they are. They are simply one among many ways of raising revenue. There was a time when the federal government relied almost entirely on import duties for its income. Lately its addiction has been to borrowed money. Perhaps a future generation will discover some other magical means for supporting the state. In the meanwhile, if indeed we need to sacrifice, let’s at least sacrifice together.
By Stephen L. Carter
Stephen L. Carter, a novelist, professor of law at Yale University and the author of “The Violence of Peace: America’s Wars in the Age of Obama,” is a Bloomberg View columnist. The opinions expressed are his own. ― Ed.
