Confession time: I’m open to raising taxes. This is easy for me as a conservative who has lived my whole life. I can argue for weaker national defense or increased funding from the United Nations.
Please bear with me while I explain why I am open to the idea. One of the most important lessons from the past 20 years is that “black swan” events, which can be game-changing surprise, aren’t as common as we would like.
In 2001, a terrorist attack resulted in two decades of military conflict. Add defense costs to healthcare for vets, and other related costs to the estimated price tag of $5.8 trillion up to $8 billion ..
In 2007-08, a financial crisis almost wrecked the economy. This combined loss of tax revenue with increased spending amounts to $2 trillion. A 2018 Federal Reserve Board study estimated the cost to each American at $70,000. These are the social and political consequences. Historically, financial crises spark intense, and long-lasting, populist revolts. The same effect is not seen in normal recessions . This is important to remember as a potential debt crisis becomes more common. )
Then, there’s the pandemic. In November, economists David Cutler and Lawrence Summers estimated the costs in lost growth, income, life expectancy, etc. to be more than $16 trillion, roughly 90% of U.S. annual gross domestic product. Nearly $6 Trillion has been spent by the federal government to combat the pandemic ..
Much was necessary or justified. The government is expected to respond to extraordinary situations with extraordinary measures.
This brings me to the argument for raising taxes.
What happens if the next black Swan touches down? Are we able to deal with a new financial crisis or pandemic? How about a Chinese invasion of Taiwan? A nuclear terror attack? Remember, the current pandemic has not ended.
World War II represented a necessary and noble expenditure of national resources. But it was expensive, driving national debt to 110% of GDP. After the meeting, everyone agreed that it was time to reduce it.
Today, our debt level is even worse, but to say there is no similar consensus is an understatement on par with saying “America isn’t in a bipartisan mood.” Sen. Bernie Sanders (I-Vt.) insists that progressives have already compromised by coming down from a desired $6 trillion in additional spending on a raft of new entitlements and social welfare programs. Senator Joe Manchin III (D-W.Va.), is widely hailed as a “moderate” for agreeing to a reconciliation package that will range from $1.5 trillion to $2 trillion, plus $1 trillion in traditional infrastructure spending. Even 10 years ago, favoring that much spending would have marked Manchin as a Bernie Sanders liberal.
Some of this spending might be for worthy or desirable things. None of this makes sense considering that we are broke and may face inflation again. And the White House’s risible claims that it won’t cost anything only makes sense if you think raising taxes to pay for new entitlements is costless.
Yes Keynesians support increased spending and lower taxes in order to escape a recession through stimulating consumer demand. (Yes, we are all Keynesians right now). The thing is, we’re not in a recession and demand is not our problem.
In theory, raising taxes to pay for past spending and prepare for the next one seems sensible.
The problem is that we live in absurd times. Washington has zero desire to address the debt. This is partly because the voters don’t care at all about it — and because they know that politicians didn’t really care to start with. Republicans have lost all credibility in this area under President Trump and Democrats simply reject the idea that debt is important. Democrats envision a European-style welfare system, but they are hesitant about taxing the middle classes at European levels to fund it.
One benefit to taking care of debt is that it limits the ambitions and plans of politicians. This is how it works for us.
Even for those who don’t wish to live in a European welfare system, raising taxes to fund the government Americans want has a positive side: It should teach us how to keep politicians under control. They’d be less inclined to spend trillions more if they thought that they would pay for $6 trillion of debt they’ve already borrowed. They might say “Let’s keep that for a rainy-day — or a black Swan ” But they won’t talk about unlimited spending while talking about tax increases.