What's the best way for a government to raise the revenues it needs to govern?
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ETpro (
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February 26th, 2013
We often debate tax levels on Fluther, but there is much more to how we raise revenue than simply raising or lowering taxes. Revenue may come from any combination of import and export duties, value added taxes, a sales tax, excise (sin) taxes, capital gains taxes, estate taxes. Tax laws can be full of loopholes designed to benefit a select few, or they can apply to all in a given bracket equally. We can tax the daylights out of businesses and all pay in the form of higher prices since businesses have no choice but to pass the cost along in their price of goods. Or we could eliminate all corporate taxes, making it easier for our corporations to compete on an international stage, and raise revenues elsewhere. If we choose income taxes, then tax rates can be regressive or progressive. We can exclusively tax the poor to allow the rich to accumulate vast wealth while destroying the middle class, we can tax the rich out of existence destroying investment and job creation, or we can land anywhere in between those two absurd extremes.
If you scroll down a bit on this page you’ll find a chart of total government spending (local, state and federal) as a percentage of US Gross Domestic Product (GDP) from 1900 to today. Note that spending was at a recent low of 33% of GDP in 2000. The period from 1992 to 2000, with spending hovering between 35% and 33%, saw a sustained economic boom, the greatest job creation spurt since the 2nd World War, and the largest budget surplus in history. Two wars and an unfunded prescription drug benefit “paid for” by two successive tax cuts for the rich turned the budget surplus into a substantial deficit, which was massively compounded by the Great Recession of 2007 requiring heavy spending to rescue the economy and also collapsing GDP. Spending hit 42% of the recession-eviscerated GDP in 2009, and has dropped back to about 38% today.
For argument sake, let’s say that the 33% to 35% rate that was working in the 1990s is a sweet spot we should shoot for in good economic times. That may or may not be the right level of spending, but that is not the subject of this question. Some level is required for anything above a failed state, and whatever that level is, this question is about how best to pay for it.
So, the question is how do we raise necessary revenue in such a way we follow the Hippocratic Oath, “First, do no harm.”? What revenue sources help our society be all that it can be?
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9 Answers
Tobin tax for all WTO members. No exceptions.
Legalize all drugs… every one of them.
Tax all drug purchases… every one of them.
Progressive income taxes on all income, regardless of source, is the least “harmful” to all income/wealth levels. And only on realized income, not on mark to market capital gains.
Tariffs would serve several purposes including raising revenue directly. (We’d have to throw out the WTO, woohoo!)
The financial transactions tax would decimate the parasitic speculation markets, a good thing.
Capital gains taxes should be a couple multiples higher to encourage investors to keep their money invested instead of pulling it out.
@mattbrowne I think the T0bin Tax is a great idea, but pegging it high enough to fully finance the operation of governments of developed nations would be disastrous, would it not? Tobin proposed a rate of 0.5% with the hope that would be sufficient to end very short term FOREX trades. Certainly pegging the rate at anything close to high enough to yield 35% of the GDP of a developed nation would end all FOREX and all world trade, thus effectively raising no revenues at all.
@RealEyesRealizeRealLies I salute this idea too. No reason not to do it. But like the Tobin tax, it would not produce anything close to sufficient revenues to operate a developed nation. Not that many people use recreational or addictive drugs, and those that do typically do not have the sort of money to buy their drug of choice of an enormous tax were levied on it. It’s more likely a brutally high tax on recreational drugs would just ensure that the drug cartels, with much better prices, would just continue to supply demand.
@zenvelo My choice as well.
@Rarebear I like a good deal of what David Brooks has to say. But when he calls it a political heavy lift, he is taking understatement to a new and unimagined extreme. The pet talk in the beltway is the exploding deficit. We’ve gotta do something about the deficit that’s exploding out of control. In a recent poll, 90% of Americans think the deficit has grown since 2009, or stayed about the same. Just 6% correctly stated that it’s shrunk. And it has shrunk by 50% as a percentage of GDP!
With a recalcitrant Republican House willing to destroy the nation to hurt Obama and a public so deeply misinformed, real political change will have to wait till the situation becomes so incredibly desperate that Americans actually start caring enough about it to inform themselves.
@dabbler Excellent suggestions. How do you get the Tea Party to buy into them?
@ETpro “With a recalcitrant Republican House willing to destroy the nation to hurt Obama and a public so deeply misinformed” You see, I don’t agree with this, and it’s rhetoric like this that perpetuates the divide. The Republicans aren’t trying to destroy the nation. They feel very deeply that the national debt is getting unmanageable and continued borrowing puts a crushing debt on our children. They see themselves as saving the country.
The Republicans in office might not be trying to destroy the nation but they are trying to destroy the government as we know it and have said so on numerous occasions.
They call it ‘reform’ or ‘fixing the government’ but it’s quite clear that Grover Norquist’s agenda still reigns supreme in the thinking of the elected officials of the Republican party, “My goal is to cut government… down to the size where we can drown it in the bathtub.”
Clearly there are plenty of Republicans who are fed up with the antics of their elected officials. And it’s becoming more and more popular to call themselves ‘independent’ until the “leadership” gets straightened out.
The debt argument is a strawman for abusing the office of the president while it is inconveniently occupied by someone from another party. Republican elected officials have shown tremendous enthusiasm for heaping on the debt. Bush 43 even promised to reduce the deficit early on in his term, in one of the more intelligent speeches he ever gave. Unfortunately the followers of Jude Wanninsky (ref “Two-Santa-Claus Theory”) straightened him out and he reversed course savagely, starting two wars, “off the books”, and cutting taxes so there was no hope of a balanced budget. Republican party officials have been on that damn-the-consequences strategy on steroids ever since.
@Rarebear I believe @dabbler is right. You have to think the Republican kink makers like Grover Norquist are lying through their teeth about their objectives to believe they really want an effective government. After all, he did say, “I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.”
The only part of the “massive debt” that the Republicans did not run up from 1980 to today is the part the Obama Administration incurred trying to keep the Great Recession the Republicans created from becoming the next great depression.
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