“In Budgeting Battled: Tax and Spending Myths and Realities” the New York Times editorial talks about the stalemate of federal budget debate.
The Republicans want to cut US$ 4.3 trillion of government spendings over the next ten years and US$ 4.2 trillion of tax revenues.
NYT agrees that government spendings have to be controlled but slashing vital social services just to support more tax cuts means bad policy and bad economics.
Reagan promised that tax cuts would spur economic growth and later pay for themselves. In the face of growing deficit, he was forced to raise taxes to close the gap.
Clinton disproved the notion that higher taxes would inevitably stifle economic growth or cost politicians their jobs. During his mandate, the economy was strong and stock market surged. In 1997, the administration decided on tax cuts but enacted higher tax rates on the wealthy.
Bush administration did not collect US$ 1.65 trillion through tax cuts. The economic recovery of Bush years was extraordinarily weak by historical standards.
Obama’s proposed budget for fiscal year 2012 is a mix of tax increases and tax cuts. The problems of this proposal are the clarification of the new sources of revenue, defense cuts, spendings on health care and on entitlements.
NYT editorial agrees that raising income taxes should start with rich Americans, who have been the biggest beneficiaries of Bush-era tax cuts. This measure will not dig the country out of its hole, though. Middle class has also to pay higher taxes as this is the only way for i) keeping needed services, ii) tackle deficit, iii) slow borrowing, and iv) rise interest payments. Other source of tax revenue will be i) energy ii) financial transaction and iii) value-added.
Obama also has to change political debate. He has to abolish the tax-cuts-above-all ideology. He has to make the case for tax increases based on reality.
http://www.nytimes.com/2011/04/13/opinion/13wed1.html?partner=rss&emc=rss
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