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The Global Budget Race
Like many other countries, the United States is buried under a pile of mounting debt. Tunneling out will mean making some tough choices that can’t be put off much longer.
News stories regularly remind us that most national governments in the developed world are essentially insolvent. The United States has one of the worst balance sheets, with a projected debt in 2050 of $123 trillion. Of course, what can’t happen won’t happen, as economist Herbert Stein taught us. Long before that point, most countries will get their finances in order—either after a careful analysis of the alternatives or because they will be unable to borrow money and will be forced to take corrective action. How capably they respond will determine their future economic competitiveness and their standard of living.
Those countries that do a better job of bringing revenues and spending into balance—in a way that fosters a healthy and productive citizenry—will have a competitive advantage in the global economy, and they may be able to avoid economic decline.
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Douglas J. Besharov is a professor at the University of Maryland School of Public Policy and director of the university's Center for International Policy Exchanges. Douglas M. Call is a senior research analyst at the University of Maryland School of Public Policy.
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The opinions expressed here are solely those of the author and in no way represent the views or opinions of the Woodrow Wilson International Center for Scholars. This section is moderated by Wilson Quarterly staff.
Overall, a solid article, but it has two glaring omissions related to revenue increases that would NOT impact the middle class a great deal, and represent simple reversions to Clinton-era taxation policy. First is the estate tax, which currently boasts a $5 million exemption, clearly redistributing wealth upwards. Second is the "Long-Term" capital gains tax, currently taxed at either 0% or 15%. Since this rate largely applies to the investment of income above and beyond typical retirement accounts - IRA, 401(k), 403(b), etc. - it represents a tax break on income earned only by those with substantial investment income, i.e. the affluent. I would greatly be interested in seeing calculations of what fixing these two rates would do for the US budget. An additional option is something like the UK Financial Transactions tax, which is likely a smaller increase in revenue, but has the added benefit of curtailing excessive short-term financial speculation of the type that encourages financial crises.
Posted by: Sean M | 2/27/11
Re: Sean M
Sean M: Regarding Redistribution of Wealth - You stated that the estate tax exemption of $5M is "clearly redistributing wealth upwards." The only redistribution of wealth that occurrs related to taxation of estates is the redistribution from the taxed portion of the estate. Your assertion is logical ONLY if you assume that society is the default beneficiary of the deceased's estate. Only under this assumption can any exemption (of already taxed wealth) be considered redistribution. Regarding Investment Taxes - Long term investment provides capital used to grow and economy's GDP as such, reducing the incentive to invest indirectly cripples future growth of an economy. However, your suggestion related to a per-transaction tax on investment might be an effective mechanism to tax (less productive) short-term investment while minimizing the impact on long term investment.
Posted by: Ryan R | 3/23/11
Global Budget Race
Options should also consider the bang for buck the taxpayer gets in return for his tax dollars bench marked against global standards? Also, how does the spend on the Government compare? Is it oversized, bloated, efficient in its delivery of public services? Is privatization a better option? Is defense spending at appropriate levels given economic reform priorities? What about government oversight of banking and derivatives? How much taxable income is funneled offshore to tax shelters or to offshore subsidiaries? Mike, http://www.smallbusinessinvoicepro.com
Posted by: Mike | 3/24/11