Michael Solon latches on to a point I’ve made around here from time to time either directly or implicitly:
By consistently pushing for higher tax rates on top earners, and tax credits and lower rates for lower- and middle-income earners, Democratic tax policies have unintentionally left the government dependent on the prosperity of upper-income taxpayers. Since the current recovery is so dismal, revenues have tanked.
The country’s fiscal condition thus poses a choice for Democrats. They can harvest a great deal of revenue by making peace with a profitable and growing economy and with those productive individuals who create such an economy. Or they can embrace new taxes on both upper- and middle-income earners that will restrain economic growth. The latter course will make it harder and harder to raise the revenue that Democrats demand to fund the government they love.
There’s a basic problem with how the federal government is operating. The Congress appropriates, i.e. authorizes the spending, of a certain amount of money. Obtaining that amount of money in revenues is beyond its ability or, at least, beyond its political will.
The federal government obtains revenue from a limited number of sources: mostly from fees, from payroll taxes, and from personal and corporate income taxes. The personal and corporate income tax codes are burdened with an enormous cloud of special cases, exceptions, deductions, and so on. Gaming that system is, expectedly, a multi-billion dollar industry. As long as the Congress insists on using the tax code as a tool for rewarding friends, punishing enemies, and manipulating the behavior of the citizenry rather than as a mechanism for funding the government, that will continue to be the case. As long as it insists on wielding that tool, Congress will relinquish its control over how much money it takes in. I think that should have at least some impact on what the Congress appropriates but, obviously, the Congress doesn’t agree with me.
That’s why payroll taxes (FICA) have risen so much as a percentage of total federal revenues over the years. It’s much more dependable than the income tax. It more closely approximates the politically impossible head tax (“capitation”) on which the federal government once relied than taxes on income do.
The perverse thing about our entire system is that as a general principle if you tax something you get less of it than you otherwise would. The federal government is taxing income and jobs. Do we really want less of either of those?
Finally, there’s a well known result in economics: the optimal (in the sense of producing the most economic growth) tax rate on capital, real property, and estates is zero. Among economists there are a few dissenters from that but it’s pretty generally accepted. Our present system is just about as far from that as you can get. When people wonder why the economy isn’t growing faster, they might want to keep that in mind.