I have to confess that I found Jared Bernstein’s article at The American Prospect baffling. Summarizing his proposals for increasing federal taxes is easy: reverse every tax cut of the last thirty-five years. He makes only the flimsiest of arguments for why we should do that.
His explanation stands on a number of planks. First, cutting taxes doesn’t promote economic growth:
Most of the Democrats on the committee rightly and soundly objected to the supply-side fairy dust, pointing out that no evidence exists to support that case. As nonpartisan tax economist Bill Gale and colleagues recently wrote, “At the federal level, there is virtually no evidence that broad-based tax cuts have had a positive effect on growth. … That has been amply demonstrated at the national level, where tax cuts have eroded revenue without discernable effect on economic activity.â€
Second, there are a lot of things that could be done with more money (from the slug):
More tax dollars will be essential to improve our infrastructure, push back on global warming, fight poverty and inequality, and improve health and retirement security.
That there is no consensus and maybe not even a Congressional majority in favor of such things and that there is very little evidence that federal spending will accomplish any of those objectives do not seem to figure in his calculus.
Infrastructure spending is usually brought up in the context of Keynesian stimulus. If that’s his context, I don’t think that Mr. Bernstein is clear on the concept since it requires federal spending without increasing federal revenues to be effective. All other things being equal increasing federal taxes in order to increase federal spending will almost certainly reduce private sector economic growth through deadweight loss if nothing else.
Arguing that tax cuts thirty-five years ago do not produce economic growth now does not imply that tax increases today will not reduce private sector growth today is specious.
Finally, he refers obliquely to “demographic pressures” as a justification. I presume that by that he means the increasing number of Americans over the age of 65. I don’t find the idea of increasing the inter-generational income transfer that he’s implicitly proposing particularly appealing but I’d like to see him make the argument. He could start with the phrase “We should tax young black and brown Americans to pay more to older, wealthier, mostly white Americans because…” My suspicion is that he will find his ideas politically unpalatable.
If he means something else by “demographic pressures”, I think he should specify what he’s talking about a bit.
Social Security is not threatened by an aging America. It’s threatened because too little income is subject to the tax. That’s relatively easy to remedy, either by increasing FICA max. And Medicare’s problem isn’t that too many people are being covered under the program. It’s that healthcare in the United States is too expensive, something that can’t be cured by spending more money as should be apparent by now.
I see very little case that the federal tax code is an effective tool for reducing income inequality. Quite to the contrary I think there’s a much better case that it’s a good tool for increasing income inequality.
Would be entertaining to see how Bernstein’s question would fare (if even asked) in the 7 Senate races Cook rates as toss ups.