Economist Paul Krugman writes in The New York Times that it’s a good thing the Congressional “supercommittee” has failed to agree on federal budget cuts. A more helpful approach, he says, is to raise taxes on the rich and to start taxing financial transactions. He takes on naysayers who argue taxing the rich will not help the bigger picture by pointing out that the combined income for the top 0.1% of earners is more than $1 trillion, and claims the vast increase in financial transactions over the years could result in a significant source of tax revenue. For more on this continue reading the following article from Economist’s View.
Increased in revenue from taxes on very high incomes and taxes on financial transactions should be part of the long-term deficit reduction plan:
Things to Tax, by Paul Krugman, Commentary, NY Times: The supercommittee was a superdud — and we should be glad. Nonetheless, at some point we’ll have to rein in budget deficits. And when we do, here’s a thought: How about making increased revenue an important part of the deal?
And I don’t just mean a return to Clinton-era tax rates. ... The long-run budget outlook has darkened, which means that some hard choices must be made. Why should those choices only involve spending cuts? Why not also push some taxes above their levels in the 1990s?
Let me suggest two areas in which it would make a lot of sense to raise taxes in earnest...: taxes on very high incomes and taxes on financial transactions.
About those high incomes: In my last column I suggested that the very rich ... should pay more in taxes. I got many responses from readers ... that even confiscatory taxes on the wealthy couldn’t possibly raise enough money to matter.
Folks, you’re living in the past. ... The IRS reports that in 2007 ... the top 0.1 percent of taxpayers — roughly speaking, people with annual incomes over $2 million — had a combined income of more than a trillion dollars. That’s a lot of money, and ... taxes ... would raise a significant amount of revenue...
For example,... before 1980 very-high-income individuals fell into tax brackets well above the 35 percent top rate that applies today. ... I’ve extrapolated ... using Congressional Budget Office projections, and what I get for the next decade is that high-income taxation could shave more than $1 trillion off the deficit. ...
So raising taxes on the very rich could make a serious contribution to deficit reduction. Don’t believe anyone who claims otherwise.
And then there’s the idea of taxing financial transactions... Because there are so many transactions, such a fee could yield several hundred billion dollars in revenue over the next decade. Again, this compares favorably with the savings from many of the harsh spending cuts being proposed in the name of fiscal responsibility.
But wouldn’t such a tax hurt economic growth? As I said, the evidence suggests not — if anything,... to the extent that taxing financial transactions reduces the volume of wheeling and dealing, that would be a good thing. ...
Now, the tax ideas I’ve just mentioned wouldn’t be enough, by themselves, to fix our deficit. But the same is true of proposals for spending cuts. The point I’m making here isn’t that taxes are all we need; it is that they could and should be a significant part of the solution.
This blog post was republished with permission from Economist’s View.