How Taxation Could Be Done Differently In America

July 5, 2017

No one likes paying taxes. Conversations around taxes generally center around whether or not people want taxes to be high or low. Liberals generally want taxes high to pay for more services to help the economy, while conservatives want it low to stimulate economic growth.

 

              Photo: Kiplinger

 

There is a lot of evidence to support both ideas that low taxes and high spending are really good for the economy. So why not develop a system that does both?

 

Rather than keeping our taxes high or low all the time, we could switch it up. When the economy is bad, Congress could lower taxes, increase deficit spending, reduce regulations, and the Fed could lower interest rates. When the economy is doing well, Congress could increase taxes, reduce deficit spending, increase regulations, and the Fed could increase rates.

 

The idea would be to use tax and spending policies as a weight to add balance to the economy. When the economy needs to be stimulated, tax and spending policies would stimulate growth. And when the economy can handle pressure from high taxes and low spending, Congress could implement those policies to reduce deficits.   

 

Many economists believe that having government deficits during a recession or period of low economic growth is necessary to revive the economy. But obviously, huge deficits are not sustainable over a long period of time, so there needs to be a point in time where deficit reduction occurs.

 

So why doesn’t Congress do this.

 

Because it’s Congress. Congress has a long history of taking their time to implement important policies. So the thought of having them making their policies more responsive to the economic realities of the country seems a little far-fetched.

 

Additionally, considering how politics works, it is hard to imagine politicians ever agreeing to implement policies that would strain the economy, even during times of strong economic growth.

 

And then there’s market reactions to these policies. If tax policies fluctuated too much, the markets could interpret that as instability and may not react well to it. It is somewhat unclear how the market would react to these policies.

 

Another monkey-wrench in this idea is social spending. Social spending in the US on programs such as Social Security, Medicare, and Medicaid currently makes up roughly 71% of all US spending. And it is the type of spending that really cannot be cut for a variety of reasons. If social spending were to be increased to create programs such as a national single-payer system or make public college tuition-free, taxes would have to remain at much higher levels than they are at now. Tax cuts would then have to be less deep, otherwise, the deficits would be unsustainable. So any increases in social spending could potentially make these policies less effective.

 

That being said, these are still policies that we should at least try. Perhaps, Congress could consult experts and develop a formula for some of the policies to change automatically based on the state of the economy. If we were to try this, we would have a better idea of whether or not it works.

 

Ryan King is an aspiring journalist. Aside from people, there are three things in life that he cares about: politics, comic books, and computers. In all of these areas, he tries his best to present contrarian views and be an effective devil’s advocate. It is also his goal to spotlight important stories or ideas that don’t get a lot of attention.

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