http://www.american.com/archive/2013/january/we-are-the-98-percent/
The only way to finance a big European-style state is to have it paid for by massive taxation of everyone, mostly the middle class. Right now, we are avoiding honest debate on this fact.
The central issue of our time is the debate over the size and scope of government. Two unpleasant but undeniable mathematical truths limit the feasible policy choices. The recent sound and fury of the fiscal cliff follies in the end signified nothing because the resolution was in fact just a denial of both truths.
The first truth is that the current tax rates cannot support the promises made to middle-class Americans. The most unaffordable items in fiscal projections are Social Security for everyone and government-sponsored health care for the middle class. You cannot preserve these even with Draconian slashing of military, infrastructure, welfare, education, and other expenditures.
The second truth is that you cannot pay for the Life of Julia, or any vision of a cradle-to-grave welfare state, without massive and increasingly regressive middle-class taxes. The poor don’t have the money to pay for a European-style welfare state, and the rich, rich as they are, don’t have anywhere near enough.
Not only that, it’s easy to tax middle-class assets and transactions — things like payrolls, sales, and real estate — but soaking the rich means taxing investments. Investments are complicated and can be restructured to minimize taxes. Also, investments are the lifeblood of economic growth. Raising significantly more taxes from the rich also requires higher marginal tax rates — and their rates are already quite high. High marginal rates distort the economy and yield less revenue than anticipated because they increase the rewards for legal and illegal tax avoidance.
That’s not to say it’s impossible to get more money from the rich, but it’s tricky and past attempts have typically been less effective than forecast and often counterproductive. Moreover, even under the most optimistic assumptions, taxes on the rich — or taxes on businesses, financial transactions, or anything else aimed at the rich (and often hitting others) — will still not cover a large fraction of the costs of a European-style welfare state. Ask the Europeans — they’ve tried it all and failed.
Even under the most optimistic assumptions, taxes on the rich will still not cover a large fraction of the costs of a European-style welfare state.
To be in our political center today, you have to deny both these truths and pretend that if we sharpen our pencils and make a bunch of wildly optimistic assumptions, we can close a few tax loopholes, cut some waste from spending, and maybe nudge upper-income tax rates up a little, and continue merrily on the same big-and-growing-bigger government path without unfortunate consequences. This is a “balanced approach,” as it ignores both mathematical truths equally, but the denial of clear reality means this approach is doomed to fail.
Surprisingly, many progressive pundits are moving away from their traditional complaint that America’s tax code is too regressive, favoring the rich. They are starting to tell us, albeit only after an election mainly contested on these issues, the truth: to fund the European-style social welfare state which they advocate, we must tax everyone more.
For example, Ezra Klein, blogging for the Washington Post on December 7th, writes, “The need for tax receipts to grow underscores the necessity of finding an efficient way to collect them. Experts say that should include tax reform and new tax sources that take the pressure off the income tax, such as a value added tax or a carbon tax.”
