It is anticipated that when the White House deficit commission unveils it proposals today there will be a lot of upset people across the nation. Along with proposals to raise taxes, many programs and services that Americans find useful and have come to rely upon are facing cuts or elimination. One such program is the mortgage interest deduction popular among home owners. It is argued that the mortgage interest deduction costs the federal government $100 billion in lost tax revenue every year. Kay Weeks, president of the MetroTex Association of Realtors in Dallas, TX predicted that the public will be angry. She argued that the millions of upset voters who shook up Congress in the recent elections will be even more upset. I suspect she is correct. People who voted out congressmen because they felt the government was too big and spending too much money surely did not do so to end up paying more in taxes. Less government is one thing. Paying more for less government is quite another.
In a bold move, the commission is hoping that if the proposals hurt everybody, they will be more easily accepted. It is proposed that the social security retirement age be raised to 67. Cost of living increases will be lessened. Tax credits for mortgage interest would be reduced. If adopted, the proposals would be felt. Some of the proposals would hit people twice. Raising gasoline taxes as proposed will be felt at the pump. It will also be felt at the grocery store and the shopping mall where businesses will pass along increased shipping costs due to higher fuel taxes to consumers.
Eliminating tax breaks is certainly warranted in many cases, but it should not be construed as cutting spending. It is increasing revenue. Not collecting something is different from giving something away. Tax breaks do not give anyone anything they did not already have. It is arrogance of the highest order for the government to assert that by not taking something it is in fact giving something away. It carries the implication that what we have is not really ours and if the government decides it wants it or needs it, it can take it. In a sense, by letting you keep what is yours, the government is just being magnanimous.
The billions the government anticipates it will gain by adjusting the tax code are billions that will not be in the hands of consumers or businesses. That is bad news for the economy. Unless it is stuffed in a mattress or buried in the back yard, money in the hands of consumers is a good thing. Whether it is spent, saved, or invested, the economy benefits. If they spend it, the economy grows. Customarily, when money changes hands, profit is made. If people do not spend it they will save or invest it. If they save it, banks have more money to lend. By lending money banks not only make money, they make it possible for others to earn money by making it available to people who need it to purchase things. If they invest it the economy will gain by allowing businesses to expand and modernize, resulting in new opportunities and a growing economy, assuming it is not stolen by avaricious executives and corrupt financiers.
Raising business taxes is always problematic. Business is often seen as distinct from the rest of society. But it isn't. It is an integral part of it. Without business there would be no economy. If it weren't for capitalism, the economy would still be in the middle ages. One assails business at their own peril. Moreover, higher business taxes are typically passed along to consumers. Where the burdens of higher taxes cannot be passed along they have to be compensated for. Sometimes this is done by laying off workers. Sometimes it is done by raising prices or reducing quality. Some businesses go so far as to relocate overseas.
The real drawback of lower taxes from the government's point of view is that it has less money to spend. It matters little to the government how much money individuals or businesses have other than what it represents as tax revenue. The government's real concern is how much money it has, not the tax payer. Low taxes are a boon to citizens but they are a hindrance to government.
The government needs to take a long hard look at spending. They need to reduce it. The Fiscal Commission has made a commendable effort to do so. Programs and services are going to have to be cut. People are going to be upset. Some are going to be hurt. But is arrogant to describe tightening the tax code as curtailing gifts as some are doing. Taking less is not giving. Paying taxes is a transaction. The public provides money to the government. In return, the government provides services to the people. It is likely in the near future the public will be paying more and getting less. Weeks is correct. The public will be angry. Anyone would be.
The issue at hand is not about government. Some of what the government does is necessary. Some of what the government does is beneficial. Some of what the government does is wasteful. Some of what the government does is harmful. That is what is going to have to be sorted out. If that can be done, the task of identifying where cuts should be made will be easier. It will still be painful but the country will be stronger for it. Neither is the issue simply about taxes. Taxes have to be collected if the government is to operate. The government has to operate if we are to have a civilized society. At the bottom, the issue is about what we want and expect from government and what we are willing to pay for it.
We cannot expect the government to do what we want it to do at the price we have so far been willing to pay. If the U.S. is able to right itself the effort will have been in vain if the American public does not reconsider what it expects from government. If it is unable or unwilling to do so, at the first glimpse of black ink the frenzy will resume.
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