Raising Taxes Is the Adult Thing to Do

Tuesday, 25 Oct 2011 09:58 AM

By Ben Stein

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This is a sad story. It’s about getting into debt. It’s about the terrible things that happen to men and women and nations when they get seriously indebted.

They lose their freedom of action. They are forced to do foolish, self-destructive things. People who do not respect them order them around and humiliate them. If they are women, sometimes they resort to prostitution or other demeaning pastimes. If they are men, they also can be prostitutes in one way or another.

I am sorry to say it’s the same with nations and that’s where this little story begins.

Once upon a time, this country was run by adults with an adult sense of cause and effect, duty and ethics, and responsibility. In particular, this country was run by leaders who realized that if the nation took on an expenditure or a promise to pay in the future, taxes had to be assessed and paid for those expenditures.

There had to be some correspondence of spending and taxing. Even if there had to be more spending than taxing in an emergency such as a world war, the resulting deficits would have to be quickly paid off.

This was just common sense for nations. It was adult behavior, once again. If you spent, you had to tax.

Then came an astonishing set of ideas which took control of policy making in the party I have supported all of my life, and which my parents and grandparents supported — the Grand Old Party. That astonishing set of ideas said that the government did not have to raise taxes to cover added expenditure.

In fact, said this theory, if you lowered taxes, the supply of capital and labor provided to the economy would grow so much that even with lower tax rates, the government would collect more revenue than at higher rates. The American people would no longer have to act like responsible adults. They could have their fiscal cake and eat it, too. They could, in essence, eat all the ice cream they wanted and lose weight.

It was a beautiful, hypnotically lovely theory. But it did not work. The lower taxes did not stimulate the economy so much that tax revenues grew. (Indeed, it would not have been arithmetically possible to do so — there just are not enough hours in a year to have more work done to make up for the tax cuts that were proposed.)

A supersmart president who tried this“supply side” theory, Ronald Reagan, saw this and raised taxes after his first big tax cut. But Bush 43, in many ways a genuinely great man, did not act the same way. He cut taxes, and when the deficit grew, he did nothing about it.

Then came Mr. Barack Obama, who also lowered taxes, and who dramatically increased spending, in a sincere but vain attempt to get the economy alive after the near-death experience of 2008.

The combination of these two trends, lower taxes and wildly increased spending, put us in a danger zone of the ratio of debt to gross domestic product, roughly the same range we were in right after World War II.

Now, we face many choices, none of them charming.

We can cut spending, including defense spending, drastically. To me, cutting just about every kind of domestic spending should be considered. But I would not consider anything beyond trifling cuts in defense.

We live in a spectacularly dangerous world. We face a rapidly rising China, a nation that is having an alarming buildup in military spending. China is already demanding, as a condition of their buying our recently downgraded debt, that we cut military spending.

They probably think we’ll do it. After all, we owe them about $3 trillion, so maybe they think they own us. But if we cut military spending because they ordered us to, or for any other reason, that would be the beginning of the end of our freedom.

China wants to be No. 1, and does not want us to be strong. Soon, they will not want us to be free, and if we cut defense spending, we won’t be.

Or we can do the adult thing: We can raise taxes. I know that my Republican and tea party friends will hate me for saying this, but our taxes are too low for well-off persons. We need taxes on well-to-do earners that actually make a big dent in getting the budget balanced.

We had much higher taxes in World War II, under Eisenhower, and under Reagan, and the economy did fine.

It is a complete myth that our economy will collapse if we raise taxes — even substantially raise taxes — on well-off people (incomes of $500,000 or above, I would say). We have plenty of capital, and raising taxes has no history at all of shutting down investment and supply of labor.

I wish I could talk about this in more detail, but I don’t have the space. So I’ll just end by saying this: We have a choice — act like serious people, raise our taxes, keep our military strong, retain our freedom. Or keep taxes low until the Chinese take over the tax system — and everything else.





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