For once, I find myself agreeing with Larry Summers. At a conference in Washington sponsored by the Brookings Institute, he emphasized that tax cuts and spending cuts cannot appropriately resolve the US budgetary issues.
“It is a near certainty that we are going to need a significant increase in revenues, and it seems to me that any discussion of tax policy needs to start there,” Summers Says U.S. Tax Overhaul Should Raise More Money, Bloomberg.com (May 3, 2012).
Without additional taxes, "close to inconceivable" cuts to earned benefits programs like Medicare and Social Security would be required, he noted. Id.
It's important that people start talking some sense about taxes since they are the lifeblood of a democracy and the primary way that a government can act to limit the concentration of wealth in the hands of the few that diminishes democracy by promoting oligarchy.
I suspect most of the insiders in the Republican Party know this and know that if common sense reigns, taxes will be raised on the upper crust and raised somewhat on most of the middle class, in order to ensure that the US can deal with its crumbling infrastructure, support its citizens, not just the wealthy ones, in developing their human capital, and provide a decent and sustainable standard of living for most of our people. That is why the Republican Party is engaged these days in brinksmanship legislative (and judicial) action. As the extreme right has gained representation through strong turnout of the more ideological base, Republican congressmen and women have played a one-note tune, using the filibuster in the Senate to stymie majority rule and repeatedly relying on counterfactual assumptions about the economy and meaningless soundbite promotions--such as the idea that tax cuts result in greater revenues (not so) or the notion that Social Security is bankrupt (not so) or the idea that lower income Americans should pay more in taxes rather than increasing the taxes paid by the extraordinarily wealthy upper-crust that has seen its taxes lowered during the three-plus decades of reaganomics--to convince Americans that a return to the laissez-faire, corporate titan economy that reigned at the turn of the nineteenth century would lead to prosperity.
One of the major problems facing this country today, and its economy, is the huge gap between the income of a few ultra rich and the rest of us, and the near-poverty level of income for many Americans. Countries with such inequalities generally have poor quality of life indicators on a lot of fronts, and the US is no exception. Teenage birth rates, illiteracy, health care, low-birth weight babies, unemployment--a litany of societal ills accompanies high inequality within a society, and the US suffers from almost all of them.
Why then is it that our policymakers do not recognize the central role of the tax system in either fostering inequality--as it has been for thirty years under reaganomics, as we reduced the role of the estate tax, provided an extraordinarily preferential rate for capital gains (the type of income mostly enjoyed by the very wealthy), and otherwise provided deductions and preferences that had the effect of redistributing upwards from the vast middle to the few at the top. Yet right wing economists like Martin Feldstein refuse to recognize the devastating impact of huge inequality on the economy.
"Our problem in the income distribution area is poverty, and you should be concerned about combating poverty, not inequality.” Id (quoting Martin Feldstein).
Perhaps Feldstein has bought the Kool-Aid of the American myth, that we are a society with great mobility, no class structure, where everyone can "rise by his own bootstraps" and become a millionaire. That mobile and classless society may have almost existed in the golden years after World War II, when veterans came back, went to college on the GI Bill, and raised families in small towns across the US that were dominated by locally owned stores and regional food supplies. But the US society has lost a considerable amount of that mobility. Yes, there are some at the bottom who win the lottery (literally or figuratively) and move up, and there are some at the top who don't stay at the top. But generally in this country, the father's wealth determines the wealth of the son, who inherits it at no tax cost and generally increases it because that wealth is mostly represented by capital assets whose income is preferentially taxed at very low rates.
Ultimately, this nation would be best served by merely allowing the ill-considered Bush tax cuts to expire as they are slated to do under current law. Then hopefully a more reflective group of legislators can get together and discuss how best to modify our tax system to deal with the issues that face us in this century--global companies that move their intellectual property offshore in order to avoid taxes and who no longer have any sense of loyalty to country; too big to fail institutions in banking, insurance, and global multinational coroprations; and excessive subsidies for companies that are making billions in profits and paying almost no taxes, such as the oil and gas industry, the agribusiness industry, and multinationals like GE. I think a big part of the answer requires rethinking in a direction quite different from the one that the right is pushing: to considerably narrow the tax-free provisions for mergers, acquisitions and spin-offs; to modify the transfer pricing formula to reject treatment of intellectual property developed in this country as "sold" to a controlled subsidiary; to recognize the need to protect domestic industry from globalization that leaves us too dependent on imports; and to re-invigorate anti-trust and consumer protection laws so that industries can no longer sell products and leave customers without recourse to information or repair because of unintelligible call services in the Phillipines and "company policies" that refuse to reimburse a customer for damage done to a printer by a cartridge sold by the printer manufacturer.