Wednesday, April 21, 2010
America's long-run fiscal outlook is bleak, mostly because of an aging population and rising health care costs. To close the gap between expenditures and revenue, we’ll likely see a combination of revenue increases and spending cuts. And we’ll need to focus especially on reducing spending, largely because that taxes on the wealthy can be raised only so high.
Consider the tax burden on high earners once the Bush administration’s tax cuts expire next year. Add up the federal, state, city and sales taxes for a lawyer in New York City who earns $300,000 a year. Depending on the circumstances, this individual could be facing marginal tax rates in the range of 60%. Higher income tax rates would discourage hard work and encourage tax avoidance, thereby defeating the purpose of the tax increases. ...
The received wisdom in the United States is that deep spending cuts are politically impossible. But a number of economically advanced countries, including Sweden, Finland, Canada and, most recently, Ireland, have cut their government budgets when needed.