Wednesday, March 20, 2013
The two policies that national Democrats blame for massively unbalanced federal budgets—the Bush tax cuts and the wars in Iraq and Afghanistan—have been largely repealed. Yet deficits are projected to average $700 billion a year over the next decade before rising again to $1 trillion.
So as the Senate and House take up competing budgets this week, President Obama and his congressional allies have renewed their demands for more revenue. The claim is that taxes remain far below historical norms, despite the recent rise in tax rates.
Well, yes, federal revenues have averaged only 15.3% of GDP over the past four years, the lowest share in 60 years. But that did not happen because tax rates are too low. Federal revenues are down because economic growth is too slow.
This simple distinction is profoundly important. Even small economic changes are powerful enough to dwarf the tax-policy differences dividing Republicans and Democrats. ...
A more progressive tax code now leverages the negative impact of slow economic growth. The share of all individual income taxes paid by the top 1% has risen to 41.8% in 2008 from 17.4% in 1980—but almost two-thirds of the income from the top 1% comes from nonwage income, including capital gains, dividends and proprietor's profits. ...
The country's fiscal condition thus poses a choice for Democrats. They can harvest a great deal of revenue by making peace with a profitable and growing economy and with those productive individuals who create such an economy. Or they can embrace new taxes on both upper- and middle-income earners that will restrain economic growth. The latter course will make it harder and harder to raise the revenue that Democrats demand to fund the government they love.