re: #64 ralphieboy

And why do Republicans hate the Father of the Free Market (TM), Adam Smith?

“The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it… It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion”

As indeed they do, right now.

Today, the working poor do pay into social security, but they also get benefits at the other end. So that’s a wash, not really a tax. For the rich, social security is of little importance except if they hit a stretch of bad luck and become poor. If they remain rich into retirement, then some of their social security check will be taxed. For the rich, then, social security is not quite a wash, but it’s close. They lose just a little.

The working poor don’t pay any significant federal income tax. Tariffs are quite low on most of what they’d by. Gasoline tax again isn’t really a tax, it’s the toll on a toll road, collected somewhat indirectly. All in all, then, the poor don’t pay anything into the federal coffers. They do draw on benefits; medicaid, AFDC, school lunches, etc. That’s fine with me; as long as they put their shoulder to the wheel and try to earn at least a share of their own necessary expenditures, that’s all we should ask.

The middle class pays some federal income tax but not nearly as much as the near-rich and the truly rich. So right now, the rich and the near-rich are the main source of federal tax revenue.

Perhaps they should pay still more, because we are running a deficit. On the other hand, perhaps the government should spend less. It’s not as if all the spending now is money well spent. Or perhaps the government should spend less, and at the same time, the rich/near-rich should contribute more.

What would be the effect of raising taxes as Obama proposes?

The Treasury Department says the cost of making the cuts permanent for everyone is $3.7 trillion over a decade. The White House plan which would not extend the cuts on high earners would cost an estimated $3 trillion over ten years.

So, that’s that, right? Not so fast. The treasury is required by law to make its estimates on the basis of “static scoring”. That is, it must, by law, make believe that taxes have no effect whatever on people’s economic behavior or results. In principle, if some law were proposed calling for 1000 percent tax on all incomes, the treasury would report that this tax would yield 140 trillion a year in revenue. After all, incomes aggregate to about 14 trillion.

The proposed tax increase we’re actually talking about is nothing so extreme, but the point remains: any change in tax law is likely to have some effect on pre-tax income, especially once those affected by the tax have had time to make adjustments to the new law.

When deciding on how much to increase taxes, you have to factor this in. But higher taxes alone cannot cover runaway spending. The health care law just passed is a recipe for a lot of that, as if we didn’t have several other runaway spending trains already on the tracks. Something is going to have to be done about spending.

This commission that is coming in with its report about now has a lot of painful suggestions. We’re going to have to bite several bullets, some of them tax increases, and others of them spending cuts. If we don’t, there’s a lot more pain down the road.

Republicans are going to have to swallow hard and accept some tax increases, Democrats, spending cuts. Nobody’s going to be happy with the result, but that’s the best we can manage from where we are now.