Having just read a beautiful piece by Stephen King in the Daily Beast, where he requested that rich people be required to be taxed more, I feel I must respond. The “liberals” in America pretty much wet their pants when Warren Buffet and other 1%er’s came out for the idea of a tax floor on the super rich. People like Stephen King have written lovely columns, and Obama will likely make it a tent pole of his re-election run. However, the idea that simply raising taxes on the rich will solve America’s financial problems, or even put a dent in America’s financial problems, is ridiculous.

America’s current financial problems do not fall within the traditional political game where only one party is culpable. This is partially why America is having so much trouble fixing it. The problem is not to do with too low taxes or too much spending; it is a combination of the two. Unfortunately, America’s system of one party getting elected and doing whatever the hell it wants, followed by the other party doing the same (with neither party particularly caring about the future beyond the next election), has resulted in a ridiculous situation. Taxes are far too low (this is partially masked by the fact that there are so many loopholes in the American tax system), and spending (especially in certain areas) is far too high. Neither of these problems will be solved purely through the “Buffet rule”.

As Fareed Zakaria has pointed out: “The Buffet Tax will raise about $47 billion over the next ten years and the federal government will spend vastly more than that – $45 trillion over the next ten years. So the total revenue from the tax is clearly trivial in comparison to the scale of the problems in terms of deficit or debt”. Are we really fighting over $4.7 billion dollars in revenue a year when the 2012 American Federal budget is $3.796 Trillion (with a deficit of 1.327 trillion)? Does this not seem like a drop in the ocean?

King’s overarching point was that America has given much to those who have become rich there, and therefore the patriotic thing to do is give more money back to the government, so as to ensure the ability of upward social movement continues into the future. I agree with this idea, and I obviously would not reject the $4.7 billion a year in extra revenues. But I think there has to be a bigger debate, EVERYONE has to give more to the government, and this goes especially for the rich. The rich should be giving closer to the 50% that King suggests, but capital gains should also be increased (some time in the future, after the uncertainty has eased), deals should be worked out so global corporations repatriate all moneys, corporate rates should be increased through the elimination of loopholes etc., and yes even rates on the “normal” people should go up. Above all, America’s ridiculous Swiss cheese like tax system should find its death at the hands of a flat tax.

But this needs to be matched in spending reduction, especially in military spending reduction. The estimates I have seen are that around $700 billion dollars was given to the department of defence in 2012. This accounts for almost a fifth of the entire budget, and close to 50% of the total amount spent on defence in the entire world. Is this really necessary? There are many anecdotal ideas for where expenditure could be reduced, such as the ethanol subsidies that owe their life to the Iowa caucuses, or the many other inefficient subsidies.

My point essentially boils down to this. America needs a larger debate. Both sides are responsible for the situation, as both sides have fought for increases in spending and the reduction of taxes. Now both sides should come together and work out a method for closing the gap between revenue and expenditure. It can’t just happen through spending cuts, and it can’t just happen through tax increases. It must be a mixture.

Sources:

Stephen King article: http://www.thedailybeast.com/articles/2012/04/30/stephen-king-tax-me-for-f-s-sake.html

Zakaria quote: http://globalpublicsquare.blogs.cnn.com/2012/04/17/zakaria-buffett-rule-good-but-not-nearly-enough/