Wednesday, January 27, 2010

Why Not Automatically Adjust Tax Rates to Balance the Budget

We're not going to have a federal balanced budget amendment, nor would one be a good idea. At times deficit spending benefits the economy, at times there will be national emergencies that require short-term spending, at times there will be a financial downturn that reduces tax revenues but could (or would) be worsened by a tax increase... and the remedy for Congress passing a budget that wasn't balanced would be imposed by the courts? So a federal judge would rewrite the federal budget?

But there is something we could do in times of non-emergency to balance the budget. We could simply have the tax rate automatically adjust itself such that tax revenues equalled the prior year's annual expenditure. Perhaps, until we're deficit-free, "plus five percent" so we could pay down the deficit. Deficit hawks should be giddy with excitement at the idea. It needn't be regressive - the percentage increase could be higher for higher tax brackets and capital gains. If we somehow manage to run a surplus beyond the 5%, to keep the Alan Greenspans of the world happy - those who don't want to pay down the deficit too quickly - that would trigger an equivalent, automatic tax cut.

How to avoid having a president declare each year an emergency year to avoid triggering the automatic tax increase? Include a poison pill for emergency years - a national wealth tax imposed during periods of emergency, let's say 0.5% with a $25 million exemption, applied to individuals and corporations alike. Oh, as if the uber-rich would ever be taxed like that... Let's say, a 2% tax increase for the highest tax bracket and a 5% increase for capital gains. Or something similar - the point being that the uber-rich will not tolerate a perpetual state of emergency that they have to subsidize.

You would think this would be a Republican Party dream - rather than fretting about tax rates or cuts, they could put their money where their mouth is. Reduce the size and scope of government, triggering tax reductions that could increase productivity and (in their world of laughable Laffer Curves) increase tax revenue. The Tea Party movement should love it as well - slight short-term pain, but leading to a reduced budget deficit, balanced budget... everything they believe they want. And if politicians don't deliver, the pain in people's pocketbooks will inspire them to vote them out.

I'm just astounded that this isn't part of the Republican Party platform.1

Update: Even Republicans who support PAYGO... vote against it. The party of "no".
1. If you missed the sarcasm in this post, well....

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