NBC has the article Facing the fiscal cliff: American taxpayers have had it easy for decades.
Still, with the deadline for a deal to head off the so-called “fiscal cliff” now less than a month away, the debate has shifted from whether taxes should go up to just who should pay more. Both sides seem to acknowledge what some economists have been saying for some time.
The problem with the budget is that Americans don’t pay enough taxes.
The case isn’t hard to make. The U.S. federal tax burden, relative to gross domestic product, is lower than it’s been in half a century. Americans pay lower taxes in relation to the size of their economy than all but a handful of developed countries, including Chile and Mexico.
The relatively low tax burden on Americans is, in part, an illusion that results from heavy reliance on hundreds of billions of dollars of so-called “tax expenditures.” To make government spending appear lower than it really is, the U.S. tax code is larded with givebacks, deductions and exemptions.
I particularly like this article because it provides so much food for thought. As a well balanced article, it was hard to find a concentrated excerpt that also showed its balance. As I looked for as good an excerpt as I could find, I chose the above. At first, I was going to leave out the last excerpted paragraph above, but as I stepped away from the posting the article to go have breakfast, the ability to digest some of that food for thought led me to see the importance of the paragraph.
There is a tradeoff between tax expenditures and collecting the taxes and then spending the money on targeted programs to accomplish some specific purpose. The tax expenditures may be meant to encourage some social good, but they tend to be less focused and targeted on the specific social good they are trying to promote. For instance, lowering the tax on capital gains may encourage investing more in businesses, but not all businesses are the types in which we want to encourage investment.
On the other hand, we could stop favoring capital gains in the tax code, but use the extra money collected to spend on particular industries or particular business practices that we want to encourage. That would focus the tax money where it might do the most good, but such a plan would require more bureaucracy to manage it. The burden of bureaucracy would fall on both the government to administer such a program and the beneficiaries who might have to apply for the benefit.
Like any good idea for change, it needs to be applied judiciously. There are some aspects of the old way that are worth preserving. One management course that I took as a Digital Equipment Company employee argued for a certain methodology when contemplating making changes. Write down what it is about the current system that you want to change and also write down those parts you want to preserve. Neither the old system nor the new system is likely to be all good or all bad.