President-elect Obama has a mega-challenge: he has promised many additional high cost government programs, but his plan reduces the number of folks paying taxes, the slow economy is cutting incomes (hence, there’s less to tax), and if my observations are right, the surviving group of tax payers is working feverishly to pay as little in taxes as the law allows.
So, one might ask: where is the soon-to-be President Obama going to get the money he needs to fund his ambitious programs?
Option 1: Go through the budget “line by line with a scalpel” and redeploy the freed-up money. Nice try, but every spending line in the budget has a sponsor and a constituency. And, practically every cut ultimately calls for lopping off some government workers (who may be union members or protected by Civil Service) or contractor employees. As VP, Al Gore took a noble shot at “reengineering” the government for greater efficiency. He eventually gave up and went after a more modest challenge: global climate change.
Option 2: Raise corporate taxes, ostensibly by just closing loopholes. Remember every so-called loophole has a constituency and a purpose. Does this seem like a time to further threaten global competitiveness and risk spiraling the recession into a depression?
Option 3: Hit the top 5% with even bigger tax hikes. Despite it’s inherent populous appeal, this tactic could just aggravate another cycle of aggressive tax avoidance.
Option 4: Take back the “tax relief” promised to the 95% and make everybody buy a ticket to ride – even if their “fair share” is just a small token amount. This approach could raise some serious money since there are a lot of people in the 95%. But it wouldn’t be politically survivable. Just ask President Bush Forty-One.
Option 5: Continue to deficit-spend like drunken sailors. After all, it was easy to approve a $700 billion bailout, complemented with $150 billion in earmarks.
Sure, the last option – more deficit spending — would pass another trillion or two in national debt on to our sons and daughters. So what? The overwhelming majority of them craved change and voted for Obama. It’s poetic justice for them get stuck with the bill.
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November 20, 2008 at 8:48 am |
Loopholes are good political fodder but they are primarily dependent upon two key factors: the tax rate and the size of the group wanting the loophole. Few individuals can pursue a tax loophole but large organizations such as trade groups, unions and large businesses have the means to pursue them. There is really no legal recourse to prevent these groups from petitioning the govt but you can set policies that curb their desire to seek loopholes. You do this with lower, flat tax rates. Businesses won’t invest time and money seeking favors if the tax rate is deemed reasonable.
But with Obama’s plan to increase both individual and business taxes it will create more demand for loophole granting. Guess who is in power to grant these favors? Should the tax rates increase/expire you will see more K Street lobbying by groups seeking favors from Obama/Pelosi/Reid.