Empires rise and fall on the strength of their kitty, not their guns. Spain in the 17th century, France in the 18th, Britain in the 19th – they each went bankrupt, exhausted from debt. With unsustainable trillion-dollar deficits projected through the next decade, is the United States going the way of its European forebears? If so, it would be by choice. European powers collapsed from overtaxing their people for wealth they no longer had. The United States is headed for collapse for refusing to fairly tax existing concentrations of wealth.
Lack of taxes can be as insidious as too many taxes when collective slavery to debt is the result. The deficit can be crushed before it crushes us, and the nation’s fortunes reversed – not by nickle-and-diming obligations to a more stable future, but by properly taxing and reinvesting hoards of wealth. Here’s how.
CORPORATE WELFARE: The federal government spends about $100 billion a year subsidizing private business through direct grants, advertising business abroad, subsidizing business loans and insurance at home, favoring some companies over others and protecting U.S. companies against foreign competition, costing American consumers more than protecting jobs. Chambers of commerce moan about wanting government out of their way. Start by supporting an end to corporate welfare. Savings: $100 billion a year.
MORTGAGE-INTEREST DEDUCTION: It’s a fat, $80 billion-a-year handout, mostly to middle and upper-income people (homeowners can deduct interest on loans of up to $1 million). It subsidizes bigger loans than people can afford. It’s regressive, saving homeowners who make $250,000 at least 10 times more than those who make $75,000. It therefore encourages home-buying among those who can already afford it, not those who need help. And it discriminates against renters. Capping it at $100,000 would be a good start. Eliminating it would be better. Savings if fully eliminated: $80 billion.
GAS TAX: The United States has the lowest gas taxes in the industrial world, the most wasteful driving habits and the poorest mass-transit system. A $1-per-gallon gas tax (phased in over several years) would have gas prices still lower than their peak last year but would encourage less driving and more energy innovation and immediately put to work hundreds of thousands of Americans building a 21st century infrastructure. Revenue: $100 billion a year.
ALTERNATIVE MINIMUM TAX: It was designed as a specialty tax in the 1960s to ensure that the superrich paid their share. It was never indexed to inflation. It’s creeping down the upper middle class. But every year Congress passes a “patch” to keep it from biting. Enough patches. The AMT does one good thing: It negates the excesses of the Bush tax cuts – and doesn’t stop at Obama’s beloved $250,000 threshold. So don’t repeal the AMT. Learn to love it. Alternately, repeal the Bush tax cuts that, as we can see all around, did no good. Revenue: $120 billion a year and growing.
SOCIAL SECURITY AND MEDICARE: The flat payroll tax of 7.65 percent on individuals is regressive and unfair. It should be progressive – lower at the lower end of the scale, yielding a tax cut, higher at the higher end, and not capped, as the Social Security tax is, at $106,000. Like the Medicare tax, it should be uncapped, and eligibility raised to 70. Retiring at 65 is getting old. So is the lie that Social Security and Medicare can’t be easily saved. Combined savings and revenue: $100 billion a year.
HEALTH INSURANCE PREMIUMS: They’re tax-free, costing the Treasury $250 billion a year. John McCain was wrong to want to tax them merely to provide a cheap, $5,000 health-tax credit in exchange. Tax them progressively, but to pay for comprehensive health care reform. A modest tax on premiums alone that still exempts middle and lower incomes would pay for the entire Obama reform package and more. Revenue: $100 to $150 billion a year.
Tally it up. So far you get more than $600 billion a year in budgetary savings or revenue. That’s before reforming corporate tax exemptions and the inheritance tax, considering a national sales tax or a carbon tax, and reining in the obscenity of a Pentagon budget adding up to more than every other country’s military budget combined. That could add an extra $300 billion to $400 billion in savings and revenue, or $1 trillion a year in total, with adjustments, but not shock, to most taxpayers.
Obviously, all or even most of that isn’t necessary. But the notion that the country is facing unmanageable deficits is bunk. It’s facing unmanageable ideologies – an anti-tax prejudice that mistakes immediately gratifying greed for long-term prosperity. The housing bubble is now a self-preservation bubble. How unlike America, this fearful timidity. With deficits as far as our indebted lives can see, and absent a commitment to seize the country’s engines of promise again, inequalities and all things second-rate will flourish. Innovation and the economy won’t. China, that new empire in waiting, is licking its chopsticks.