Higher taxes are a necessary evil

By AJAY K. MEHROTRA

BLOOMINGTON, Ind. — No one likes taxes, but we all like — and often need — the things that taxes provide. Schools, roads, national defense, retirement security — these and other vital public goods and services would not be possible without tax-revenues.

Unsurprisingly, politicians particularly during an election year are loath to talk about tax-increases, even as they propose new spending plans.

Still, given our nation’s grim fiscal outlook, there are strong economic, social and even moral reasons why we should welcome a tax-hike down the road — no matter who wins in November.

Everyone knows that the federal budget has spiraled out of control. What was once a modest surplus of 2.4 percent of GDP in fiscal year 2000 has been recklessly squandered into a deficit of 1.2 percent of GDP for 2007 — a swing of about $400 billion, according to the Congressional Budget Office. And with the costs of Social Security and Medicare estimated to skyrocket in coming decades, the shortfall is only going to get worse.

Some economists contend that further tax-cuts and government spending might stimulate much needed growth, while others go further making the dubious claim that cutting taxes can spur enough economic growth to solve all our budget problems.

Tax-cuts may increase short-term revenues, but no amount of tax-cuts can help us grow out of this deep a fiscal hole. In fact, they might make matters worse, since it’s equally likely that if tax-cuts actually lose money, increased government debt could crowd out private investment and slow long-term economic growth.

While spending cuts are certainly one way to reduce the shortfall, limits on discretionary outlays and the ambitions of our politicians suggest that spending-cuts are no panacea.

The economic reality is that tax-increases are a necessity.

Besides managing the economy, taxation historically has also been central to the social contract between citizens and their government. And maintaining the integrity of that contract is another reason why we should accept a tax-hike.

Our modern progressive tax-system was founded on the principle that the bonds of social solidarity and ethical duty required that all citizens owed a debt to society in proportion to their ability to pay. The well-heeled thus had a civic obligation to contribute more to the financing of a modern state than their less fortunate neighbors.

Rising inequality

Today, inequality is on the rise, approaching levels unknown for nearly a century. As we usher in this New Gilded Age, the social aspect of tax policy, embedded in our historic commitment to progressive taxes, is once again pivotal. Even Warren Buffet, one of the richest men in America, has proclaimed that “an economy where my receptionist pays a lot higher tax-rate than I do, does not strike me as a just economy.”

The social reality is that tax increases are a necessity.

In the past, the meaning of tax justice has also taken on a particular moral imperative during wartime. Throughout American history, our leaders have not only harnessed patriotism and the social obligations of citizenship to fund international conflicts; they have also been acutely aware of the moral need to distribute the costs of war fairly and equitably.

Even before the United States entered WWII, President Franklin D. Roosevelt asked the American people to put “patriotism ahead of pocketbooks.” As he reminded Congress: “I have asked for sacrifice, and part of sacrifice means the payment of more money in taxes.”

In 2003, Sen. John McCain seemed to embrace the American tradition of shared sacrifice when he opposed wartime tax cuts for the wealthy. “I cannot in good conscience,” McCain declared, “vote in favor of tax-cuts.”

McCain, as we all know, has since changed his mind. Yet, as the costs of the war on terror, in both dollars and lives, continue to mount, the ethical obligation to share in wartime sacrifice looms ever larger.

The moral reality is that tax-increases are a necessity.

X Ajay K. Mehrotra is an associate law professor and adjunct associate professor of history at Indiana University. Distributed by McClatchy-Tribune.