In this week’s Acton Commentary, “Do Less with Less: What the History of Federal Debt and Tax Leverage Teaches,” I reflect on how the federal government has lived beyond its means for decades. This reality is especially important to recognize as we approach Tax Day this year as well as in the context of debates about how to address the public debt crisis.

There are many who think we need to raise taxes in order to close the historic levels of deficit spending. In theory I would consider raising taxes as a viable option, or at least preferable to continued deficit spending, since it would at least make the real cost of government more visible. Roughly 40% of what the government spent last year was beyond what it took in.

But without structural connections between increased taxes and balancing the budget, there’s nothing at all to give us hope that the government wouldn’t simply continue to leverage the greater revenue into greater deficit spending. In this vein I note the conclusions recently updated by Richard Vedder and Stephen Moore, that “over the entire post World War II era through 2009 each dollar of new tax revenue was associated with $1.17 of new spending. Politicians spend the money as fast as it comes in—and a little bit more.”

Calvin College philosophy professor James K. A. Smith doesn’t take this reality into account, I don’t think, when he recently argued that the current situation calls for raising taxes, both on the rich and the middle-class. Thus, he writes,

But only a lazy, unimaginative take on this would assume that “low taxes” is a given. So sure, one strategy to reduce debt would be to slash spending, which inevitably happens on the backs of the poor and vulnerable, particularly women and children.

The alternative to such an unattractive option as Smith sees it is to raise taxes, particularly on the rich. Smith thus points to the idea that America needs to adopt a “graduated tax like most other North American countries.”

The fact is, though, that the US already has a progressive tax system, and indeed places a much higher relative burden on the top decile of household incomes than other developed nations.

One of the next big fights will be over raising the debt ceiling, as Smith points out. Perhaps we can link balanced budgets with increases on the debt ceiling (something more feasible than passing a balanced budget amendment). The idea would be that we only increase the debt ceiling on the condition balancing the annual budget, and that we only think about raising taxes to balance that budget if we actually commit to balancing it.

Simply raising taxes won’t do anything but give the federal government more money to leverage into higher levels of deficit spending.

  • http://www.calvin.edu/~jks4 James K.A. Smith

    Well, Mr. Ballor, I’m not too sanguine we could have a constructive discussion about this, so I don’t expect this comment to go anywhere. (Your libertarian ideology has already made decisions about what the federal government will do, so I don’t expect any empirical data will sway you otherwise.)

    But I did want to point out a few things:

    1. I said a graduated tax “like other North Atlantic countries,” not North “American.” Not sure why you changed that.

    2. I suggested not just a graduated tax per se, but a graduate tax like those countries–the current U.S. tax structure might be graduated, but it’s nothing close to Canada or Europe.

    3. The primary thrust of my off-the-cuff post was not to make an argument for tax increases, but only to point out that it’s unhelpful if our collective political imagination cannot possibly imagine that as a possibility. (You also ignore the fact that I positively refer to David Brooks’ column on these matters. I’m guessing Brooks counts as a “liberal” for you?)

    4. Finally, the focus of my post was not about taxing the rich–it was actually about taxes the so-called middle class, and I would say especially those who make $100,000-$250,000 should, for the sake of the common good, be willing to pay more in taxes to care for the vulnerable.

  • Ted Seeber

    I think we’re arguing for the wrong idea entirely.

    The deficit is really about shouldering the cost of government on to the next generation- and killing off that next generation so we can afford more for ourselves today.

    I’d be happy to return to the tax structure of 1953, IF it meant Planned Parenthood was defunded, WIC was expanded to cover every American citizen between conception and age 16 regardless of parental income, and Medicare was expanded to cover every American Citizen between birth and natural death.

    Then at least we could begin to reverse the damage done by the libertarian culture of death.

  • http://www.jordanballor.com/ Jordan J. Ballor

    Dr. Smith,

    I appreciate your response and correction, as well as clarification about what your post was really about contra my highlights. I suggest that going forward if we do hope to have a substantive engagement in good faith that we do our mutual best to avoid name-calling, labeling, stereotyping, and so on. If you want to have a discussion about ideology then I’m happy to do so, but it might draw us rather far afield.

    1.) I must have simply misread that and I apologize. The reference has been corrected in the post above.

    2.) I wonder if you could clarify what you mean precisely by graduated tax. In usual usage it means something along the lines of only dollars earned that fall within a higher tax bracket are taxed at that higher level (as opposed to all dollars earned being taxed according to the highest level). But that doesn’t seem to jibe well with the point of your post, as you say, because such a system would put less of a tax burden on middle- and high-income households.

    3.) The reason I wrote my commentary this week is that I do think it is reasonable to talk about raising taxes to balance budgets. So on that we agree. My larger point is that thus far the federal government hasn’t shown itself to be able to restrain itself from leveraging new tax dollars into greater levels of spending. My skepticism with regard to raising taxes as a way to address deficit spending and the debt has to do with the lack of any structures in our current context from this happening all over again. You are right that I didn’t address Mr. Brooks’ column, nor some of your other assertions, because I didn’t think my “off the cuff” blog post response required such.

    4.) On the related point of levels of taxation approaching something like actual representation of spending, we are talking about rather significant increases in tax burdens across the board without spending cuts. Something like 37% of all federal spending last year was deficit spending. The overall tax burden on a median-income taxpayer is something along the lines of 25%, but again that does not adequately represent all of the money that is being spent. So we’re really talking about having to raise tax revenue by about 40% to truly make incomes vs. outflows more like 1:1.

    In my view the $14 trillion debt and historic deficits we’ve been running for the last decade show that the federal government has been trying to do too much. I don’t think a sustainable answer to this phenomenon is to significantly raise taxes, for the reasons I’ve outlined above. That means we have to cut spending. What you’d really see if taxes were raised to levels that really reflected what the government spends is much more in terms of support for across-the-board cuts.

  • Roger McKinney

    The idea underlying all interventionist policies is that the higher income and wealth of the more affluent part of the population is a fund which can be freely used for the improvement of the conditions of the less prosperous. The essence of the interventionist policy is to take from one group to give to another. It is confiscation and distribution. Every measure is ultimately justified by declaring that it is fair to curb the rich for the benefit of the poor.

    In the field of public finance progressive taxation of incomes and estates is the most characteristic manifestation of this doctrine. Tax the rich and spend the revenue for the improvement of the condition of the poor, is the principle of contemporary budgets.

    It is obvious that recourse to this ability-to-pay principle depends on the existence of such incomes and fortunes as can still be taxed away. It can no longer be resorted to once these extra funds have been exhausted by taxes and other interventionist measures. This is precisely the present state of affairs in most of the European countries. The United States has not yet gone so far; but if the actual trend of its economic policies is not radically altered very soon, it will be in the same condition in a few years.

    Ludwig von Mises in Human Action “The Crisis of Interventionsim.”

  • Roger McKinney

    Progressive taxation doesn’t just take from the rich and give to the poor; it destroys investment. Less investment means fewer jobs and increasing poverty. Europe has been there for a while. The US is imitating Europe. Either we stop the decline or the laws of economics will.

  • http://www.wannabeprentious.wordpress.com Michael Chovanec

    Professor Smith’s subtle reference to Jordan’s so-called “libertarian ideology” is just about demonizing his “selfish” ideas while rhetorically embracing the higher ground of “unselfishness.” A belief in “liberty” as a political end in and of itself is the idea which needs defending. According to philosophy professor Smith, who chooses not to label himself with any ideology, a discussion about prioritizing liberty would be fruitless. To the contrary, I believe that it would be very enlightening to discuss with the professor whether, in his view, maximizing “liberty” is even a worthy political goal when compared with minimizing of the discomfort of the, governmentally and statistically defined, less fortunate.