Let’s End the Era of Tax Timidity
Instead of taxing the rich to fund vital social spending, we’ve spent decades turning the young and the poor into debtors.
Research & Commentary
April 20, 2021
by Bob Hertz
Our past year of pandemic politics has offered up what could be a lifetime of learnings about public policy. And what have we learned? Government, most fundamentally, should be a spender, not a lender. We need to be giving people grants, not loans.
If this means higher taxes, then raise the taxes. We ought to be using the power of government to collect taxes on a progressive basis. We can identify basic needs, figure out what programs would satisfy them, and then establish a tax level high enough to fund them.
Instead, over recent decades, both Democrats and Republicans have proposed and enacted “tax credits” in place of honest spending programs. Both the Clinton and Obama administrations played along in this wretched process. In 2016, for instance, Hillary Clinton focused her policy prescriptions on targeted tax breaks, rewarding businesses for hiring workers from apprentice programs, investing in distressed communities, and making various other do-good moves.
Tax credits let politicians claim they’re helping the public while limiting the size of government. Republicans have liked tax credits because they can then brag that Americans have lower tax rates than Europeans. Mainstream Democrats have liked these credits because they seem to advance social policies, but without raising government spending. Spending programs, their rationale goes, raise on-budget government outlays and risk inciting right-wing anger. A tax credit just gets recorded as a reduction in revenues.
This no-new-taxes game certainly does leave Americans with lower tax rates. But the game also leaves millions of Americans paying more for everything from health insurance premiums and medical co-pays to college educations and day care. In other words, despite lower taxes, Americans by the millions end up worse off.
The alternative? Social spending on people’s needs on a wide variety of fronts, spending for pensions, health care, and family allowances, outlays for parental leave, income support, and unemployment benefits, just to name some major prime examples. Public spending on these sorts of policies enables households to build up assets and reduce debt. The more government spends on such social insurance, the healthier and more secure our households and everyone in them.
Offering people loans to buy public goods like higher education, by contrast, amounts to a manipulative approach that only serves to load ever-increasing pressure on those who need help and support. Putting people in debt for college at first seemed cheaper than programs that provide free or low-cost postsecondary education. Debt programs don’t require new taxes. They move us closer to reaching our tax-phobic holy grail.
Back in 2012, at a time when almost 500,000 students a year were defaulting on their loans, the best fix the Obama administration could come up with was raising the maximum Pell award $300 and making the grants available for three semesters a year instead of two. Even getting these modest steps through Congress, the president declared, “would be a tall order.”
The dust would eventually settle with still more students in heavy debt. We would end up cracking down on debtors, largely young and poor, rather than raise taxes on the comfortable and the rich to build up a vital and deeply underfunded program.
Our refusal to pay more taxes — for education, for health care, for so much more — dumps the unsupported into bankruptcy court, to sort out the inevitable losses. Bankruptcy has become, in effect, our unofficial fallback “rescue plan.” Instead of raising taxes for free public hospitals, for example, we have mandated that private hospitals must provide emergency care. But the 1986 law that brought that mandate had no funding attached. So we require hospitals to chase patients down for payment. Then we usually force the patients to declare bankruptcy. Everyone loses. A deeply stupid and wasteful cycle, all created by a refusal to raise taxes for public goods.
We could pay for all uninsured emergency care for less than $10 billion a year — and be done with the problem! That $10 billion would be a rounding error in federal spending.
Instead of honest new taxes, we wind up with grotesqueries like the new Republican family leave proposal. This deeply unpopular approach relies on workers taking advances against their own future Social Security benefits.
The much better approach? The Family and Medical Insurance Leave (FAMILY) Act now pending in Congress, legislation that would grant two-thirds of monthly income for 12 weeks to cover parental or medical leave. Funding for this program would come from employee and employer contributions of 0.2 to 0.4 percent of wages, a tiny tax increase for a benefit that will help millions of families.
With social insurance, life would be much less difficult. We cannot give everyone job security, but we can do much more to give everyone life security. Overall, we could avoid plenty of political shenanigans and considerable self-deception if we would only just write people checks.
We once understood, back in the era that gave us Social Security, how a social insurance check-writing process could work. The pandemic relief programs enacted so far, thank goodness, may be teaching us we can do that again.
Bob Hertz, a retired insurance broker in Minnesota, writes on public policy at NewLawsforAmerica.com.