President Biden’s proposed fiscal year 2024 budget called for an increase in the top marginal tax rate from 37 to 39.6 percent and a 25 percent minimum tax on Americans with wealth exceeding $100 million.
But it’s not just liberals who are clamoring for tax increases.
The American Enterprise Institute (AEI) is a right-leaning think tank in Washington, D.C., “dedicated to tackling our nation’s greatest challenges by producing work that promotes our institute’s core values: free people, free markets, and limited government.”
Too bad that the AEI thinks that increasing taxes on Americans is in line with its core values.
Exhibit A
Alan D. Viard is a senior fellow emeritus at AEI, “where he studies federal tax and budget policy.” In his recent testimony before the House Committee on Ways and Means Subcommittee on Tax Policy, Viard advocated that the United States institute a European-style value-added tax (VAT) because “the United States faces a large long-term fiscal imbalance that will burden future generations and that threatens long-term economic growth.” Said Viard:
The United States should follow the lead of 170 other countries and territories by adding a VAT to the federal tax system. The VAT is economically similar, but administratively preferable, to a retail sales tax. The VAT is far less regressive than entitlement benefit cuts, although it cannot match the progressivity of high-income tax increases. The VAT also avoids most of the economic distortions induced by high-income tax increases, although it is not as economically efficient as entitlement benefit cuts. Because it occupies a middle ground between those two alternatives, it offers a plausible basis for bipartisan compromise, particularly once the limitations of the alternative options are understood.
I have critiqued Viard and the VAT here.
Exhibit B
Andrew G. Biggs is a senior fellow at AEI, “where he studies Social Security reform, state and local government pensions, and public sector pay and benefits.” He recently joined with Alicia H. Munnell — director of the Center for Retirement Research at Boston College and the Peter F. Drucker Professor of Management Sciences at Boston College’s Carroll School of Management — to call for repealing retirement-saving tax preferences on 401k plans and IRAs and using the resulting increase in tax revenues “to address the majority of Social Security’s long-term funding gap.” They say in their report, “The Case for Using Subsidies for Retirement Plans to Fix Social Security”:
To reduce retirement tax expenditures, the government could limit contributions or accumulations in tax-favored plans or tax the earnings on these plans each year. While reducing these tax incentives could, perhaps, somewhat reduce interest among employers in offering work-based savings plans, alternative arrangements could be made to ensure that all workers have an organized way to save for retirement.
Ultimately, reducing tax expenditures for retirement plans could be an effective way to help address other pressing demands on the federal budget, such as Social Security’s financing shortfall.
Tax expenditures are revenue losses attributable to provisions of the tax code that allow Americans to keep more of their money. I have previously explained tax expenditures here.
There is no question that the United States is running deficits of over a trillion dollars a year, has a national debt of over $34 trillion, and unsustainable Social Security and Medicare programs that spend more than they receive in payroll taxes. But is the solution to give the bloated, wasteful, corrupt monstrosity known as the U.S. government more tax money to spend? Is Biggs really that naïve to think that a huge tax increase is an opportunity for the government “to use taxpayer resources more productively?”
The reason why the United States has a “large long-term fiscal imbalance” and “pressing demands on the federal budget” is not because the U.S. treasury does not collect enough in taxes from Americans.
In addition to the dreaded income tax, there is the corporate income tax, tariffs, the Social Security tax, the Medicare tax, the additional Medicare tax, the capital gains tax, the gift tax, the estate tax, unemployment tax, and various excises taxes. According to the Treasury Department, Americans paid a whopping $4.44 trillion in taxes to the federal government in fiscal year 2023.
Clearly, the issue is out-of-control government spending, not a lack of tax revenues. The case can easily be made that over 90 percent of what the federal government spends money on is not authorized by the Constitution: education, the drug war, art and culture subsidies, Amtrak, welfare, subsidies, public broadcasting, Social Security, Medicare, Medicaid, federal grants, the TSA, the FTC, the FCC, the EPA, OSHA, job-training programs, unemployment compensation, the Export-Import Bank, the SBA, the CPSC, the EEOC, the TVA, foreign aid — just to name a few.
No individual or organization that claims to believe in the Constitution, fiscal conservatism, free markets, or limited government should be taken seriously when calling for tax increases instead of drastic spending cuts. Only real cuts will solve the problem: not bogus plans to balance the budget in 10 years or limiting spending increases to some measure.