- Can it be corrected without raising taxes?
- How should it be dealt with?
- How long should it take?"
Can the U.S. Budget Deficit Be Corrected Without Raising Taxes?
An improved economy would act to reduce this deficit, but I cannot see how that alone will be enough. Either tax rates will have to be raised or spending decreased. Can either party find enough cuts in spending to make up the difference (without also raising spending in other areas?) It is possible, but I do not see it happening - particularly given the increased financial pressure exerted by Medicare and Social Security over the next several decades.How Should the U.S. Budget Deficit Be Dealt With?
If raising taxes is the only way to eliminate the deficit, then from a strictly economic point of view, the government should try to raise the money in the least economically damaging way. An obvious choice would be a sales tax. In an ideal world the FairTax could be implemented, but in reality there is no way to increase sales taxes high enough to eliminate all forms of income taxation. But the basic idea is sound - taxes on income are more economically damaging than taxes on consumption.Another obvious choice would be taxes on pollution, either directly or indirectly through the gas tax, with the reasoning being that here the distortions have a positive element - less pollution.
Of course, more than simply achieving the highest level of GDP growth goes into tax policy. Since sales taxes are inherently regressive, we need to take that into account. Plus tax policy will be determined more by sound politics than sound economics. Can a party implement a national sales tax and continue to stay in power?
How long should it take?
Ideally, the government would want to be running a surplus during the next boom period in the economy. But will it happen? I doubt it - but I have been wrong many times before.Now those are my thoughts - I would love to hear yours.
