The compromise extension of the Bush tax cuts illustrates how hidebound the leaders of both parties have been, and how sclerotic the whole tax discussion has become. These tax cuts did avoid a serious recession after the terrorist attacks of 2001, and should never have been set up to expire as they were, like a bent tree-branch, snapping on a long-announced date back to a sharply higher rate of tax in several areas, including succession duties. The administration should never have gotten into the silly chicken game of calling them unjust breaks for the rich and should never have imagined that increasing taxes on the incomes of anyone during a recession is justifiable fiscal policy. And the Republican leadership, apart from the very promising Paul Ryan, is not to be congratulated for failing to produce any policy suggestions except an endless caterwauling for retention of a tax-cut plan that was designed for a specific emergency nine years ago.
The approaching expiry date and the midterm elections were an opportunity for a serious discussion — or, as the current political cliché decrees, “a national conversation” — about taxes, the budgetary and current-account deficits, unemployment, and the recession. The political class funked it, as it has funked everything except welfare reform in the last 20 years. Just as it fumbled abortion into the incapable arms of the judiciary, ignored immigration until it was almost impossible to deal with it rationally, allowed the education and justice systems to become a national disgrace, did nothing about a hideously expensive and very uneven health-care system until finally making things worse with Obamacare, ignored income disparities and the economy generally, the administration and the Congress said little and did less that was useful or even sensible about long-term remedies for the worst economic challenge in more than 70 years.
All Americans pledge their adherence to the Constitution, but the Constitution, especially the protections of individual liberties and due process in the Bill of Rights, has been put to the shredder, and at least 300 congressmen are just puppets of their districts’ leading commercial interests. They come to Washington as special pleaders trading earmarks with their colleagues to assure vote-winning alliances spanning a Rube Goldberg spaghetti bowl of different bailiwicks all suckling at the fiscus. It is democracy of sorts, but it isn’t really deliberative legislation, much less enlightened or even disinterested governance in the national interest seen otherwise than as an agglomeration of thousands of patronage-seeking vacuum cleaners.
Tax policy should be designed to stimulate economic growth and finance the necessary activities of the government, and, occasionally, to assist in the natural and desirable evolution of the economy, especially toward higher productivity; an optimal ratio of savings, investment, and consumption; and the economically rational reduction of poverty. Let me take up a number of opinions that have previously been expressed in these columns, and add some new ones: Taxes should be increased on activities it is desirable to reduce, as they have been on the consumption of tobacco, and reduced on activities the national interest seeks to amplify. Thus, taxes on elective energy consumption beyond comfortable norms of heating and air conditioning should be increased. (There should also be incentives for alternative forms of energy, especially natural gas and nuclear power, and specifically a gasoline-tax increase, with rebates for those who earn their income from gasoline consumption, such as taxi companies.) There should also be taxes on legal bills, health-care benefits that are provided in unusual measures of choice and quality by employers, and most financial transactions — especially any fees and windfalls to merchant banks, financial arrangers, and assorted categories of asset-strippers, no matter how imaginatively and hagiographically they describe their activities.
The government must not get into the business of valuing different categories of work differently in the personal-income-tax system, such as by over-taxing entertainers or athletes. (A derogation from this rule would require a severe tax penalization for most government employees, given how redundant to the interest of the nation and its citizens the work of many of them is.) But it would be acceptable to impose a surcharge on highly compensated services that are essentially accelerations of the velocity of money without meeting elemental criteria for betterment of anything, and on luxury-goods sales. A 10 percent surcharge on financial transactions alone would produce over $200 billion per year in deficit reduction, and would affect only deal-making, most of which deals would just as well not be made and few of which positively affect employment. The good deals would be just as good if they cost a little more to consummate. A 10 percent surcharge on legal and consulting bills would yield another $200 billion, and would merely be a tax on largely superfluous activity by any economic criterion.