Tax Increases We Can Live With
Let's keep this tax thing in perspective. Suppose Congress and the White House decide to raise taxes $25 billion. That's less than a 2.5 percent increase in overall federal taxes. Suppose that ultimately another $25 billion is needed to close the budget deficits. The total still represents less than a 5 percent increase. No one likes to pay higher taxes, but these amounts won't impoverish most Americans or cripple the economy.</br></br>How will we get hit? Higher "sin" taxes on cigarettes, beer and liquor seem likely. So are steeper "user fees" for, say, airline passengers. The impulse of Democrats and Republicans alike is to construct a package of many small-and highly technical-increases so that no one sees much impact. The budget summit should do better than that.</br></br>It should not just raise taxes but should do so in a way that makes the overall federal tax system fairer and more efficient. How about a "carbon tax": a tax on oil, natural gas and coal? This would depress energy use, air pollution and emissions that contribute to the "greenhouse effect." How about taxing capital gains (the profits on the sales of stock or other assets) when people die? Closing this loophole, which benefits mainly the wealthy, could raise at least $2 billion to $3 billion a year.</br></br>As they go about this political drudgery, the White House and Congress should adhere to three guidelines:</br></br>First, keep income-tax rates low. A tax system with high rates and many special tax breaks (credits, deductions, income exclusions) invites abuse and waste. Hordes of tax lawyers and accountants are deployed to help people and companies minimize their taxes. Investment decisions are skewed by tax breaks. The 1986 tax-reform act was an attempt to get away from this sort of system by lowering tax rates and eliminating some tax breaks. We shouldn't backtrack on it.