Tax hikes could be depressing

By Dennis Seid / NEMS Daily Journal

In a perfect world, we would pay few taxes. Or none at all.
But we want police and fire protection, roads and bridges for our vehicles, schools for our kids and a modicum of essential services that our local, state and national governments provide.
So we pay our fair – or unfair, depending on your view – share of taxes.
When George H.W. Bush was president, he made the mistake of promising no new taxes. He told us to read his lips. We did. And then taxes were raised, and he was a one-term president.
President Obama has promised not to raise taxes on Americans making more than $250,000 a year, but how long can that promise hold? Not very long, with health care reform on its way.
However, with spiraling deficits and a growing outcry to reduce that debt, something has to give. We can’t keep spending this way because it simply isn’t sustainable.
Because of the Great Recession, government at every level isn’t bringing in enough revenue to cover the costs of providing services.
So, cut spending, one argument goes. And while you’re at it, cut taxes.
But we can cut only so much. Social Security, Medicare and Medicaid, not to mention the wars in Iraq and Afghanistan, are eating up dollars faster than the government can take in. Money has to come from somewhere.
What politician is brave enough, particularly in an election year, willing to take out the scissors or knife? Anyone? Bueller? Bueller?
And since government spending hasn’t declined as revenues have fallen, the deficits continue to grow. If we don’t start cutting back now, we risk inflation. But if we don’t continue to stimulate the economy, then recovery will be that much harder. A “double-dip” can happen, some economists warn. What a conundrum.
There are some who believe deficit spending is fine in order to help ease a recession. Keynesian economics, named for British economist John Maynard Keynes, says that private-sector inefficiencies could be tempered with strong government fiscal and monetary policies. In other words, government should have a larger role. Sound familiar?
Then there are those who prefer the free-market ideas of Milton Friedman. He said the less government intervention, the better. Think laissez faire economics. The Great Depression, Friedman said, was made worse by misguided actions of the Federal Reserve, which tightened the money supply and caused a painful contraction.
Extending the Bush middle-class tax cuts might provide a little boost. However, tax cuts also add to the deficit. But that extra money could encourage consumer spending, which makes up 70 percent of our economy, which could use the help. Raising taxes on upper-income folks is coming, but they make up less than 4 percent of all taxpayers and they don’t pay enough to make up the revenue shortfall, even at the maximum tax rates.
Eventually, everyone will be paying more taxes to help pay for our debt and for government’s insatiable spending habit. Nobody is willing to talk about making deep spending cuts until after the 2012 election.
Talk about depression.

Contact Dennis Seid at (662) 678-1578 or dennis.seid@djournal.com.