Former Biden Adviser Bernstein: All Americans Must Pay More Taxes

Friday, 10 Aug 2012 08:37 AM

By Forrest Jones





Americans don't pay enough in taxes and need to pay more for the good of the country's fiscal health, said Jared Bernstein, former chief economic adviser to Vice President Joe Biden and a senior fellow at the Center for Budget and Policy Priorities.

Congressional Budget Office data show that U.S. households pay less taxes now than they did 30 years ago.

In 1979, the typical household paid 19 percent of their income in federal taxes, while the rate for a typical household today is 11 percent, Bernstein wrote in a Financial Times opinion piece.
Recessions tend to push down household incomes, which throws more people into lower tax brackets, but changes in tax policy account for a big chunk of the decrease in effective tax rates over the years.

Politicians cut taxes during downturns, notably President George W. Bush, and letting them expire often evokes charges of tax hikes, which is the case today.

The Bush-era tax breaks expire at the end of this year.

"In the 1980s and 1990s, the overall effective tax rate fluctuated within a narrow band of 20.2 percent to 22.7 percent – lower in the Ronald Reagan years, a bit higher in the Bill Clinton years. But from 2000-07, before the recession took hold, they fell by almost 3 percentage points, equal to about $300 billion in revenue, or 2 percent of gross domestic product," Bernstein wrote.

Tax cuts often lead to deficits, which don't bode well for the economy and neither do draconian spending cuts.

President Barack Obama, meanwhile, wants to extend the Bush tax cuts to everyone except for wealthier households, while GOP presidential hopeful Mitt Romney wants to extend them for everyone.

Both are wrong.

"The best thing to do, once the economic recovery is solidly under way, is to simply let the Bush tax cuts expire and return to the tax structure that prevailed under Bill Clinton. It cannot be plausibly argued, based on economic outcomes, that the rate structure in those years was counterproductive. Oh, and it also helped deliver a budget surplus," Bernstein wrote.

"While I understand and support the fairness argument, I’d urge Democrats to be forthright with the fact that we’re way below where we need to be in terms of revenue collection. We simply can’t begin to meet the challenges we face on the lowest effective tax rates in decades," he wrote.

"It may not be the conventional wisdom, but it is the truth."

Some Republicans disagree, including U.S. Rep. Ann Marie Buerkle, R-New York, who says uncertainty over taxes prevents businesses from hiring, which slows recovery.

"If we're going to get our businesses back on their feet and have them invest and have them hire, then what we've got to do is create some certainty for them. Uncertainty is the enemy of growth," Buerkle told The Auburn Citizen.

"By passing these tax rate extensions and not increasing taxes on them and giving them some certainty for the next year, that's exactly what this does. Not only does it give them some certainty, it doesn't raise their taxes. It allows them to hang on to more of their money and to invest it, to hire and to buy more equipment."

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