The best guide to future battles over taxes may be the past, said New York Times economics columnist David Leonhardt.
In his speech Thursday, Leonhardt said tax increases are inevitable and Americans should realize that government services are worth paying for.
“[My] goal this afternoon is to persuade you that taxes play a vital role in a modern market capitalist economy,” Leonhardt said.
Leonhardt delivered his speech, “Read My Lips: The Coming Battle Over Taxes,” in a Sanford School of Public Policy classroom filled with more than 100 faculty and students. Leonhardt was introduced by President Richard Brodhead, who said to him, “Day by day you have made yourself the teacher of those who turn to newspapers to understand the economy.”
Leonhardt noted that two alternatives to taxes were to either reduce government spending in areas such as Medicare and Social Security, or to continue to increase government services but pay for them by borrowing, increasing the national debt.
“We don’t want a government that is too skewed for paying for... retirement, at the expense of education, at the expense of science research,” Leonhardt said.
Although Leonhardt said Americans should be cautious about increasing spending on Medicare and Social Security, he added that tax increases are inevitable. Leonhardt said he disagrees with the argument that tax increases will discourage productivity. According to that argument, tax increases would discourage people from seeking higher-paying jobs so that they could avoid being in a higher tax bracket. He said early research that demonstrated such an effect can conflict with more recent research and historical examples.
Leonhardt cited the move by President Bill Clinton’s administration in 1993 to raise taxes significantly, after which the economy grew at its most rapid pace in 20 years. Leonhardt said that though this example does not demonstrate causation, it does demonstrate that taxes did not prevent economic growth.
“Modest tax increases are OK... they will not cripple the economy,” he added.
After speaking about both the inevitability and innocuousness of tax increases, Leonhardt discussed what he felt the most effective tax increases would look like. He said tax brackets should be narrowed and the subsidies for home ownership should be reduced. He also advocated creating a national consumption tax.
Leonhardt added that high-income families, which he said have received the most tax cuts of all economic groups in the past 10 years, can stand to have their taxes increased.
But, “you do want some amount of inequality in society,” Leonhardt noted. He said it may be difficult to encourage certain important technological advances without capitalist incentives.
Leonhardt also spoke briefly about the cost effectiveness of the health care bill the administration of President Barack Obama hopes to pass.
“I think there’s a lot of evidence that this bill is significantly better than the alternative,” Leonhardt said.
In his closing comments, Leonhardt reiterated the attitude he said Americans should begin to adopt.
“Raising taxes is not a sign of weakness. It is in fact a sign of strength,” Leonhardt said.
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