In his response to Mark, Dominic writes:
What tax increases would Mark propose to pay for the absurd levels of federal spending? For example, to make Social Security solvent, the payroll tax rate would have to rise from 12.4 percent to 16.7 percent, a 35 percent increase. That’s a crazy tax hike on working people to fund benefits for retired people that they did not earn and in many cases do not need. That’s unfair and immoral, just as passing on the debt to future generations is unfair and immoral.
Medicare’s fiscal situation is even worse, with premiums and the payroll tax combining to fund only half of the program’s costs last year, and costs are expected to rise basically forever. It’s not even possible to hike taxes basically forever to pay those costs.
This is all true. But I’d add a related point: As Dominic noted in an earlier post, tax revenues in the United States have stayed pretty flat as a share of the economy over the last fifty years, irrespective of the details of the code. It is probably true that if we raised taxes by a small amount, we’d get more money into the Treasury than we currently do. But that would only happen for so long before those changes started to have important effects of their own. This isn’t a board game, in which you can just keep increasing the rates until the numbers match up while everything around you stays exactly the same. Higher tax rates would affect behavior, investment, growth, employment, innovation, productivity, and more, and, before too long, they’d max out. A lot of commentators tend to talk about the United States as if it just happens to have chosen low taxes, but that, if it just happened to choose high taxes instead, the country — and the models it generates — would look identical. I don’t think that’s true.