Economic Policy
• Published
June 21, 2021

Raising Taxes: Why it's so Controversial

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There has always been an issue in the United States (U.S.) regarding taxes and debt. During the Revolutionary War, the U.S. borrowed money to finance the revolution from countries like France and the Netherlands. The biggest problem, which concurred under the Articles of Confederation, was that the federal government had no way of getting taxes, so by 1781 the U.S. was around $42 million in debt. With the currency of the time being Continentals, it was worthless, creating an issue with the lenders, creating this issue for all of our history of money.

At the beginning of the 2016 Democratic debates, there was talk about furthering the welfare state present in America. These talks are further increased with all the events so far in 2020. With the COVID-19 (coronavirus) pandemic, people want a free vaccine for coronavirus once it comes out and a higher increase in stimulus checks. The main proposition for Joe Biden regarding healthcare is to have a system similar to Canada with a base coverage for Americans with public coverage and expanded coverage with private insurance. This would include lower premium costs but at the expense of taxpayers who already have insurance. President Donald Trump had already passed an executive order to help lower cost for premiums, prescription drug prices and increased transparency for insurance billing. The main point of the talk about having Medicare for All and having a socialized health care system is the price of this plan for taxpayers. If Medicare for All were implemented, it is assumed to save money for taxpayers over a 10 year plan. This would cost over $40 trillion, whereas Bernie Sanders and other advocates repeatedly claim it would cost around $10 trillion less than that. In addition to this Medicare for All plan, other critics say it would lead the U.S. budget to increase up to 75 percent adjusted for inflation. This would consume around $55 trillion from now until 2030. 

This spending would be fueled by the pockets and revenue of Fortune 500 companies, at the cost of trillions of dollars over the course of the next decade. This would raise the corporate tax rate to 35 percent. This tax rate would cause a massive shift of American companies to other countries like The Bahamas where there are tax breaks, offshore accounts and overall massive advantages for companies to move there with zero corporate taxes. Overall, roughly 10 percent of the federal budget comes from corporate taxes. These companies will also take jobs into foreign markets such as China, Vietnam and Indonesia with sweatshop labor. This will consequently create a massive job loss in America for manufacturing, as the increase of taxes on companies will force “the invisible hand” to limit the number of profits gained in the U.S., which would be disastrous for our GDP. A mass exodus of American businesses would cause numbers of our manufacturing jobs drop exponentially, creating a surge in the unemployment rate. This is all hypothetical, based on the fact that these ideas would need to be in the majority of Congress and the Executive Branch.

The argument for lowered taxes also requires the spending of the government to be lowered. A small government is not very likely to take place in America due to the complexity of our society. Hence, there needs to be a shift in the way we spend our budget. Although we have a massive military budget of almost $600 billion we could allocate some of it to pay off our nearly $27 trillion debt to other countries. But, by 2035, it is estimated that federal reserves of Social Security will dry up, thus forcing taxpayers to pick up the slack. It will most likely happen sooner since there are bigger generations retiring and will continue so that way. There should be talks to stop funding social security and have people pay out of pocket for their own retirement. This could put some in a jam if they did not have proper retirement savings. However, part of a person’s personal payroll tax should go directly toward their individual retirement not into a pool to share with others.

Another government organization losing money is the United States Postal Service (USPS). In 2018, they lost around $4.4 billion, and that was doubled in 2019. They also had significant drops in the number of packages sent, which was $3.8 billion pieces of mail. The main issue with USPS is the lack of complex logistics like other competitors, such as FedEx and UPS. There needs to be a decision made whether or not to cut funding to the postal service because if the debt keeps doubling every year or so in 2020 it will be over $17 billion in losses for American taxpayers. The USPS does not offer many advantages compared to other competitors, so the notion that they play a vital role is false.

There will always be new taxpayers to fill the role of people who died since there is a consistent growth in the nation. So, in order to limit the deficit this year, there need to be some cuts made in the federal budget. But, we must also limit excessive spending until there is a balance of tax income to federal spending. Almost every recent president has said they will reduce the federal deficit and most have not been successful. Oftentimes, this is because of events happening during their presidency that just simply do not allow for that to happen. Under Obama’s presidency, we had endless wars in the Middle East. Wars are expensive, and being in multiple countries is expensive. There can only be so much to focus on without increasing federal spending insanely high and raising taxes for all Americans to high amounts.

There can only be so much done to raise taxes without hurting the American working class, and targeting large corporations could trigger emmigration. For now, the only way to reduce the deficit and keep taxes level is to reduce the size of the government. A smaller government is more easily controlled by the people rather than the people controlling a singular part in a multi-staged organization.

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