April 14, 2013

A rational tax policy would boost economy

Major corporations are rich with cash right now. The stock market is hitting new highs. And the wealthiest of the wealthy have become even wealthier.

It is time to have a rational discussion about the tax rate on capital gains and dividends.

There’s a crisis in government finances. Interest payments on our current national are $250 billion annually. This level is equivalent to about $4,000 for each of approximately 60 million taxpaying households in the U.S.

While households currently pay $4,000 on average to support past spending, this amount will likely rise.

First, there’s no plan yet to move federal spending in line with revenue. The level of debt is expected to continue to rise much faster than increases in prices, wages and our ability to pay.

Second, the average cost of borrowing by the federal government is currently well below 2 percent. Over the next five years, as we very slowly recover from the Great Recession and as unemployment moves toward 5 percent, we can expect interest rates to double or triple. When they do, and we finally begin to run a balanced budget, the average federal interest burden per household will probably well exceed $10,000.

At that point, interest on our debt will emerge as the largest budget item, assuming the government share of health-care costs or our looming Social Security crisis does not explode first.

There’s nothing we can do about past excesses. These were premised on the belief that we can grow so fantastically that our debt can be paid easily by our children. Our desire to have fewer children, our complacency as the sole economic superpower, and our belief that wealth will continue to come easily have frustrated economic growth. Add to that challenges from global warming and our failure to manage entitlements.

While our children can point the finger at past generations, there’s little sense blaming each other. We are responsible for this mess. We should not spend beyond our means unless we leave great legacies in infrastructure and a bright future.

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