The Federal Budget Crisis: Too Little Revenue
On January 1, 2013, Congress passed legislation to avoid the “fiscal cliff,” the looming recession that experts predicted would result from excessive deficit reduction. But problems with the federal budget continue. The most serious, but least discussed, is inadequate revenue. Too little money is the primary cause of the deficit and the country’s inadequate programs and services.
Each year between2009 and 2012, federal revenue has been at a 60-year low. This is driven by tax cuts and loopholes, and especially by the economic downturn. When people earn and spend less, they pay less tax. Just ending the downturn and putting people back to work would boost economic growth, raise revenue and eliminate a huge portion of the federal deficit. Congress must make job creation and strengthening the economy its priority until we reach a full recovery.
But even then we will still have too little revenue to meet current needs and address the needs we currently neglect like building infrastructure, investing in clean energy, and providing greater support for early childhood through post- secondary education. This will require additional money.
But who should pay more taxes? At this time as middle- and lower-income households struggle with unemployment, stagnant wages, falling home values, and rising costs, they cannot also pay more taxes. But those with high incomes, and especially those at the very top, can. While their taxes are already slated to rise under the fiscal cliff deal, the increase is quite modest. They should be asked to pay more.
Corporations must also pay higher taxes. Over recent decades, taxes paid by corporations have declined by roughly one-third, measured as a share of national income. Some major corporations – for example, GE, Boeing, and PepsiCo – paid no income tax in recent years. Corporate tax breaks and loopholes cost hundreds of billions of dollars each year, slow economic growth, and encourage the export of jobs. Corporate tax reform is needed.
Congress must also:
- strengthen the estate tax to limit inherited wealth,
- tax interest income, dividends, and capital gains (received from the sale of investments) at the same rate as wages and salaries, and
- tax financial transactions to reduce speculation and bring in revenue from the very profitable financial sector.
By the end of this decade, the rising cost of health care will drive up the deficit again. While Medicare and Medicaid contain costs more effectively than private health insurance, the entire health care system needs reform to reduce waste and improve health outcomes.
The United States is a wealthy country. We are called to share our resources to build communities that value all people, and care for and provide opportunities to each of us. Adequate federal revenue is the foundation for a good society.