How about a $1.4 trillion (a year!) tax increase?

September 1, 2009

It always amazes me when people act as if raising taxes has no impact on economic growth, like this article from a Financial Post columnist who advocates raising US taxes by $1.4 trillion a year:

1) Washington could raise US$600-billion per year or more if Americans paid a 5% federal sales tax on goods and services if it were identical to Canada’s 5% GST.

2) Another US$280-billion could be generated if Americans paid slightly more than double what they pay now, or US$3.75 a gallon, for gasoline, which is roughly what Canadians pay.

2) Another US$180-billion is available if Americans paid the same taxes on cigarettes as Canadians.

4) Then there’s another US$355-billion for government coffers if Americans had the same liquor taxes as Canadians. The total that could be raised from all four is US$1.415-trillion. That is, by the way, the size of Canada’s or Spain’s economies.

18 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

How about the government just spends less and ends pork spending?

Rewarding poor spending habits with more money hardly seems logical

Posted by Ed | Report as abusive

Why don’t they impose a 25% sales tax and elimimate income tax? that would add over 3 trillion.

NO THANK YOU! I agree with the above comment, How about the government spends LESS? How about we get rid of entitlement programs, pork spending, fraud, congressional perks, etc, etc?

Posted by Darcy | Report as abusive

Or, you could argue for the institution of a tax program where people like yourself can opt into to paying more money, while people like myself would opt out and continue to pay my already high taxes. Although it is very charitable of you to offer for me and everyone else to have to pay more taxes on everything.

You might also consider moving to Canada, since you admire their much-higher tax policies so well.

You lost everyone as soon as you compared the ideas with Canada. Americans will never willingly adopt any policies that worked first in another country. Americans only want American ideas, American policies and America plans.

Americans will never admit that another country had a good idea before they did.

Signed, a Canadian.

Posted by Terri | Report as abusive

Government waste exists, as it does in the private sector – IMHO overall the government has been generally running its show better than General Motors these past years. It is a myth that the deficit problems can be resolved by eliminating waste – the fairy tale that many Americans believe that their taxes are very high and government waste is rampant , the cause, always amazes me. That is not to say that efforts to stop pork spending should stop, but that those efforts will not do all that much in the end. In most of Europe, taxes are much higher, infrastructure is in excellent shape (trams and subways, bike paths, sewage systems, integrated train systems, whatever), by standardized tests their kids are generally better educated, and by almost any health standard (life expectancy, infant mortality…) people are healthier. And most would not lower taxes if it means giving up any of their quality of life.

Ultimately, you get what you pay for. The US has been living far beyond its means for many years, and the bill is coming. Live with it. Or forgo alot of basic services – police, bridge repair, decent schools, firefighters, medicare… – that is where alot of your tax money is spent. And if done wisely, taxes could be raised in ways to motivate people to conserve – higher gas taxes means less imbecilic huge SUVs and in the long term the development of nicer cities, as people opt to live closer in. I vote an enthusiastic YES for higher taxes that are well spent (and while I live in Canada, I am a US citizen and still pay US taxes).

Posted by Tom L | Report as abusive

$3.75 is slightly more than double what Americans are paying for gasaline? Where? I’m paying $2.49, and I live in the midwest.

What a stupid idea. The government has long passed the point of criminal behavior with the amount of taxes they already take from their citizens (income, property, sales, gas, cigarette, liquor, capital gains, inheritance, corporate, DMV, etc. etc.). If God (all powerful being who controls the universe containing billions of galaxies) only wants 10%, why does Uncle Sam (corrupt bunch of politicians who control you and me) need 28%? To line the pockets of their cronies/business partners!! With our money!! Can you believe this!!? We’re all a bunch of idiots for letting it happen!!

Posted by John P. | Report as abusive

I think it’s a great idea to increase taxes to pay for our bloated government. It would be better than borrowing to cover the deficits. Americans have used the “raising taxes” argument as a political tool to sway votes one way or the other. It’s all bullhockey! Our government has no intention on cutting spending. So if Americans keep electing these big spenders then we need to start paying for them. Maybe when we all spend more than we bring in, we’ll take notice and actually do something about it.

Posted by jason | Report as abusive

Why should you all be so up in arms that potentially increasing taxes on drugs (cigs and booze) and gas in so violently abhorrent as to be the acts of Satan himself? MY GOD!!! Anyone with half a marble knows that better than half the fatalities every year in America are linked to smoking or drunk driving. I say tax the hell out of them… a big increase there could pay for universal healthcare since they are a big drain on the system!

Gasoline is gonna get hit by cap-and-trade, so maybe wait on that one to see what the effect of CaT would change first… but realize to that American gasoline is artificially low thanks to billions in gov’t subsidies. America has the lowest gas prices in the free world by a long shot and its really unnecessary.

As far as a VAT like GST in Canada… not thrilled about it, but if it were variable yearly – which is to say maybe increase it to 5 or 6% when all is well, narrow it to 1 or 2% in bad-times – then it might be okay. Might be. But that is one that isn’t really all that fair because it really would effect low income people a helluva lot more (% wise, not in real dollars) because, frankly, rich people don’t HAVE TO spend all their money – it’s not a tax on unspent money or investments. So, poor shmoe living paycheque to paycheque feels it WAY more, and in the worst way too.

Posted by the Shah | Report as abusive

Also wanted to add that Americans should realize that they now have an enormous structural deficit, i.e. cut all the pork spending you want, it wouldn’t make a dent in $1.5 trillion per annum. Waiting around for some miraculous economic recovery to happen and add taxes through boom-times would take too long to develop and still wouldn’t cover it all… the counry would have gone to hell in a handbasket by then anyway.

Agressive program cuts and tax increases are necessary to bridge the gap. Period! Look at California’s budget this year, because the feds are gonna have to do something similar, and fast. So really look at the situation in Cal and remember it’s not that bad nationally yet, but it will be very soon.

Also try to realize (I know it’s hard for hard-and-true idealogues) to realize that this is not a Dem debt problem, nor a Rep debt problem… it’s both! So cut the finger-pointing and blame-game and start working on the solution. We all know the problem already, why rehash for supposed political benefits – it’s all a sham.

Posted by the Shah | Report as abusive

I support the idea because, in my opinion, the American consumerism culture went far beyond its sustainable levels.

I think the taxes might decrease the sales in a considerable amount, and even maybe change the outlook of the United States as the consumer of the world’s industrial output.

Posted by Rifat Tigli | Report as abusive

I agree. It is time that we stop living on credit. No one will want the new “green” vehicles if gas is cheap. We will stumble into the next petroleum crisis and say “Who could see it coming ?” , just like the last crisis and the one before.

I prefer that the government tax and make the rules. Leave the presents to Santa Claus. I am not thrilled to subsidize (moderately more efficient) new cars for those who made a bad decision the last time.

Less taxes hasn’t meant less spending. We continue to mortgage the future.

Posted by Jeff | Report as abusive

There are many problems with the above article, as many have pointed out. The reason those ideas would not work here, and were obviously written by a Canadian, are as follows.

States already levy a sales tax. Some cities do so as well, NYC, LA, etc.. In combination in some places, sales tax is already approaching or exceeding 10%. After that point, it starts to have a major impact on consumption. This is why the European or Canadian VAT models would not work here without major restructuring.

Most European countries do not have separate states as we understand them. They are really one state. So in France, you can have a 10-15% VAT from the central government, because there are no taxes like we have at the local levels, ie state & city. If we added an additional 5% on top of existing sales taxes it would be devastating. By the time we got used to it, they would raise it again.

Second, most of the US already pays fairly high cigarette taxes, and liquor tax increases are next. Adding a gas tax in a country where driving is often a necessity, versus the highly urbanized Canada or Europe would also have severe consequences. We saw what happened last year, imagine paying that or more forever.

Anyways, there are some major issues with the FP columnists math, since 1.4trillion is roughly 10% of annual GDP. On top of the existing taxes, we would basically be taxed out of existence. And what happens when people stop smoking, drinking, buying, and driving? The government gets nothing.

There are several solutions to our current dilemma. We need to reduce layers of government, since the more layers the more taxes. We need to make our entitlement programs efficient, affordable, and useful. We need to closely scrutinize government contracting work. Everything should be competitive bid, no more pay to play. One poster mentioned that the federal government is already fairly efficient. Even if this was the case, which it is not, if local governments and states are corrupt and mismanaged, the federal government, and by extension us, have to pick up the tab. If California is broke, we will invariably all end up paying for it. The system becomes more broken every day, and no amount of political rhetoric will fix it. We need actual effective change, not just promises of change.

Posted by Greg Harkness | Report as abusive

When will we stop our politicos thinking that American is
the world police, world charity, world dictator? To create dependency in these third world nations is sheer stupidity and the IMF is just a quiet maze where American tax dollars can float overseas or wherever with no trace available to taxpayers. All these aggressive, charitable, butt-our-nose-in actions are only means to put America’s spending where politicos can get their piece of the pie. Feeding people makes no sense unless the real purpose is to teach them how to feed themselve!
Attacking nations that have not attacked us is terrorism!
We have no right to those actions and should be punished
accordingly….most Americans are shamed by these aggressions. We need to clean up our own backyard, ditch the United Nations, work with friendly nations only, quit subsidizing business and learn to be a nation people from all over can look up to and welcome.

US is rapidly moving to become a third world country with a lot of nukes. Good luck on your disintegration. Please do it alone without taking the rest of the world with you.
Paying taxes is not a burden but a privilege of any concern citizens.

Posted by Mathew Wagner | Report as abusive

How much much money would be saved if we closed down 500 military bases around the world and stoped foreign aid. How about the war in Afganistan?

Posted by dvictr | Report as abusive

wow, some idiots actually *want* to pay taxes. Well you won’t mind picking up my tab then? No? What’s that? You don’t like me and you don’t want to pay for me? Well, ditto.

Posted by Andrew | Report as abusive