Henry Blodget says he’s pretty confident taxes are headed higher to deal with the historic rise in federal spending and agrees with Northern Trust’s Paul Kasriel that higher rates won’t be an economy killer. Blodget quotes Kasriel:
When will the other chaussure drop? Now that America has gone French (and German and British) with universal healthcare, expect Washington to eventually propose a European-style, value-added consumption tax to pay for it — as well as the rest of the historic rise in federal spending. But U.S. voters are in a severe anti-tax mood. It might take another financial crisis to give politicians the will and hubris to ignore them.
Washington will have difficulty producing a stranger bit of public policy than raising investment taxes to pay for healthcare reform. Remember, the consensus critique of the U.S economy is that it’s been plagued by too much consumption and debt. O.K., fine. So the answer is penalizing savings and investment? Really? Pure Bizarro economics for that and a number of other reasons:
David Leonhardt of the NYT just noticed that tax rates are going up and wealth is being redistributed. This makes him happy. But right now American faces a wealth creation problem. And if that isn’t working, every other problem facing America looks a lot worse. He also assumes that wealthier Americans won’t change their behavior, reducing the government’s take. Again, here is WH CEA Chair Christina Romer’s take on higher taxes when she was a econ prof at Berkeley: “Tax increases appear to have a very large, sustained, and highly significant negative impact on output … [and] that tax cuts have very large and persistent positive output effects.”
The Washington consensus is that taxes will go up sharply because there is no will to cut spending. Yet that may not be the view outside of the 202 area code.I just got back from a wing-ding at the Hoover Institution where economist Robert Hall quite matter-of-factly assumed big future spending cuts because, in his opinion, Washington did not have the will to broadly raise taxes. Certainly, the new Obama budget sticks to the Dem pattern of only raising investment and incomes taxes on the so-called wealthy, at least transparently.