Maybe it will help if I qualify this by saying that I think taxes should be raised sharply on the middle class and the poor, many of whom currently pay almost no federal income tax at all, while cutting the capital gains tax, the corporate income tax, and the highest marginal income tax rates. Feel a little better? I thought not.
But here’s the case: one problem with our current tax policy is that at the moment the American people as a whole are receiving a dollar of government for the price of only 60 cents. (I don’t say a “dollar’s worth of government,” but let’s leave that snark for another time.) Any time you can get a dollar of something at a 40 percent discount, you are going to demand more of it. My theory is simple: if the broad middle class of Americans are made to pay for all of the government they get, they may well start to demand less of it, quickly...
Other economists have reached the same conclusion. In other words, if you want to limit government spending, instead of starving the beast, serve the check.
I understand the sentiment, truly I do. I've long argued that part of our problem is that too many people don't pay taxes, thus they don't have any skin in the game. However, in the proposal above I see a very bad, unintended, European-style consequence--that the sheeple will just pay the tax and shut up, giving up more of their freedom, their property, the fruits of their labor to a government that cannot control its own voracious appetite. I don't see a government that would use that extra tax money to balance the budget (a conservative good), but rather see a government that would fund many more socially-corrosive nanny-state programs.
Sorry, guys, I can't get on board this gravy train.
The only thing that makes politicians act is apocalypse--so I say let's give them one. Continue to starve the beast, and elect people who won't raise the debt ceiling. Let them look into the maw of bankruptcy and too much sovereign debt; I'm convinced they'll act at that point. Heck, if they'll vote for TARP and bail out GM, they'll cut spending when they have to.