To increase federal revenue, taxes must go up, not down.
President-elect Obama recently put taxes in the forefront of economic discussion, with a proposal for some $300 billion in individual and business tax cuts.
Talk of tax cuts may be music to the ears of American taxpayers and a nod to satisfy Republicans but they make no sense in a time of soaring budget deficits and huge new government expenditures, including the probability of $1 trillion for Obama's proposed economic stimulus plan.
When the federal budget is so out of whack, and with so many pressing needs, taxes have to go up, not down.
The Bush administration managed to double the accumulated federal debt in its eight years. With the bailouts and stimulus plans, this year's federal deficit is expected to reach an eye-popping $1.2 trillion – almost triple the size of last year's record deficit. This would be the largest deficit since World War II, both in absolute terms and as a percentage (8.3) of the gross domestic product.
Between this and the pressing need for an economic stimulus and recovery program, the solution is to increase federal revenue, and the best way to do so is through higher personal and corporate taxes. Despite the fact that Americans have grown accustomed to not having to pay for benefits, taxes have to be raised, and probably for almost everyone.
This was a need even before the current crisis. In 2004, the International Monetary Fund (IMF), normally concerned with debts and insolvency in poor countries, raised the alarm about US fiscal deficits and the "significant risk" these posed for the rest of the world. The IMF estimated that closing the deficit would require a 60 percent increase in federal tax revenues. Such a solution seemed politically unfeasible, even then. But it illustrates the extent of the problem.