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Financial Literacy - Taxes
SPOTLIGHT
No new taxes? Why not?
Politicians who pledge no new taxes are either neglecting the facts or making promises they can't or shouldn't keep.
Taxes made easy

Interview: Adam Hughes

Is Grover Norquist's "Starve the beast" theory not valid?

Talking points
What is the OMB?
AMT delay
Capital gains tax
Estate tax problem
Rich vs. poor
Starve the beast theory
Recession threat
Progressive tax
Activists' role

His theory is that cutting taxes will cut off the ability for government services to continue. The Bush administration is evidence that it doesn't work that way. Even though he drastically cut taxes, he raised spending to historic levels. Along with the war spending, he implemented an $800 billion Medicare prescription drug program -- that's the projected cost for the first 10 years -- and rapid increases in health care costs, both in the public and private sectors, have caused a steady and growing increase in the cost of Medicare and Medicaid.

The evidence shows that the starve-the-beast theory doesn't work. What it does do is show that when you box the government in, it can't provide for the needs of the country. It could be military, health, research, infrastructure -- across the board what the government does is more difficult to do because of the federal debt situation.

Grover Norquist's organization, Americans for Tax Reform, are calling on the presidential candidates to sign a pledge not to raise taxes.

I think that's kind of silly. The first President Bush said he wasn't going to raise taxes and did and got blasted for it. And he was right to raise taxes. Every fiscal analyst has been saying for years that the federal government needs to both raise taxes and cut spending in order to make things balance out. So if you're signing a pledge to say you will not do that, you are either willingly neglecting that research or are making a promise you can't or shouldn't keep.

There are some rumblings about the threat of economic recession, and some speculation that our leaders may give in to continuing the tax cuts from 2001 because of that threat.

That's a very general statement, about a coming recession. There's not a lot of evidence that higher taxes have a negative effect on economic growth. The 1990s under Clinton showed this was not the case.

The highest income tax bracket used to be 90 percent: the current 35 percent is probably too low for our current needs.

A lot of times when you cut taxes but you don't pay for it -- in other words you let the national debt finance it -- it actually drags on the economy. Many economists have written about that fact, including Peter Orszag, who is the head of the Congressional Budget Office right now.

I think leaders do need to take a firm stand and get serious about long-term deficits and the rapidly expanding debt.

Should the progressive tax system be capped at a higher rate than 35 percent so that wealthy Americans can pay more taxes?

Maybe, sure. We have a progressive tax system. It's something we've had for a long time. The highest income tax bracket used to be 90 percent; the current 35 percent is probably too low for our current needs. We need more money. I don't know if that means that people at the top have to pay 36 percent or what level it should be, but fortunately they're in a position to do that.

-- Updated: Dec. 26, 2007
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