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Douglas Rissing

The two parties disagree even when they agree, as they do about this: Federal spending is on an unsustainable trajectory under current law. They also agree that altering the most important drivers of this trajectory — <a href="https://www.pgpf.org/finding-solutions/understanding-the-budget/spending" target="_blank">Social Security and Medicare</a> — is for tomorrow, which is always a day away. The parties propose, solemnly but implausibly, radically different solutions.

Republicans propose cutting taxes and regulations enough to ignite economic growth so rapid and constant that a gusher of revenue will restore fiscal health. This approach is marginally less implausible than the Democrats’ proposal, because one can at least postulate a sufficient growth rate — say, 5 percent, forever. But given the bipartisan normalization of enormous annual deficits — <a href="https://taxfoundation.org/blog/federal-budget-deficit-2023/#:~:text=Preliminary%20figures%20from%20the%20Congressional,Court%20struck%20down%20in%20June." target=_blank>$2 trillion and heading up</a> — substantial borrowing probably would be needed to supplement revenue streams, no matter how large they are.

The Democrats’ proposal is even less realistic: “Tax the rich” until they pay their “fair share.” The Republican approach ignores political and economic probabilities. The Democratic approach ignores arithmetic. The Manhattan Institute’s Brian Riedl explains this in his recent study “<a href="https://manhattan.institute/article/the-limits-of-taxing-the-rich" target="_blank">The Limits of Taxing the Rich</a>.”

The Congressional Budget Office’s much-too-optimistic projection is that within a decade annual budget deficits will approach $3 trillion (7.3 percent of gross domestic product). This assumes, as the CBO is required to do, wildly improbable things: that tax cuts set to expire soon will be allowed to, that there will be no new spending initiatives and that low interest rates will minimize debt service costs. Still, looking out three decades, the CBO sees Social Security and Medicare costs exceeding revenue by $116 trillion, pushing annual deficits past 10 percent of GDP.

<a href="https://www.washingtonpost.com/elections/candidates/joe-biden-2024/" target="_blank" class="contextual_link">President Biden</a>, embracing populism’s playbook, says the burden of paying for increased government spending should be borne entirely by unpopular entities, corporations, and an unpopular minority, the rich, understood as the 2 percent of the population with annual incomes over $400,000. Riedl, who does <i>not</i> argue that high-earners’ taxes should not be raised at all, says:

Primarily because of cuts to lower- and middle-class income taxes (essentially half of all families are off the federal income tax rolls), the income tax has become “sharply more progressive” over the past 40 years and is the most progressive of the 38 developed nations of the Organization for Economic Cooperation and Development. In 2023, the bottom 40 percent of earners will pay, collectively, no income tax and will receive a $123 billion tax rebate. The middle-earning quintile will pay an effective rate of 2.2 percent. The top-earning quintile (at least $686,100 for a two-person family) pays 90 percent of all income taxes. The top 1 percent pays 40 percent of all income taxes — not self-evidently an unfairly small share.

Obviously, at <i>some</i> tax rate below 100 percent — somewhere between 50 percent and 70 percent; say, 60 percent — revenue peaks, and higher rates would reduce revenue and increase costs to the economy. These “spillover effects” include reduced work, investing and entrepreneurship. The current top marginal tax rate, counting state and local taxes, is about 50 percent, leaving little room for aggressive income taxation to raise substantial revenue from the wealthy, who receive much of their income from capital gains rather than wages and salaries.

Biden’s proposed increases in capital gains taxation would produce only 0.1 percent of GDP. Just restoring the pre-2017 corporate tax rate of 35 percent (nearly 40 percent counting state taxes) would, Riedl says, “vastly exceed the rates of competing nations.” Remember, capital is mobile, going where it is wanted and staying where it is well-treated. As for wealth taxes (administrative nightmares tried and largely abandoned in Europe), Riedl says: “Even seizing all $4.5 trillion in wealth owned by America’s billionaires — every home, car, investment, and business — could finance the federal government one time for just nine months.”

Taxing high-earners and corporations at revenue-maximizing levels conjecturally might raise at most $7 trillion over a decade, but, Riedl warns, probably significantly less. This is because taxes on those entities and individuals — they do the most investing and job-creating — would reduce incomes, wages and economic growth. The moral of Riedl’s story is:

“While the highest marginal tax rate has steeply fallen over the past 80 years, federal income-tax revenues have risen as a share of the economy.” And nearly $1 trillion could be saved in a decade by curtailing subsidies to agribusinesses and trimming Social Security and Medicare benefits for wealthy retirees. The two parties could sheathe their daggers and achieve progressive redistribution goals without the economic harms of large tax-rate increases. Something they might consider — tomorrow.

1977 Pulitzer Prize for commentary

1979 National Magazine Awards: Finalist in the essay and criticism category

1978 National Headliners Award

1980 Silurian Award for editorial writing

1985 The Washington Journalism Review named Will best writer, any subject

1997 Named among the 25 most influential Washington journalists by the National Journal

The Pursuit of Happiness and Other Sobering Thoughts

The Pursuit of Virtue and Other Tory Notions

The Morning After: American Successes and Excesses 1981-1986

Suddenly: The American Idea Abroad and at Home 1986-1990

The Leveling Wind: Politics, the Culture, and Other News, 1990-1994

The Woven Figure: Conservatism and America's Fabric

With a Happy Eye, But ... America and the World, 1997-2002

One Man's America: The Pleasures and Provocations of Our Singular Nation

Statecraft as Soulcraft

The New Season: A Spectator's Guide to the 1988 Election

Men at Work: The Craft of Baseball

Restoration: Congress, Term Limits and the Recovery of Deliberative Democracy

The Conservative Sensibility

American Happiness and Discontents

Trinity College 

Oxford University

Princeton University

George F. Will writes a twice-weekly column on politics and domestic and foreign affairs. He began his column with The Post in 1974, and he received the Pulitzer Prize for commentary in 1977. His latest book, "American Happiness and Discontents," was released in September 2021.

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