To Tame the Debt and Inflation, We Need to Increase Taxes | Opinion

It is unarguable that the U.S. has a debt problem. Even as a staunch liberal, I recognize the cold hard truth that interest payments alone on the more than $31.5 trillion we owe now approach $400 billion a year. This is simply not sustainable, and it will only get worse if our annual deficits average out to the $2 trillion a year the Congressional Budget Office (CBO) is currently projecting. Republicans are currently calling attention to this issue by refusing to increase the nation's debt ceiling without a major curb to government spending. Even when putting aside the folly of this tactic and the hypocrisy of preaching fiscal discipline only when a Democrat is in the White House, their plan is nevertheless nonsensical. The reality is that the best way to tame both the debt and our current problem with inflation is to raise taxes.

Consider that all spending is either categorized as mandatory or discretionary in nature. Mandatory spending is principally made up of so called entitlement programs, such as Social Security and Medicare, and is currently over two-thirds the budget. Hence, being a supermajority of our expenses, it would make the most sense to look there first if one was to claim that the government needed to tighten its belt.

However, Republicans have vowed that cuts to Social Security and Medicare are off the table despite the fact that many of their members have, on numerous occasions, called to curtail these programs. That Republicans would even mention Social Security when addressing the nation's debt problems is evidence that they aren't really aiming to debate about the debt in good faith given that it cannot, by law, add to the deficit. The real reason Republicans bring it up in times like these is they are afraid that if they don't frame it as a hallmark of government overspending, we'll eventually raise taxes on those they try hardest to protect—the rich.

Social Security is funded by a payroll tax of 6.2 percent, but it curiously exempts all income over $160,200, meaning everything earned over that amount is not subjected to that tax. In other words, every dollar someone earns in payroll income over that threshold effectively gets a 6.2 percent tax break relative to all earnings below that amount. Lifting this tax cap alone would allow Social Security to continue paying promised benefits for at least another 35 years without having to raise the retirement age a day from where it now stands. This is a tax increase that would only affect the wealthiest 6 percent of Americans, perfectly illustrating how the real problem in one of the most popular government programs isn't too much spending but too little taxation.

Regardless, with both parties in agreement that we will take no action on Social Security or Medicare in the immediate future, we must continue to look for bloat elsewhere in the budget if we want to get our fiscal hour in order. To that end, we must then look to the discretionary budget.

The first thing to keep in mind when evaluating the U.S. discretionary budget is that it makes up less than a quarter of government spending, meaning that looking here to solve our budget woes is akin to a large man taking off lightly buttered peas from his Thanksgiving dinner plate in order to cut calories.

The second thing to keep in mind when looking at the discretionary budget is that nearly half of it comes from one category alone—defense. Moreover, there is consistent bipartisan agreement to keep defense spending at these elevated levels, meaning there is no real debate even among Republicans that we spend too much on the military. If anything, Republicans want to increase what we spend on defense.

This means the only place to find what we could call bloat is in the remainder of the discretionary budget. Which, you could eliminate all non-defense discretionary spending and those $2 trillion annual deficits projected by the CBO would not even be cut in half. We could hollow out the modern state and still be on a trajectory to fiscal ruin. Even if waste were present, this is clear and incontrovertible evidence that the problem isn't springing from overspending, but from lack of revenue.

 Sen. Todd Young (R-ID) references a chart
Sen. Todd Young (R-Ind.) references a chart on rising costs during a press conference on inflation, at the Russell Senate Office Building, on Feb. 16, 2022, in Washington, D.C. Kevin Dietsch/Getty Images

In studying our tax rate, the problem comes into sharp focus when we look abroad and see that the U.S. is 32nd out of 38 in the Organisation for Economic Co-operation and Development (OECD)'s revenue statistics report. If the U.S. were to go from our current tax-to-GDP ratio of 26.6 percent to the OECD average of 34 percent, we would generate over $1.8 trillion in new government revenue, almost exactly enough to entirely wipe out the deficits the CBO warned are coming.

Inflation remains high and tax increases are a great way to fight it. Inflation is currently being driven by an increase in aggregate demand—we see too many dollars chasing too few goods. A tax increase would soak up more dollars from the market, dampening demand, and easing inflation almost immediately.

Nicholas Creel is an assistant professor of business law at Georgia College and State University.

The views expressed in this article are the writer's own.