The voices of Tax Policy Center's researchers and staff
As Republicans and Democrats joined hands to provide the most recent of what might be several stages of relief from our national pandemic crisis, almost everyone—fiscal hawks and doves alike—agrees that this isn’t the time to think about who should pay for the recovery.
The conclusion may be correct as a political matter but not as an economic one. The payoff from these rescue packages likely will be high, just as might your borrowing to finance additional education or simply to shelter and feed your family. But even worthwhile debt-financed investments eventually must be covered. While this may not be the time to make those judgments about payments, holding off determining who pays has little or nothing to do with the timing of when they pay.
The economic argument against paying some of the cost for the relief package now goes something like this. Enacting immediate tax increases or spending cuts would be counterproductive and dampen or negate the stimulus provided by tax cuts and spending increases. Policymakers say let’s put our attention on the problems at hand.
The politics behind this approach are clear, even if not explicitly stated. Elected officials like to give away money. They particularly like to spend money and call it a tax cut; that makes government, measured by the size of spending and taxes, look smaller. On the flip side, elected officials don’t like to explain who should pay for government. It’s easier to pass that problem onto some future Congress, which, by the way, will be even less inclined to mandate additional payments from future taxpayers for past benefits for which it can’t even claim credit.
Given those incentives and Congress’ modern inability to deal with the cost side of government, worrying now about who pays makes it very hard to garner consensus on actions that must be taken immediately. So, yes, politically, it was probably the right solution to not specify the source of these future payments. But this approach does have negative consequences that shouldn’t be ignored.
Simply as a matter of fairness, delay on specifying the payment mechanisms weakens the message that “we’re all in this together.” Many are already contributing extraordinarily to dealing with the crisis. We ask a lot from those on the front line in hospitals, nursing homes, prisons, and homeless shelters, as well as both those businesses that were asked to close and those deemed essential that must stay open. We also ask many workers to put themselves at risk by selling us groceries and drugs, delivering needed supplies, fixing our broken utilities, policing our streets, even producing toilet paper and otherwise maintaining a base economy on which we can survive and hopefully soon thrive. Some commentators already ask whether the burden of this recession isn’t being borne disproportionately among less advantaged groups.
Can we really say that those of us who end up well protected and lucky enough to have current income from our jobs, Social Security checks, or other sources have paid a fair share of the total burden to society from this crisis? If my income doesn’t fall, and I get some additional grants or subsidized loans from government, I may even come out ahead by that narrow economic standard.
To be clear, if Congress had required individuals to contribute, say, an average of $100 more in taxes for each of the next ten years, it would have had little or no effect on the stimulative or incentive impact of giving them $1,000 today. Unfortunately, it is not possible to make detailed distinctions among who already contributed or lost the most from the pandemic and the resulting recession. But, future tax contributions, averaged across all taxpayers, would provide greater relief to those with the greatest loss in income in 2020 if assessed through a progressive surtax on existing income and profits. Under this formulation, those whose incomes fell below existing tax-exempt levels of income would pay nothing while those whose incomes rebounded mightily would pay the most.
Without taking a single dime out of the economy today, Congress could act now to strengthen the economic recovery itself by reducing investors’ worry about government’s long-term fiscal trajectory. This may seem less worrisome in the US than in countries already facing sovereign debt crises, but we have our own fiscal issues, not the least of which is that the rising ratio of debt to national income weakens our ability to respond to future crises. And these prudent fiscal steps might even give the American people greater faith that the federal government at long last was beginning to act in their long-term, not just short-term, interest.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
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