The U.S. dollar continues to weaken, which has led to commodity price increases, including a higher-than-fundamentals-dictate oil price of about $80 per barrel, and U.S. Treasury Department professionals are working long-and-hard to continue to refinance and rollover U.S. debt to finance the U.S. government's operations -- all because the budget deficit is high. What could take pressure off all of the above? Well, in addition to letting the 2001 Bush income tax cut expire in 2011 as expected, Congress could pass a modest tax increase above the expiration amounts -- for example, increasing the top two income tax brackets by 2-4 percentage points.
What would the increase lead to? A little income tax hike would go a long way. First, it would reduce the budget deficit, and when combined with health care reform cost containment for Medicare and Medicaid, would get the United States on a track toward a balanced budget. To view the Congressional Budget Office's latest 2010-2019 budget deficit projections, click here.
Second, that improved fiscal outlook would support the dollar, and, quite possibly, end the dollar's slide versus the euro, British pound, and yen, assuming the U.S. trade deficit continues to decline. Equally important, the firmer dollar would take pressure off commodity prices, easing inflation. Oil price increases would likely moderate, if the price of oil did not fall outright.
Finally, long-term interest rates would drop and institutional investors would be reassured that the United States is practicing what it preaches to other nations: fiscally-sound government operations.
Could a balanced budget be achieved without a tax increase? Possibly, if one ends Social Security, Medicare, and Medicaid, and cuts defense spending by about 50%. Given the impracticality of those actions, the prudent tack is health care spending containment via health care reform and a modest tax increase on upper-income Americans.
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Financial Editor Joseph Lazzaro is writing a book on the U.S. presidency and the U.S. economy.
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Reader Comments (Page 1 of 1)
11-06-2009 @ 5:37AM
mike said...
This has to be the worst stock economy advice I have seen on this board. Yes technically you might and I stress might be right. But there is another way to handle it as well. Stop government spending and printing presses. Cut back on government. Give back to the people and control monetary policies that create this in the first place.
11-05-2009 @ 9:26PM
Indranil Sengupta said...
A little discussion on taxes never hurt anyone. Your proposal about raising taxes is general. It is not clear whether you want to raise taxes for the rich or for everyone (including companies). I have nothing against raising taxes as long as it is fair to everyone. I do not earn a huge income but would like to one day and I am working towards it. I hate to say it but the tax structure gives the impression that you will be punished for earning more. I am all for higher taxes if it will help the country, but it needs to be a flat tax rate. I have discussed this in more detail at TalkFN.com under "The myth and the math of taxes".
11-05-2009 @ 9:34PM
momoseysdad said...
The Government is incompetent and corrupt. The answer to improving the "health" of the Nation is to reduce the money supplied to the insane fools in Washington.
11-05-2009 @ 9:41PM
Stephen Dow said...
The most pressing concern in this economy is job creation. As a "rich" business owner with an expanding business (yes, even in this economy) that is hiring people, the extra 2 to 4 percent that the government will confiscate will not come from my personal income, but from the retained earnings that I would normally reinvest in growing my business. Translation: Tax increases=less job creation. Terrible advice.
11-05-2009 @ 11:31PM
William Bob said...
Are You kidding, what a disaster. Stick a fork in us we will be done!!!
11-05-2009 @ 11:52PM
joi said...
IF YOU WANT JOB HERE IN THE UNITED STATES. BAN
COMPANIES FROM GIVING THOSE JOBS TO OVERSEAS CALLING CENTERS, AND PRODUCTION. THE COMPANIES MAKE THEIR MONEY AND CITIZENS DON'T HAVE INCOME.
11-06-2009 @ 1:28AM
Wendell said...
Restraining government spending is the only way to begin to get a handle on the countries troubles. Tax increases always result in LOWER revenues. I thought you financial geniuses knew that. Our economy is already on life support. You want to step on the oxygen hose again? There is NO cost containment in the Pelosi health care fraud. Isn't it the government that spends five hundred dollars for a hammer? REDUCE taxes, REDUCE spending. Revenues go down, investment increases, and with spending restraint the budget deficit gets better. However, the libs NEVER want to restrain spending except in defense. They are always willing to build another permanent entitlement, but get really mad when we defend ourselves.
11-06-2009 @ 8:56AM
escfrreal said...
sure, upper income americans aren't already paying enough for everyone elses services. upper income americans are upper income because most work harder, save more and use fewer of the services that they contribute for. but thats not enough, you make more, so go ahead, sacrifice more....
11-06-2009 @ 10:03AM
itsallgoodjoe9 said...
Yes tax these have it alls. Its time to equal the playing field. These stock market, speculators and such should pay at least 10 % more. They produce nothing . Same with the silver spoon babies, tax the hell out of the non producers who rely on other people's money and labor.
God blesses and embraces socialism !
11-06-2009 @ 3:53PM
thedude said...
The surest way to increase tax revenue is to create jobs. Preferably in the manufacturing sector. Read this as what it is BOYCOTT CHINA/INDIA/MEXICO.Create a REAL fair trade program only allowing imports to match export (not including raw materials - all raw material exports should cease immediately - we can do the manufacturing conversion domestically instead and export a finished product)
Here is some fun information
WalMart currently has an ad that claims they save the average US Family $3100.00 per year no matter where they shop.
Now everyone knows that almost everything WalMart sells is made overseas (China)
Multiply that $3100 times the approximate 100 million households and you get $310,000,000,000 divide that number by the approximate number of unemployed people in the US which is estimated to be around 7.5 million and you get $41,000+ per unemployed person
Based on this simple math if WalMart were to require everything they sold be manufactured domestically they would potentially create 7.5 million jobs paying on average over $40,000 per year
Unemployment and the costs that go with it would be eliminated saving the government(we taxpayers that is) serious coin and also result in an extra 30 billion in taxes paid into the goverments coffers.
Unfortunately the inverse of this math is also true - due to WalMarts presence and outsourcing habits which will not change, the future will not improve for the US as long as China is our key supplier.
All countried need to be agriculturally, economically, and industrially independant of each other to guarantee that another global recession does not occur.