Go to Top

Rooting For Gridlock And A Tax Hike

You don’t hear this very often, but I hope my taxes go up next year — and yours, too.

I do not have a burning desire to send more money to Washington. I don’t have a ton of disposable cash and no better place to use it. I do not buy the patently silly argument, propounded by Treasury Secretary Timothy Geithner and others in the Obama administration, that a tax increase on business owners like me will have no effect on employment. I think a tax increase is going to set back economic recovery, perhaps substantially.

Yet I have concluded that a tax increase, and a hefty one at that, is essential to make the point that the money our government spends really comes from someplace, and that ultimately that “someplace” is all of us. Our paying higher taxes will not encourage politicians to just spend more, because they already spend without constraint. Higher taxes will, instead, create the public pressure to receive value for every dollar spent. A tax increase is the only way to break the current mindset in which $1 trillion has become the new $100 billion — an amount that, only a few years ago, seemed like a whole lot of money.

Too many social costs these days are hidden. A large proportion of wage earners pay little income tax except for Social Security, and they are told, falsely, that they will get that Social Security money back from a “trust fund” that consists of government IOUs. But through lower cash wages or longer searches for work, those same wage earners indirectly pay for a host of burdens that their employers shoulder: pre- and often post-retirement health care, pensions, unemployment insurance, disability insurance, and in some cases, mandatory time off.

Politicians tell us that a handful of rich people and corporations can carry the load for everyone, or that we can keep taxes far below what we spend and trust economic growth to take care of the difference. Neither is true. (The latter argument reminds me of the merchant who bought socks for $5 a pair, sold them for $4 and explained to a customer, “I make it up on volume.”)

So I hope everyone’s taxes will go up, to restore spending sanity. Neither the Democrats nor the Republicans want to grant my wish. You might think this disappoints me, as it means my only real hope is for a long stretch of gridlock to prevail after the November elections. But I kind of like my chances.

The Bush income tax cuts are set to expire at the end of 2010, the same time the estate tax will return, if Congress doesn’t take action before then. In this case, everyone’s taxes will rise. The estate tax will be 55 percent and will have a lower exemption than it did when it was suspended ($1 million, down from the former $3.5 million).

President Obama wants to extend the tax cuts only for individuals who make less than $200,000 a year, and for couples who make less than $250,000. The Republicans, on the other hand, are pushing to extend the tax cuts across the board. Former Sen. Fred Thompson is heading an ad campaign in which he argues that letting the tax cuts expire would be devastating to the economic recovery. Those who would preserve the tax cuts argue that the American economy is too fragile to sustain an increased tax burden, and that even Obama’s proposed extensions are too limited to support job growth.

There’s no consensus on the estate tax, either. Democrats would like to return to the 2009 rates; Republicans see an opportunity to further vilify their opposition, hitting them with the “tax-and-spend” stick, as I noted in here in December.

I detest the estate tax. But at a $1 million exemption level, it will affect enough people to refocus attention on the question of whether we really want to tax the hypothetical value of something (since many assets have no published value), in the absence of a sale that would provide funds for paying the tax, just because someone happens to die.

Experience has taught me a simple truth about budgeting: There is never enough revenue. No matter how much money is available, whether for a household, a business or a government, it is always possible to spend more. Budgets work only when they serve to restrain spending. Right now, this country spends as though it has access to a limitless supply of money. This must change.

You may have caught on to my dirty little secret, which is that I am part of that small club (the “wealthy” as defined by Obama) for whom taxes are going to rise, sooner or later, no matter what. So when I say I want taxes to rise for everyone, I’m really saying I want taxes to rise for someone besides me and my economic peers.

That’s exactly right. I’ll ante up when called upon. I just hope that, when I do, I’m paying for a responsible government that uses my money wisely, one that does not behave as though the country’s financial health beyond the next election cycle does not matter.

So I am rooting for gridlock and higher taxes. We could do a lot worse.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

The views expressed in this post are solely those of the author. We welcome additional perspectives in our comments section as long as they are on topic, civil in tone and signed with the writer's full name. All comments will be reviewed by our moderator prior to publication.

, , , ,

One Response to "Rooting For Gridlock And A Tax Hike"

  • Jerome Porter
    September 8, 2010 - 12:09 am

    Great suggestion. But why wait for some gang of the current political class to articulate your wonderful idea.

    I have a modest proposal. Let’s start with a petition for simple plan to reduce the deficit with a simple 3 part program.

    FIRST, we freeze expenditures and add a 2% surtax on all individual taxable income before deductions for personal exemptions, and which is not subject to any of the current batch of credits. That will allow all of the income earners to share ratably in the burden of reducing the deficits.
    SECOND, after two years we raise the surtax to the level needed to produce a 1% current year surplus. That will introduce the citizenry at large to the cost of paying for all the “benefits” that our government is bestowing upon them.
    THIRD, two years later we increase the surtax to the level needed to reduce the accumulated deficit over the following 10 years to a level that is the inflation adjusted equivalent of the federal deficit at the beginning of the Clinton administration. In that way, we will demonstrate to 1) all the foreigners (who are buying our bonds) that we are serious about maintaining a sound fiscal policy, and 2) our children and grandchildren that we are ready to pay for our own benefits and not pass the cost on to them to blight the economy that they will inherit.

    If you, your partners, and staff will start the petition, I’ll be your next signer.

    Do you think that you will have it ready before November 2nd?