Raise Taxes

by Sherry Rindt

Created on: November 01, 2011   Last Updated: November 03, 2011

Cutting programs that help to sustain the economy would be a very counter-productive approach to reducing the national debt. While advocates of cutting Social Security and Medicare are correct when they note that these benefit programs represent approximately 43 percent of the federal expenditure budget, they gloss over the economic impact.

For example, in 2008 Medicare provided health coverage for 45.2 million people, spending $468 billion for covered goods and services. But, that $468 billion didn’t just vanish into thin air. It was recycled economically, creating jobs and generating additional tax revenue.

Between 2001 and 2006 the healthcare industry created 1.7 million new American jobs. Keep in mind that during that same period of time the United States was in a recession and the good paying factory jobs that once provided good health insurance benefits were disappearing. The healthcare industry growth continues, despite a continually sluggish economy. How is this possible when so many American’s can’t afford health insurance or the out-of-pocket cost of health care? Obviously, programs such as Medicare and Medicaid are helping to sustain growth in the health care industry.

And the related job growth is not just in the field of medicine. Large facilities, such as a regional medical center, hospitals, and clinic complexes are usually surrounded by restaurants, gas stations and convenience stores, gift shops and hotels/motels. All of these smaller businesses create jobs and the employees pay taxes that help to support benefit programs.

Social Security benefits have the same effect. The money that is received by the beneficiaries circulates again and again in the community because most Social Security recipients have to spend their monthly income to survive. They can’t put it into an interest bearing account, purchase more stock, or spend "the season" in Europe. They need to buy groceries and household goods here in the United States. They purchase cars and appliances and utility services. And do not under-estimate senior citizen impact on the tourism industry. Spending is what drives a strong economy.

Also keep in mind that most economists believe that every dollar spent in a community will circulate three times before it leaves the community. Here in the US, the economic impact of Social Security and Medicare benefits is easily in the trillions of dollars every year. And as those dollars circulate people are paying state and federal income taxes, a variety of sales and excise taxes, property taxes and a host of other taxes.

Unfortunately, all of the economic benefits will not make these programs sustainable if job growth in other areas remains stagnant. And, obviously concern over the national debt is suppressing job growth and a more vigorous economic recovery. So, if cutting important and economically beneficial programs won’t work, what can we do?

Raising taxes is the most practical and least painful option. But, it’s not just the wealthiest one percent that need to pay more taxes. We need to increase FICA and Medicare taxes to narrow the gap between revenues and expenses for Social Security and Medicare. Thanks to longer life-spans, the average Social Security recipient will receive eight to 10 percent more in Social Security benefits than they paid into the system.

One way to narrow the gap between what is paid out and what is received into the Social Security trust is to eliminate the cap for paying into the system, but retain some kind of reasonable cap for paying out. Why should a multi-millionaire only pay FICA and Medicare taxes on a small percentage of earnings, while the average American pays these taxes on 100 percent of their income?

And why not eliminate the loop-holes that allow the very wealthy and large corporations to legally avoid taxes that simply can not be avoided by the less well-to-do or the small business? The very wealthy and the larger corporations have not succeeded without the benefit of taxpayer-funded programs and projects. Grants and loans have provided much of the education that drives the personnel behind a successful company. And where do the highways, the utilities, the TIF districts and all of the other economic incentives come from?

Raising taxes does not stifle the economy. President Bill Clinton raised taxes during his administration and despite the tax increase, 22 million jobs were created. The average American enjoyed a significant increase in household income, the stock market did well, and the country had a budget surplus when he left office.

Then, under the George Bush administration, taxes were cut, especially for the upper income households and larger corporations. The surplus from the Clinton administration was sent back to the taxpayers in the form of a rebate. Approximately one million new jobs were created, but many more were lost and the number of uninsured or underinsured Americans nearly doubled.

Conservatives have been arguing for decades that the way to a strong economy is lower taxes and bigger breaks to/for the wealthiest one percent. But, historically, there is very little evidence that this approach works.

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