The Tax Trial Balloon Floats Again

Here are a couple of items that are at first glance only semi-related yet when you think about them in a little more detail, they’re critically intertwined.

First, Treasury Secretary Timothy Geithner on ABC today was once again floating the new taxes trial balloon.

Via Politico.com:

“We’re going to have to look at – we’re going to have to do what’s necessary,” Geithner told ABC’s George Stephanopoulos, host of “This Week.”

“Remember the critical thing is people understand that when we have recovery established, led by the private sector, then we have to bring these deficits down very dramatically. We have to bring them down to a level where the amount we’re borrowing from the world is stable at a reasonable level. And that’s going to require some very hard choices. And we’re going to have to do that in a way that does not add unfairly to the burdens that the average American already faces.”

Pressed on whether he was ruling out new revenues, Geithner said: “[W]e’re not at the point yet where we’re going to make a judgment about what it’s going to take. … I think what the country needs to do is understand we’re going to have to do what it takes, we’re going to do what’s necessary.”

This isn’t the first time we’ve heard this discussion and it won’t be the last. It’s pretty apparent that the current tax system is not generating the volume of revenues that the country needs to dig itself out of the hole it’s in let alone take on additional programs like health care reform. But we’ll come back to that in a second.

The second item that caught my eye was an editorial in the New York Times concerning health care which was surprising for its pragmatism. Two interesting points were made.

First, rather than trying to force massive changes and reforms into the entire health care system as part of the reform package, Medicare should be used as the testing ground. A variety of ideas both big and small should be experimented with within that system and those that prove viable brought forward to the larger system.

Second, the Times came out in favor of taxing employer contributions to health care plans. They couldn’t quite bring themselves to the point of recommending an across the board tax imposition, rather they recommended a tax on expensive plans. Their rationale for the tax — forcing employees to recognize the costs of the benefit and inducing them to work to control those costs — nevertheless argues in favor of a broad based tax on benefits.

I hope you can see where Geithner and the Times come together. It’s obviously on the tax issue. Ideally, one would recognize the revenue problem and sit down and draw up a new tax regime that incorporated enough revenue to service exixting and plannned expenditures. Once a tax scheme sufficient to service those needs was in place, then you would craft health care plan and whatever else was anticipated to operate within those revenue constraints.

We don’t live in that ideal world. Actually, we do it backwards by enabling programs that the citizenry demands and comes to count on and then telling them that they now need to buck up and pay for what they’rer getting. Human nature probably wouldn’t let us do it any other way. So, the trick is to devise the structure that we are going to have to eventually move to in a manner that does the least damage.

I’m not an advocate of higher taxes but I am a realist and that part of me acknowledges that I have to concede that the government is going to take a higher percentage of revenues from the economy than they have historically. Given that admission, the point becomes one of lobbying for the most efficient system possible, and one that will actually raise the revenues that it proposes. The discussion needs to be joined not ignored.