The Liberal Solution to America’s Big Spending Problem
Policy + Politics

The Liberal Solution to America’s Big Spending Problem

It’s become commonplace in the debate over the federal budget to hear that the United States is “broke.” It’s a favorite line of House Speaker John Boehner (R-OH) in particular, who regularly says that the U.S. has a “spending problem.”

The argument has long bothered Thomas Hungerford, senior economist and director for budget and tax policy at the left-leaning Economic Policy Institute, because it takes for granted that there is no possibility of raising additional revenue. And in a new paper released Tuesday, Hungerford makes the case that not only is the U.S. not broke, but it can raise enough money to pay for future spending needs, including important additional investments in infrastructure and education. 

“While the federal government is projected to run deficits far into the future, the U.S. economy is projected to generate substantial amounts of income growth far into the future,” he writes. “This means the real fiscal challenge is simply the political problem of raising revenues that are sufficient to meet our spending needs.”

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Hungerford’s solution to the problem: collecting more in taxes. Future growth prospects are bright, he argues, and there is more than enough room to raise tax revenue without sacrificing continued upward momentum in living standards and income.

“I’ve been arguing this for years – that we need to raise revenue to pay for needed spending and not to live with unsustainable long-term debt,” he said in an interview. However, he said, the debate has been hijacked by a vocal and influential minority who insist that increasing tax revenue through rate hikes or elimination of exemptions is always and forever off the table.

Hungerford, at least in part, blames anti-tax activist Grover Norquist and his group Americans for Tax Reform, for pressuring almost every Republican in Congress to sign the Taxpayer Protection Pledge, which requires them to promise never, under any circumstances, to raise taxes.

“My guess is that some of those folks are sorry they signed on,” Hungerford said. “But now if they break the promise they’ll get called flip-floppers, and I think many of them are unwilling to do that.” 

To be sure, Norquist isn’t the only one out there claiming that raising taxes isn’t the answer to federal budget woes. Groups such as Citizens Against Government Waste insist that waste, fraud and abuse alone east up almost half of every tax dollar.

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“[T]he shocking reality is that the government squanders a whopping 46 cents of every individual income tax dollar on the wasteful, inefficient, outdated, and duplicative programs,” CAGW recently claimed

In his paper, Hungerford paints a different picture. U.S. per capita income is increasing steadily, though much of the gain is concentrated at the very top of the income distribution. At the same time, spending on the things that the country relies on the government for is being slashed in the name of budget cutting. 

“The United States is the richest nation in the world,” he writes. “Per capita income and wealth have been steadily rising over the past half century. Public investments in roads, education, and basic research have been a major contributor to this growth. Federal spending for public investments relative to GDP, however, fell dramatically in the 1980s and has remained at a low level since then. Recent austerity measures enacted by Congress will undoubtedly further reduce spending on public investments. This is Washington’s real spending problem, and the solution to this problem is to increase tax revenue.” 

While Hungerford’s answer to the problem isn’t exactly “soak the rich,” it’s not far from it.

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“Another problem has developed alongside our spending problem: the increasing concentration of income and wealth at the top of the income distribution,” Hungerford writes. “Part of the solution to this problem is a progressive tax and transfer system. For example, increasing taxes on capital income will reduce the after-tax income of the richest 1 percent. Furthermore, the increased public investment spending will help reduce income inequality by creating more higher-paying jobs and boosting productivity growth.”

Hungerford added in an interview that the U.S. is actually one of the lowest-taxed developed countries in the world. He said that citizens of comparable economies don’t balk at paying higher taxes because they see that they “get something” from government spending. 

“I certainly don’t mind being taxed a little more if it will get people off the streets and into decent housing, and put food in the mouths of the hungry,” said Hungerford. “That would make me happy.” 

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Nevertheless, Hungerford is realistic about the prospects for a near-term change of heart among lawmakers. “During this Congress, I don’t see anything happening,” he said. “What I’m hoping is this [paper] can be used for arguments in campaigns for the next Congress.”

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