Someone has to pay
My friend, Angelo Santinelli, posted today about the Death of Incentive. Angelo is rightly concerned about the increasing tax burden on entrepreneurs which may dissuade some from taking the risk of starting a new business. Angelo was nice enough to ask for my thoughts on his post before it was finished and incorporated some of my thoughts in his final draft.
However, while I sympathize with Angelo's position and agree that we need to stimulate entrepreneurship and innovation as a way to revive our economy, I also worry about how our government can get back to a balanced budget.
It's well documented that Clinton left office with a large budget surplus. Of course, this was also during the height of a huge economic bubble. Bush had the bad luck of an economy that was certain to come back down to earth, followed by the further negative impact of the September 11 tragedy. I can't blame Bush for these facts which, on their own, would probaby push the government budget surplus into a deficit.
However, Bush also pushed though big tax cuts, launched a couple of expensive wars, and provided no check on increased government spending. A new financial crisis at the end of his terms has left Obama with unprecedented deficits with the spectre of a necessary financial stimulus piling on even more debt. I remember when a $175B deficit was a big number. This year, our deficit is TEN TIMES that at $1.75 TRILLION.
I hate unbalanced budgets. It's fiscally irresponsible and puts off the inevitable reckoning. I agree that during these times of crisis, we need to run a deficit. And, we can afford a certain level of deficit spending. Maybe we can even afford a $1.75T deficit for this year. But, we need to be on the path of balancing the budget.
Obama is saying that the deficit will be cut in half in four years. But, cut in half from this year's number is nowhere near good enough. That's still an $875B deficit. We have to narrow the deficit much more than that within four years.
I am sure that Angelo and I agree that Obama is proposing to spend too much. I am very sympathetic to Obama's priorities. I'd love to spend the money he's proposing. But, right now, we can't afford it all. If we can't afford it, we shouldn't spend it. I'd like to more drastically cut the deficit over the next four years. I'd get half of it back by lowering the spending targets. And, I'd get the other half back by raising taxes.
This is where Angelo and I don't agree. No one likes paying taxes. And, I've certainly paid my share. But, I am still very well off, luckily. I don't think that the tax rates deterred me from being an entrepreneur or a VC. You have to make a lot of money to pay a lot of taxes. And, it's only those who are relatively well off that can pay more taxes so we can lower our deficit. As long as were really careful on spending, I'll be willing to do my share to pay some more taxes. I agree that radically higher tax rates would be a deterrent. We can't return to the 70% marginal rates that Reagan eliminated. But, anyone who rails against a certain tax hike should have to propose some other tax hike in their place until we get our deficit under control.
I'd like to give Obama the target of getting the deficit down to $200B within four years. This is still a big number, except in the context of the big Bush-era deficits. Then, we should get to a surplus two years after that. And, we may need to run a surplus for a while to pay off all the debt we've racked up in the interim.
One thing I do think, however, is that all Americans should have a bit of pain to get our budget balanced. I don't want to raise the taxes much on the middle class, but they should pay a bit more. If they had a $100 surcharge on their taxes for the year, they'd be part of the solution. We're all going to have to sacrifice something to get our fiscal house in order. All but the poorest of us can live more economically in some way. Let's all pitch in, pay our share, and get back to fiscal sanity.