So first, we are going to have to change the quality of public spending. We need to spend more money on young people and less on older people. More money on education, not less.
I don’t think there is a lot of money to be saved on the emergency social programs, such as food stamps, unemployment compensation. Those numbers have grown, but those are artifacts of the recession and weakened economy. I don’t think you want to do something sacrificial and fix things at the expense of people who are already the most disadvantaged.
However, looking at the expenditure pattern, I don’t think the deficit can be brought down by just cutting or changing spending. Ultimately, taxes will have to go higher.
We aren’t the first country to find ourselves in trouble. In almost every other case, when a country got themselves into deficits of this size, they’ve adopted some kind of consumption taxes, usually a value-added tax. You pay the tax on things you buy, not on your salary or your capital interest, or dividends. The tax is levied on imports, but not on exports. So it has an indirect benefit of making you more competitive.
We are one of the only countries in the world that doesn’t have one.
Kristin Forbes, professor at MIT Sloan School of Management and member of President George W. Bush’s White House Council of Economic Advisers
My top priority if I was in charge: fundamental tax reform for individuals as well as consumers. Get rid of all the numerous deductions, exemptions, and special deals so that you could dramatically lower marginal tax rates while raising as much (if not more) money.
This would make our economy more efficient - raising growth and creating jobs. It would reduce uncertainty about future taxes and help stabilize our debt, allowing companies to invest and hire. It would keep companies and jobs in the US rather than moving to other countries with lower tax rates.
Given our unsustainable deficits, we will need to do a major overhaul of our tax code at some point. It will be difficult to grow and recover until the uncertainty about how we deal with our fiscal challenges is resolved, so fundamental tax reform would help our economy both in the short and long term.
