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Peterson Foundation says we need big tax increases

The Washington Post reports today on a new project to reduce the national debt. It comes from the Peter G. Peterson Foundation, which asked seven think tanks to propose detailed plans for cutting the deficit.

This sounds like typical think tank wankery, but I suppose the seven tanks should be praised for being willing to put concrete numbers on the table. I was especially interested in Peterson's own plan:

Set aside their proposal to raise the retirement age, which is a weird obsession of deficit hawks that will never go away. Instead, just look at the totals: they propose $3.2-3.8 trillion in tax increases compared to $0.2 trillion in benefit cuts. For a center-right organization, this is surprisingly sensible. In the real world there's zero support among the public for significant cuts to Social Security and Medicare. There's zero support for cuts to the defense budget. And despite big talk, the rest of the budget is too small to make much of a difference even if you slash it. That leaves only social welfare, and the truth is that even among the most hard-hearted MAGA jerks, there's hardly any stomach for balancing the budget on the backs of the poor.

Bottom line: You can raise taxes or you can run big deficits. That's it. There's no magic economy booster that will do the job and no sizeable amount of waste fraud 'n' abuse to cut painlessly. Outside of fantasyland, this is all there is.

72 thoughts on “Peterson Foundation says we need big tax increases

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  1. Dr Brando

    This doesn't even consider how our private health insurance system requiring monthly premiums is effectively a tax that could be reduced by a medicare for all system that would lower overall healthcare costs significantly.

    1. erick

      Yeah, but people are stupid, cut their health care premium by $500 a month and raise their taxes by $400 a month and they will just get pissed about the tax increase.

      It’s like how they think their income increasing is something they earned and inflation is punishment.

      1. marknc

        I had a friend who moved to Canada (job related). He was scared that his small salary raise would not get close to covering the increase in taxes he expected.

        Well, his taxes went up a lot. BUT - he no longer had to pay the $1,200/month healthcare premiums or the deductibles. So, he figured out really fast that he was waaaaay ahead with national health care.

  2. emjayay

    Social Security already has a graduated retirement age.

    62 - Lower checks, pay from continuing work over a certain amount deducted

    65 - A little lower checks and you can keep any earnings

    67 - Full benefit amount

    These are probably higher ages than similar programs in many other countries. And of course the think tank guys who came up with the older age thing were working behind desks all their lives, not as brick layers or assembly line workers. That last part REALLY pisses me off.

    1. Josef

      They should be lowering the age, not raising it. It's bad enough most people today don't have a pension and have no choice but to work till eligible for SSI or are forced to take a job even after they are. If the rest of the suggestions are implemented I don't see a need to raise the age. you might just be able to lower it a couple of years.

    2. tango

      People talk about "Full Retirement age" like its a magic point where you suddenly get the Full Amount of Money You Need to Live On or something. But its nothing at all like that. In real life, for those born in 1960, you can start collecting at age 62 and for every year you wait, you get a higher monthly payout until you get to 70 , when it maxes out. Start collecting when you want to on that scale, where every year you wait makes you a little more a month when you do decide to start collecting

      If you are interested in those rates, check out: https://smartasset.com/retirement/social-security-early-retirement-penalty-chart

  3. SwamiRedux

    JD Vance will not want to increase taxes on his brethren.

    TBF, he was a failed VC so the successful ones aren't his kin. But I digress.

    I like killing the personal exemptions, but that's not politically feasible. Maybe a cap on the market-distorting mortgage interest deductions?

  4. D_Ohrk_E1

    Proposed Social Security reforms enjoyed the most consensus. The program will become insolvent in a bit more than a decade, and all proposals extend solvency by at least 30 years. A majority of the think tanks favor both increasing the cap on earnings subject to the payroll tax and raising the retirement age. The savings would fund a basic minimum benefit with $741 billion left for deficit reduction, under the most conservative estimates.

    That's just awful. They're proposing these changes so that they can dedicate most of the money to reduce the deficit while only extending solvency for 30 years?

    How about a one-time wealth tax. Or move the top marginal tax rate up to 40%.

    1. Vog46

      D_Ohrk

      How about this.
      Allow people who are on Soc Sec to work and still pay into the system with NO taxes being paid on SS benefits regardless of how much money they make?
      You get experienced people BACK in the work force and you have those folks who want to earn extra cash when retired that WON'T return to work because of the taxes on SS benefits. Paying into SS through payroll taxes extends the life of SS as well. This is a win win
      Balance the budget first then add enough dedicated tax $ towards debt payoff. An extra $200B per year. It would take 515 months or 42.9 YEARS to pay it off. But we've been running excessive deficits for over 50 years

      1. Jasper_in_Boston

        Allow people who are on Soc Sec to work and still pay into the system with NO taxes being paid on SS benefits regardless of how much money they make?

        This amounts to telling older workers they face a tax increase the moment they can no longer work (ie, they only enjoy having SS benefits exempt from income taxes provided they're still employed, right?). Seems unfair.

        I'm all for removing disincentives to work for those older Americans who are healthy enough to do so and enjoy it, at least to the extent we can do without damaging the fiscal position of Social Security. But your proposal tweaks the program so as to add a disincentive to retire.

        1. Vog46

          Jasper
          The net positive income is the benefit
          EVERYONE knows payroll taxes exist and people are used to paying into SS their entire lives. Give an older person the opportunity to work part-time, full time etc and only pay taxes on what they earn at the job and many will take that job
          As Matt said above uncap FICA as well
          I don't want to go as far as Japan did (free health care for the elderly among many other benefits).
          If a 70 year old person wants to work at the local 7 eleven on weekends to earn extra money - let them but don't include soc sec as income on their tax form come next april. The amount they pay into FICA from that part time job is very small and many older workers would rather pay that small amount to help the system stay "healthy"

        2. tdbach

          I'm not following you (or is it I'm not following Vog46?). How does Vog46's plan to not tax SS benefits as regular income tell "older workers they face a tax increase the moment they can no longer work?" As I understand his proposal, EVERYONE who's collecting SS benefits - whether also working or not - pays no taxes on that benefit. As a 3/4 century-old working "retiree," that sounds good to me. Every year I get badly dinged by taxes because those benefits bring my income to a higher tax bracket.

          1. Jasper_in_Boston

            As I understand his proposal, EVERYONE who's collecting SS benefits - whether also working or not - pays no taxes on that benefit.

            That's not what he wrote.

            As a 3/4 century-old working "retiree," that sounds good to me.

            Everyone likes to pay less tax! I think proposing to exempt Social Security from taxation is daft. It's an income stream like any other. Why shouldn't Bill Gates pay taxes on that income? If taxes are too high on low or moderate income people, just lower rates (perhaps financed by raising them on the rich).

      2. Justin

        In manufacturing where I work, they really don’t want old people of any sort. Not many people over 60 left.

      1. HokieAnnie

        The components can pass audit, the Marine Corps recently did. But the problem comes when you attempt to roll up the component's fund balances into one overall DOD position because there's hundreds of legacy systems still in use. If Congress were to allow more funding to modernize this glamorous facet of the DOD, it could pass audit. But like immigration nope, they'd rather this be an issue they can use to bash government spending with.

  5. Jasper_in_Boston

    According to Paul Krugman (whom I trusty about infinity percent more than the Peterson people) we only need deficit reduction equal to about 2.5% of GDP to stabilize our long term public debt situation. Even if we want to go a bit beyond (say, 3%, to reduce our term debt), that's pretty manageable.

    Our debt situation isn't an economic problem. It's a political problem. Raising the SS cap alone would get us much of the way there.

    Kevin: looks like you've used the word "cuts" where you meant "increases" on your chart.

  6. The Big Texan

    Elon Musk keeps saying that America is bankrupt and I'm thinking "Not as long as we have untaxed billionaires and churches." I'll bet we could pay off the national debt in one day if we really wanted to.

    1. Jim B 55

      The point is that we don't print enough money. At the moment, most of the money creation going on is via increasing private debt (money creation virtually only occurs via somebody increasing debt). Do we really want to continuously increase private debt? We should be increasing the money supply roughly in line with nominal GDP - so about 4-5 percent per year. Most of that should be via money printing (i.e. Government borrowing from the central bank) not via private debt expansion.

      1. KenSchulz

        Disagree. Nothing wrong with private debt increasing proportionately to real GDP growth. A really effective way of reducing deficits and the debt, relative to GDP, is to increase productivity. Productivity growth has been lagging in many recent years. I’m encouraged by the Biden administration’s steps toward an industrial policy (Chips and Science Act).

  7. shapeofsociety

    Cracking down on healthcare price gouging will help a lot. We are the only country that allows health care pricing to be ruled by naked greed.

  8. Anandakos

    I agree with your basic point, but I DO think that there is one vast bleeding sore in the government's expenditure budget: corporate farm "supports". I get that when the program was started farmers were dealing with the Dust Bowl drought and a complete collapse in demand for many foodstuffs because people simply could not afford them. It was a very good thing.

    But today the Ag budget goes mostly to huge corporate farms largely growing FrankenFood for export and SNAP. Blow the "supports" away except the crop rotation goodies which help keep good land fertile and friable.

    1. Five Parrots in a Shoe

      That's a common complaint against America's socialist agricultural system, and the complaint has merit, but it misses an important data point: our farm subsidies make food cheaper. Poor people benefit massively from this.

      Think of our corporate farm supports as an indirect food stamps program. It's admittedly inefficient, but it really works.

      1. Altoid

        I think it's even more direct than that-- the same committees that work up the ag supports also do the SNAP and other direct food distribution, and from what I understand it's always a direct trade-off in the negotiations. (However I doubt that direct distribution is anything more than a tiny bit of the farm subsidies.)

    2. lawnorder

      How vast IS the "bleeding sore"? My impression is that defence, Medicare, Medicaid, and Social Security account for by far the largest portion of federal spending. As Kevin said "the rest of the budget is too small to make much of a difference even if you slash it".

  9. raoul

    Raising the SSA cap would go a long way. I’m a tad leery of getting close to a balance budget since the GOP and Greenspan will then say we need tax cuts - thanks Alan, look where you got us-one of the greatest economic cowards of his generation. Amazingly if the GOP wins the trifecta expect the deficit to double overnight. Anyways, in economic terms, as long as the GDP is growing at a higher rate than deficit growth, the economy will just be fine and this will just require one of the Peterson Foundation proposals or a mix of the top 3: SSA cap raise, reduction in exemptions and getting rid of the pass-through. Here is a quick suggestion: raise the cap so the SSA is solvent five years out and adjust the cap automatically moving forward- this will ensure SSA will always be solvent but prevent a surplus that could be used for tax cuts like it has happened. If you did this and got rid of the pass through the budget would be in fine shape.

    1. golack

      Remove the tax cap on the payroll side for Social Security (caps already removed for the health programs).
      OF course the biggest problem is that the uber wealthy get paid in shares and only pay the capital gains rate. If it's not earned income, it's not subject to social security taxes. Then you have all the tax avoidance strategies. That has to end--and in doing that, criminal elements will also lose access to some of their schemes to launder money.

      1. Jasper_in_Boston

        OF course the biggest problem is that the uber wealthy get paid in shares and only pay the capital gains rate.

        Yep. The elephant in the room is the absurdly favorable tax treatment of income generated by capital. This is an insane boon for the rich.

        I believe some degree of tax relief for savers/investors is probably warranted (not even the Nordics manage to dispense with this). But the degree to which we allow the rich to avoid taxes on investment returns is criminal. There's no reason a Walmart heiress collecting $70 million in annual dividend checks should pay half the effective rate of a flight attendant. It's unfair, and it probably hurts the economy. I've long thought a better way to go might be to simply employ a flat dollar amount exemption for investment income—say, $75,000—to protect middle class savers. But amounts above that would be subject to the same exact tax treatment we apply to wages.

        1. KenSchulz

          I like the idea of a capital-gains exemption instead of an across-the-board rate reduction. But interest and dividends are already treated that way, are they not? The reduced rate is only for capital gains, I thought.

          1. MikeTheMathGuy

            Not quite, as I understand it. (I'm not an accountant.) Both capital gains and dividends are taxed at a lower rate; interest is taxed as ordinary income, same rate as earned income.

            This is unfair to small savers, whose investment income is far more likely to be in interest rather than dividends, but you know, you gotta encourage those "job creators." Depending on how the rest of your income is configured, that special lower rate can be as low as 0% -- AKA Republican Nirvana.

          2. Altoid

            There's a category of dividends called "qualified" dividends that gets the same favored treatment as capital gains. Other dividends and interest, as Mike says, are ordinary income.

          3. Jasper_in_Boston

            But interest and dividends are already treated that way, are they not? The reduced rate is only for capital gains, I thought.

            Nope. The vast bulk of dividend income going to individuals in the United States is classified as "qualified" which basically means the stock has been owned for more than 60 days. Qualified dividends are taxed at the capital gains rate—a maximum of 20%—which is fully seventeen percentage points below the top marginal rate for wage income. That's insane IMHO, at least for the rich and hyper rich.

            https://www.investopedia.com/terms/q/qualifieddividend.asp

            Wage income in the US surpasses the cap gains rate at a mere $47k! As Warren Buffett memorably said, his secretary pays higher income tax rates than he does.

            Sheer insanity.

  10. NotCynicalEnough

    I've gone through the CFRB's "fixthedebt" tool several times and the reality is that fairly modest tax increases on the wealthy and fairly small defense cuts gets you to a stable long term debt. They know this so they move the goal posts for "sustainable" to 75% of GDP for no obviously good reason. In any event, it is nice to see them finally recognize that big SS cuts aren't necessary.

  11. Altoid

    Well, on the one hand it's fine-- maybe even a major advance-- that right-handed think tanks are actually recognizing that what we have here is a revenue shortfall and not an unbridled spending habit.

    OTH, it stinks big-time. The single biggest item by a long shot is "repeal personal exemptions" at 1.717T. The sheer size of that number made me smell a rat. In fact it amounts to 2/3 of the entire revenue gain in the taxes section. It also amounts to 46% of *all* the numbers in green, ie on the credit side (using here the midpoint of the range for increasing the SS cap in that box).

    So, in sum, almost half of the proposed cure comes from this one change of eliminating exemptions.

    That really got me scratching my head, especially because I didn't remember seeing that word on my returns lately. So I hauled out old ones. And lo, exemptions as such in fact don't exist now. The trump tax cut rolled them into the much larger standard deductions we're enjoying if we don't itemize. But as it turns out, exemptions are currently scheduled to rise from the dead when filing time for 2026 rolls around, which explains why they're on this list.

    If you check your 2017 return you'll see that exemptions then were worth $4,050 apiece, right off the top of your adjusted gross income. In today's dollars, as Kevin has taught us to check, that would be about $4,500-$5,000 for each exemption, per Measuringworth.

    Today's very high standard deductions are about double in nominal terms what they used to be before the trump tax cut. They too will expire at the end of 2025 and we'll be back to the old schedule of deductions-- again, about half what they are now.

    Add that all up, and what I conclude is that what this does is raise taxes very significantly on the bulk of taxpayers because it will push up their total taxable incomes by nearly $5,000 per missing exemption-- a ploy they try to hide behind a minor bump in high-end tax rates (equivalent to a mere 11% of the revenue from killing exemptions), setting a floor on SS benefits, and raising the SS taxability cap.

    If this is anywhere near accurate, it's *incredibly* regressive. Shamefully regressive, in fact.

    Taxes yes, but taken from where the money piles are.

    1. Altoid

      Oh, in the spirit of Colombo, one thing I forgot. This proposal raises taxable income not just by adding to it what would be exemptions, but also by taking away about half the value of the standard deduction for those who take it (which these days has been most filers, I understand).

      If you have some idle time you might enjoy taking out last year's return, finding your taxable income on line 15, then adding to it half your standard deduction plus about $5,000 for every dependent. The total will be your taxable income under this proposal. (I don't know whether deductions are affected if you itemize, but you'll be adding in exemptions either way.)

      Big tax hike at the lower end of the scale, is what it looks like to me.

    2. Jerry O'Brien

      You caught them. Elimination of personal exemptions while cutting the standard deduction is surely balancing the budget on the backs of the poor. Kevin didn't grasp that.

  12. bebopman

    “ only social welfare, and the truth is that even among the most hard-hearted MAGA jerks, there's hardly any stomach for balancing the budget on the backs of the poor.”

    Depends on the definition of “poor”. MAGA will gladly allow cuts if they can be convinced that the benefits help only immigrants, the lazy, certain ethic/racial categories, but not them. And in case you haven’t noticed, maga can be easily convinced of just about anything……

    By the way, Reuters/Ipsos has Kamala up 2 points on Trump.

  13. Coby Beck

    I heard that giving big tax cuts to really rich people will actually increase tax revenue! A lot of rich people told me that.

      1. Five Parrots in a Shoe

        My goal is to someday be rich enough to fund a think tank whose purpose is to come up with plausible-sounding arguments for why rich people should pay less taxes.

    1. MikeTheMathGuy

      Ah, yes. "Supply-side economics: the idea that rich people don't work hard because they don't have enough money, and poor people don't work hard because they have too much."

      [Wish I could track down the original source for that line.]

  14. FrankM

    The Trump tax cuts cost $1.9 trillion. That's more than all three of the tax changes in the Peterson proposal put together.

    1. Jasper_in_Boston

      +1

      Yep. Even if President Harris doesn't have a trifecta and can't get a deficit reduction bill through Congress, merely allowing the Trump tax cuts to sunset will seriously cut our borrowing requirements.

  15. painedumonde

    If the rich are so worried about the infrastructure of their profit delivery system - fucking maintain it, pay up.

  16. cmayo

    This guy just can't stand that taxes are progressive.

    He wants to repeal personal exemptions, massively raising taxes on all of the people who can't afford to pay taxes (and shouldn't be taxed - personal exemptions exist for a reason).

    Everything else in there (except for raising the retirement age, again, which he's always had a huge fucking boner for) is just window dressing to him.

    This guy has always had an anti-worker, anti-taxes agenda. It seems he cares less about paying a little bit more in taxes than he does about fucking over everyone who he sees as beneath him.

    Addendum: the deficit as it currently stands matters not a fucking iota.

    1. skeptonomist

      Peter G. Peterson himself is dead. He was an implacable enemy of Social Security. It actually looks like the Foundation has moderated somewhat from his attitudes.

      1. cmayo

        Oh, he is? I guess I forgot that. Well I guess that explains why his foundation has softened a bit.

        Still got the old man's desires at heart, though.

  17. MarkHathaway1

    Reading the article and the commentary, it appears there are some good ideas and a few very bad ones. The worst was probably from McConnell, to let the "Trump tax cuts" via deduction reduction will go away soon. Do the tax cuts for the super-rich also go away? No. On the other hand, there are a handful of items which are more easily understood when taken together: spending cuts or tax increases, how much they cut on the super-rich and how much they want to raise on the 99.99% in a couple of years, how little we actually need to stay on the current course, etc.

    If we head off the Trump tax increases and roll back some of his tax cuts for the super-rich and raise the cap on income taxable for SS, a lot of the issues just go away.

    One practical issue is that we get basically ONE crack at doing it right. Politicians don't like to return to an issue if they've touched it definitively. So, make sure the numbers all make sense before taking that big step.

  18. skeptonomist

    Once again there's no mention of the fact that capital gains, dividends, interest and rents are not taxed for Social Security. The supposed "bankruptcy" of SS is phony (there is no need for it to have a separate budget), but taxing the "unearned" income would easily take care of any shortfall in the SS budget. I suspect that most people are not aware that this income is not taxed - it is almost never mentioned in the media. What if somebody had a poll asking whether the unearned income should be taxed?

  19. KenSchulz

    The revenue shortfall of the Social Security funds has a specific cause. The commission established during the Reagan administration to recommend changes to the system assumed that wages, and therefore FICA revenues, would track upwards with productivity. Instead, the gains from productivity growth went almost entirely to high earners, who were already above the cap. Wage stagnation also dropped more and more working people into ever lower tax brackets. The Romneys who fret over all those folks not paying income taxes ignore the fact that this is a direct result of the greed of the rich. Pass living-wage legislation, and legislation that furthers organized labor — that’s the way to get more people to be taxpayers, and to boost the sustainability of Social Security.

  20. skeptonomist

    What we have had since 1981 at least is a supply-side tax regime. This is based on the idea that more money in the hands of capitalists will result in more constructive investment, which will result in more jobs, etc., that is trickle-down. But this idea has been conclusively disproven. For example the main thing that corporations did with the money from the Trump tax cuts is buy back their own stock, not create jobs. Again the income for stockholders and executives from this, capital gains or dividends, is not taxed for Social Security. There is no evidence that GDP growth has been improved by the shift toward supply-side economics. Instead of being invested in production (in the US) the increased money in the hands of the rich is being used for financial manipulation (private equity takeovers) and speculation (cryptocurrency). Of course the idea that tax cuts pay for themselves was instantly disproven in the Reagan administration, but it is still held by Republicans.

    The problem has been lack of aggregate demand. Taxing higher incomes or even wealth and especially putting more money in the hands of SS recipients, who spend most of their income, would reverse this. Unfortunately Democratic politicians bought into supply-side economics (Democrats actively helped with the Reagan tax cuts) and it is still largely taken for granted. To have more equitable and sustainable taxation, and probably better overall growth, requires a major change in philosophy. This won't come from the Peterson Foundation or the Washington Post for that matter.

    1. Altoid

      Agree, the current tax structure has created a capital glut that the beneficiaries and holders can't find enough productive investments for and turn instead to dodgy schemes and dealing the money out among themselves.

  21. ProbStat

    Yes, but look at the tax cuts:

    Raise Social Security Taxable Wage Base: falls only on wage income, and most revenue comes from upper middle class.

    Repeal personal exemptions: hits all taxpayers roughly equally.

    Meanwhile, most of the current deficits are due to tax cuts given to property-derived income.

    Also note the seven think tanks they polled: the American Action Forum, the American Enterprise Institute, the Bipartisan Policy Center, the Center for American Progress, the Economic Policy Institute, the Manhattan Institute, and the Progressive Policy Institute. Almost all of various degrees of right wing, from what I can tell.

  22. azumbrunn

    "even among the most hard-hearted MAGA jerks, there's hardly any stomach for balancing the budget on the backs of the poor."

    It's not the heart that keeps them in line, it is the massive unpopularity of such cuts. There is no limit to the hardness of MAGA hearts.

  23. azumbrunn

    Another point: this is as you ays a center right organization. Those people do not have a political party any more. They are floating around in political no man's land. Politically they don't matter.

  24. Altoid

    Overall, it seems to me that the aim of this op-ed and the study behind it is misdirection, to jump out to the head of the parade and lead it off onto a side street. Its starting point is the foundation actually recognizing that expiration of the trump tax changes will combine with years' worth of caterwauling and moaning about deficits and debt to make some kind of tax increase inevitable.

    So they want to get their oar in early and make their position the one everybody else has to respond to. They're proposing something that sounds innocuous-- it's been so long since anyone thought about exemptions and their link to our current level of standard deductions-- but will end up taxing the most all those people who can least afford it. And keeping everybody's eyes off the big piles of tax-favored income and assets out there that will still escape taxation.

    In short, it's a red herring.

  25. Pingback: Or, hear me out…. we could quit making govt payouts for make work and shit that doesn’t buy anything | Zingy Skyway Lunch

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