The Price of Civilization_ Reawakening American Virtue and Prosperity - Jeffrey D. Sachs [99]
The United States is absolutely ripe for a rise in gasoline taxes. The nominal gasoline excise tax rate has been fixed at 18.4 cents per gallon since 1994.29 Inflation alone has reduced the real value of that tax per gallon by around 30 percent. As with other federal tax rates, the U.S. excise tax rate on gasoline is extremely low by international comparison. We might conservatively assume that by 2015 an extra 0.5 percent of GDP could be collected by some combination of a higher gasoline excise tax and modest carbon levies on other fossil fuels (such as on coal at the utilities).
Other possibilities include a tax on bank balance sheets (proposed by Obama but not enacted) and a tax on financial transactions. Even a tiny levy on each stock trade or foreign exchange transaction could raise tens of billions of dollars, much of which currently shows up in the gargantuan bonuses on Wall Street. New York State, for example, levies a transfer tax on the sale of stock shares of a mere $0.01 to $0.05 per share, depending on the share price. This small tax collects around $15 billion per year.30 Under the pressure of the Wall Street lobby, however, the New York State government has, since 1981, been rebating the revenues right back to the brokerage firms.
A final option, one that will likely be adopted sometime in the coming decade, is to introduce a value-added tax. The United States is the last of the high-income countries to introduce such a tax, and the absence of the VAT is the main reason why U.S. tax collections as a share of GDP are much lower than in Europe. The VAT is relatively easy to collect, creates low distortions, and raises considerable revenues. The main problem is that it is mildly regressive, meaning that it tends to collect a higher proportion of incomes of low- and middle-income households than of rich households. Even that might be acceptable and fair, however, if the tax proceeds are used overwhelmingly for the poor. Then the overall combined effect of increased taxes and spending would still be progressive on balance, that is, helping the poorest disproportionately to their income.
The upshot is the following: Perhaps 4 percent of extra GDP could be collected as of 2015 mainly by taxing the rich (2 percent), tightening corporate taxation (1 percent), strengthening tax enforcement (0.5 to 1 percent), taxing financial transactions, and taxing carbon emissions (0.5 percent). Introducing a VAT would raise even more revenues and could be phased in over several years. The point is that there are lots of options, and most of them could be concentrated near the top of the income distribution, where they belong.
How far should we go in raising tax revenues? To balance the budget entirely, we would have to raise 6 percent of GDP, identified earlier as the financing gap. To stabilize the ratio of debt to GDP, we can afford to aim a little bit lower. Suppose that we aim to stabilize the debt-to-GDP ratio at around 60 percent of GDP, a policy that would at least keep the U.S. budget out of long-term trouble. If the GDP is itself growing by around 3 percent per year, a year-in, year-out budget deficit of 1.8 percent of GDP is consistent with a stable debt-to-GDP ratio. In other words, closing 4 of the 6 percentage points of GDP of the structural deficit would be enough to stabilize the debt-to-GDP ratio at 60 percent.
My point is not to settle the precise issues on spending and taxes, as these should be left to a far more detailed analysis by budget experts and to vigorous public deliberation and decision making. My point here is to insist that the rich should pay their way, and that they can easily afford to do so. All of the angst of canceling vital government programs to close the deficit is a charade put on by the rich for the rich. With a fair tax structure and a just contribution of the rich to