Don’t like growing deficits? Fix the tax code so the wealthy pay their fair share
By Dashel Lewis
Hardly anyone likes paying taxes, but almost everyone likes the things that taxes pay for: everything from clean air and drinking water to food that is safe to roads and highways that get us from point A to B. Taxes also help pay for retirement and economic security programs like Social Security and Medicare that we all rely on as well as benefit programs for people with low incomes.
The government depends on annual tax revenues to help pay for these and countless other essential domestic programs, which cost trillions of dollars to maintain. For decades, tax revenues have not fully covered what the federal government spends, and the difference between those two numbers is the annual budget deficit. The sum of deficits over time is the national debt, which is money borrowed by the federal government through the issuance of bonds or other Treasury securities. Right now, the annual U.S. budget deficit is $723 billion, and our national debt is $31.6 trillion.
House Republicans are calling for drastic and harmful budget cuts to critical programs across the government to reduce deficits sharply. They are also threatening to refuse to raise the debt ceiling—which caps the amount the United States can borrow–so the government can pay its bills. Defaulting on our debt would have devastating economic consequences for the global economy, including massive unemployment and recession. However, these short-sighted options overlook the possibility of changing our tax code to boost government revenues, which can reduce the deficit and make the tax code more equitable.
Current pillars of our tax system like mortgage interest deduction, the lenient treatment of investments, and the tax-free status of wealth transfer vastly favor the intergenerationally rich. A more equitable system would remove the advantages that keep wealth accumulated at the top and improve IRS enforcement to minimize evasion by wealthy individuals, families, and corporations. Remarkably, recent IRS data shows that people in poverty face higher rates of audits than wealthier Americans.
President Biden’s FY24 budget proposal calls for significant reforms to the current code, including increasing the corporate tax rate to 28 percent and raising the top individual income tax rate to 39.6 percent. Adjusting those key base rates, in addition to closing existing loopholes that permit excessive tax evasion, would reduce the deficit and ensure a strong revenue base for securing and expanding social programs. Crucially, these reforms would take meaningful steps toward making our tax system an equitable reflection of where wealth is held in society.
Republicans would like to continue and build upon the 2017 Tax Cuts and Jobs Act (TCJA), commonly known as the Trump Tax Cuts, which gave significant breaks to wealthy individuals and corporations, hollowing out a key revenue base for domestic programs including social supports. Many of those tax breaks are up for renewal in 2025. Those who express grave concern about the deficit also support extending these giveaways. It’s critical that policymakers let the TCJA tax cuts lapse and reverse what has been a tool for wealth transfer for the already well-off.
At its core, our tax code must be progressive and focused on reducing poverty and inequality. We’ve seen how the tax system can be used to advance equity and combat poverty. Tax-based policies like the Child Tax Credit and Earned Income Tax Credit have provided economic lifelines to tens of millions of U.S. families. Simple steps like making the pandemic-era expanded CTC permanent and extending EITC eligibility to young adults without children and mixed immigration status families would significantly reduce poverty and bring the United States more in line with other rich nations more in line with other rich nations.
The programs and policies relied on by people who are the most vulnerable are undergirded by—and often directly involve—our tax system and the revenue it provides. Going forward, policymakers should make the IRS more effective both as a system for gathering the resources we need to combat poverty and a tool for distributing support.