Smart SpendingSmart Spending

Should we pay more taxes?

We're going to have to pay more to slash the deficit.

By Karen Datko Oct 1, 2009 8:14PM

Should Americans pay higher taxes to reduce the nation’s ballooning deficit?


There. We’ve said it. Before you get all riled up, pro or con, remember that this is not a political blog. We’re looking at this from a personal-finance perspective.


It’s timely because the deficit for the federal fiscal year that ended Wednesday, Sept. 30, is expected to be $1.58 trillion.


Actually, we’re not the first to bring this up, not hardly. Author and Republican economist Bruce Bartlett raised the issue in Forbes with the recent column “Fiscal responsibility requires higher taxes.” Some rich folks, including Warren Buffett, argue that they and their wealthy peers should pay more.


Bartlett, who has criticized President George W. Bush for growing the deficit, wrote:


At some point, taxes have to be back on the table as the price that must be paid for profligate spending. Only then will the American people realize that they can't have their cake and eat it too, as Republicans have preached for the last decade. Only when the American people go back to believing that spending must be paid for will they stop demanding something for nothing and put the country back on the path to fiscal sanity.

There’s incentive to do so. Bartlett added:

Everyone knows that fiscal discipline must be restored eventually, or we will face truly horrifying consequences -- defaulting on the debt, nonpayment of Social Security benefits, a collapsing dollar, and double-digit inflation and interest rates. Everyone also knows that this will involve a combination of higher revenues and lower spending. The idea that we can restore fiscal health only with spending cuts is childish, as I tried to explain last week.

Which brings us to the personal-finance aspects of this issue. Many PF bloggers have written that there are two ways to eradicate debt: cutting spending and making more money. Often, cutting spending alone isn’t enough. When a friend of ours struggling with debt recently asked for our advice, we said, “Get a second job.” He did, and that debt is rapidly shrinking.


See the point? Doesn’t it make sense that Uncle Sam needs to cut back AND generate more income? Why pass the nation’s debt -- now at $11.6 trillion -- on to our children and grandkids when we could buck up and start paying our own bills?

Kay Bell at Don’t Mess With Taxes said, simply, “Bartlett’s right.” She added:

But I fear that even though the recession has forced more people to finally get their own finances in order, when it comes to our governments' budgeting strategies, we are a long way from accepting the reality that we must pay for, via taxes, everything, regardless of which political party supports it.

But, you might say, we can’t afford it right now. We’re in a recession. (Although, please consider that if you’re unemployed, your tax burden will be nil or next to nothing.)


In another post, Kay notes that a number of wealthy people have signed a petition to immediately undo the Bush tax cuts for households making more than $235,000. The effort is spearheaded by Wealth for the Common Good, which estimates that step would increase federal revenues by $43 billion a year.


Kay explains:

That tax increase, say the petitioners, would affect only about 2.5% of the country's taxpayers. Even with (the increase), they still would face a tax rate lower than in the early Reagan era. Meanwhile, the increase would raise much needed money for federal programs. 

That’s a good start. A congressional committee estimates that eliminating the Bush tax cuts for everyone else -- they’re set to expire in 2011 -- would raise another $2.1 trillion over 10 years. Clearly not enough to eliminate the deficit. Without spending cuts, Daniel Indiviglio at The Atlantic estimates that taxes would have to be raised 40% to accomplish that -- which is not politically feasible. (To try your hand at reducing the deficit, visit or play Budget Hero.)


Our buddy Frank Curmudgeon at Bad Money Advice guesses that the soonest a tax increase could arrive would be 2013. He wrote:

I am sure that the administration and its supporters would, if they had their druthers, raise taxes significantly to get the deficit under control. But I am also sure they are aware enough to see that they just don’t have the political capital right now. And when would they? Next year, during the mid-term election season? In 2011 and 2012, when Obama will be facing what is looking like a tough re-election?

What do you think? I’d be willing to pay higher taxes if it reduced the deficit (or guaranteed that every American would have health care). As our partner blogger J.D. Roth pointed out in a post we reprinted here, Americans are not “buckling under the burden” of taxes. 


Others are ready, too. “Justaperson” commented at a post about the Bartlett column at the Los Angeles Times, “Yes, I will be paying higher taxes in the future and yes, I will do so willingly if that is what is necessary for my country to be fiscally solvent.”


Related reading:

Published Oct. 1, 2009

Nov 15, 2010 6:25PM


However, let it be in the form of consumption taxes and not on income.

I know a lot of people feel that consumption taxes hurt the less fortunate the most (a regressive tax) and that income taxes are the way to go.

But that is far from accurate.

Many consumption taxes exempt the only items a poor person can afford (look at Massachusett's sales tax structure). Once a low wage earner pays for housing and food and a few low-dollar clothing items they have little if anything left to spend. They may have no tax burden because of not having any disposable income. How is that regressive?

But, if you tax their income you pull money off the top possibly leaving them unable to pay for their food and housing. Now THAT is regressive!

Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.