http://www.newsweek.com/id/234277" onclick="window.open(this.href);return false;
Thoughts ...First, adopt a value-added tax. More than 100 countries have some kind of a national sales tax. If America were to enact one tomorrow, at something like the average for industrial countries (18 percent), and drop income-tax rates to compensate somewhat, we could bring in hundreds of billions of dollars every year... Such a tax, Leonard Burman calculates in the University of Virginia Tax Review, would bring in enough money to balance the federal budget, pay for health-care expansion, eliminate the income tax for all those earning less than $100,000 (90 percent of households), and cut the top tax rate to 25 percent. The tax would also restrain Americans from over--consuming and reward them for saving, the single most important long-term shift we need to encourage.
Second, end the massive, distorting subsidies for home-ownership, health care, and agriculture. These three subsidies together cost the federal government about $250 billion a year. All of them encourage behavior that is bad for the economy. The interest deduction on mortgage has encouraged the massive accumulation of debt that is at the heart of the current crisis. (No, it does not encourage homeownership. Neither Canada nor Britain has the subsidy, and both have slightly higher rates of home-owner-ship than we do.) Tax exemptions for employer-based health plans encourage overconsumption of health services—a point on which economists from both left and right agree. Agricultural subsidies, mostly handouts to large agribusinesses, are so egregious and market-distorting, one doesn't really know where to begin.
Finally, make sensible adjustments to entitlements. The most important fix is to tie benefits to rises in inflation, not wages, a seemingly technical matter, but one that could save the government hundreds of billions of dollars. Then raise the retirement age by a couple of years, and link it to life expectancy, which increases by three months every year. This is not impossible. Germany just raised its retirement age to 67. In fact, many European countries have fixed their pension systems so that they will be solvent for decades, even longer.
I'd be very careful about using THIS as some kind of marker or performance measurement.
I'm just saying it's tough to completely change over overnight. Tax policy is nothing if not fluid and continuously changing. Unfortunately there aren't enough people in Congress who have actually ever balanced a checkbook, so they have no concept of "spend less than you earn". I don't know when it became in vogue to continue spending at a breakneck pace when unemployment is at near-depression levels and the tax base is depleted. They've thrown a few trillion at the economy so far and the unemployment rate continues to rise and yet the pork barrel spending is alive and well. We need to clean house in the biggest way possible.
