Do we really need higher taxes?

As we would expect during an election year, several candidates are proposing new government programs. So far, we have proposals for higher teacher salaries, an infrastructure bill, universal daycare, student debt forgiveness, free college education, and a tax credit for low income earners, to name a few. Some of them surely deserve consideration. When candidates are asked how they plan to pay for them, however, the universal response is to raise taxes. Warren would impose a wealth tax, while the rest of the candidates seem to coalesce around rolling back the Trump tax cuts for the wealthy and corporations. By leaping immediately to tax increases, they leave us to conclude that they can find nothing in the current budget to cut. Is this sensible? Shouldn’t the current level of spending at least be discussed? 

As we discuss in our Fiscal Policy Research, the federal budget can be divided between discretionary and non-discretionary spending. Non-discretionary spending is approximately $2.5 trillion and includes Social Security, Medicare and Medicaid, and veterans’ benefits. Let’s assume for this discussion that this category can’t be changed in the short run. Discretionary spending, however, is approximately $1.2 trillion, all of which represents potential sources of funding for the candidates’ proposals. 

Since none of the candidates has addressed this, we are left to assume that they don’t think there is anywhere to cut. Those of us who have worked in the private sector know how rigorous the annual budget process in a private company can be: how leaders are required to defend their spending, justify their requests for increased investments, and show the rate of return on those requests. If any of this discipline exists in the federal government, it is not apparent. And if it is, one would think that the presidential candidates would have something to say about it. Also, as we suggest in our Fiscal Policy Specific Recommendation, a technique commonly employed in the private sector is to ask department heads for across-the-board cuts. While this is admittedly a crude instrument, it is generally the case that 5% to 10% of non-critical spending can be found in even the best run of companies without jeopardizing service or quality. Surely this technique would yield some results with the federal budget. A 5% to 10% target would generate $60 to $120 billion of savings.With this as a target, a valuable discussion could ensue about the merits of new program proposals versus existing programs, and potentially even some modest deficit reduction. Can we at least talk about it?