Borrowing Against the Country’s Future
April 11, 2008
People about to receive rebates as part of the government’s stimulus plan have the notion that it’s found money, says Thomas D. Griffith of the USC Gould School. “But we have to recognize that it’s a little like forcing Americans to borrow money on their credit cards, because they’re going to have to pay it back, in the form of reduced services for their children, or higher taxes in future. They shouldn’t think they’re getting money for nothing, because some day they’re going to have to pay.
“The U.S. has a substantial long-term structural deficit,” Griffith notes. Right now the government is essentially spending Social Security surpluses — which won’t be around much longer — yet still running a deficit. “And this tax rebate exacerbates that problem. It simply must be made up for later, either in higher taxes or reduced government spending.
“The 2001 and 2003 and 2004 cuts under Bush were completely irresponsible, and they put us in the kind of woeful situation it’s hard to come back from,” Griffith says. These cuts were based on estimations known to be faulty at the time, he adds. Griffith notes that the country was running a huge surplus under Bush’s predecessor, Bill Clinton. “I’m not saying it’s all Bush’s fault, but the tax cuts coupled with spending have left us where we are.” Griffith adds that it was definitely a mistake to reduce taxes without reducing spending.
So the U.S. has some work to do, according to Griffith. “The problem with politicians is that, of all the politicians that are running, none have suggested the kind of tax increases or spending cuts that are necessary for the economy long-term, because it’s politically unpopular to do so. Even in a non-election year, it’s hard for someone to stand up and face it.” In an election year, it’s practically impossible, he adds.
“McCain says we’re going to keep the tax cuts, we’re going to cut government waste. But we’re going to lose money by his numbers. The Democrats have a whole panoply of spending programs,” Griffith says. “So no one’s math works.”
“Finally, there is a huge unrecognized elephant in the closet: the Alternative Minimum Tax,” Griffith says. “The Bush administration has gone under the assumption that we don’t fix the AMT. If we ever did fix it, there’d be a huge tax increase on the upper middle class. The problem is that while everyone — Republican and Democrat — recognizes that the AMT needs to be fixed, there’s no political payment for fixing it. You get a tremendous political punishment if you don’t fix it: You get kicked out of office.”
Griffith, holder of the John B. Milliken Professorship in Taxation at the USC Gould School of Law, is an expert on federal income tax laws, general tax policy and current tax legislation. He is co-author of Problems in Federal Income Taxation. Contact him at (213) 740-2533, (310) 477-4964 (home) or tgriffit@law.usc.edu.