Read My Lips: We Need Higher Taxes!

The United States faces a serious fiscal crisis after amassing large amounts of debt during the 21st century. Fixing the issue requires a bipartisan deal between Republicans and Democrats, so reaching a sustainable budget deficit will ultimately require raising taxes. But while spending increases have driven much of the recent debt crisis, the US is still a low-tax country by OECD standards, meaning that if they want to spend like European nations, they must tax like them as well.

George H.W. Bush during his “Read my lips” debacle.

Albert Camus once wrote, “There is but one truly serious philosophical problem and that is suicide” (Camus, 1942). For the United States, there is but one truly serious fiscal problem and that is raising taxes, the ultimate form of political suicide. Indeed, polls from Gallup show that public support for raising taxes appears to only exist for taxes targeting the very wealthy, and in 2024, 56% of respondents claim that taxes are too high (Newport, 2024). Unfortunately, the United States’ low-tax regime is a major reason why the country has a near insurmountable debt problem. Bringing the deficit back down to sustainable levels cannot be achieved simply by reversing recent spending increases or marginally shrinking ‘government waste’. To restore fiscal health and fund an increasingly strained safety net, Congress must raise taxes.

To understand why taxes ought to be increased, it is pertinent first to understand the fiscal crisis the country faces. According to the Treasury Department, the debt stands at $36 trillion, making up roughly 123% of US GDP. For reference, the EU recommends member countries to keep debt levels at 60% of GDP (Darvas et al., 2024). The debt held by the public, which is defined by the Treasury Department as “all federal debt held by individuals, corporations, state or local governments, Federal Reserve Banks, foreign governments, and other entities outside the United States Government”, has increased by 122% since 2014, from $12.86 trillion to $28.57 trillion. The budget deficit stands at a staggering $1.7 trillion, over 5% of GDP. At such a rate, the deficit would grow faster than the economy, meaning that the debt-to-GDP ratio would only balloon further than it already has (Feldstein, 2016). Moreover, such a debt burden restricts the fiscal capacity of the state. For instance, in 2023, net interest payments on the debt totaled $658 billion, up $38% from the $476 billion in 2022, both of which were record highs at the time that will soon be beaten out with new record level interest payments in 2024 (Peter G. Peterson Foundation, 2024). This means that simply paying interest on the debt we already have is now the fourth largest category of spending for the federal government.

Evidently, the growing debt and persistently high deficit are major problems by restricting the government’s ability to borrow in the future and finance its current expenditures. To lower the deficit down to levels that can ensure that the debt-to-GDP ratio will not grow or even fall, such as 2% of GDP, the government would have to raise almost $1 trillion in tax hikes, spending cuts, or a combination of both. Many conservatives argue that, while tax revenue as a percent of GDP has been relatively constant in recent years, spending surges have outstriped tax revenue and thus we do not have too low taxes but rather too high spending. Instead of raising taxes, we should just cut spending (Klein, 2012). 

This is true, but only to an extent. The primary spending surges occurred as a response to the 2008 recession and the COVID-19 pandemic, both of which required a firm response from the government that both Republicans and Democrats committed too. Meanwhile, according to OECD data, the average OECD country collects 34% of GDP in tax revenue, while the US collects 25-27%; in 2000, that figure was 28%. Indeed, before the pandemic, in 2019, “general government spending” was 38.45% of GDP, which is more comparable with other OECD countries like the UK.

Fundamentally, the US is a low tax country, and in recent years they have been spending like a European nation but not taxing like one. Given that the safety net is already strained and faces large unfunded liabilities (Boccia, 2024), as fiscal conservatives frequently point out, Congress must raise taxes to fund needed and popular government services. Of course, as part of a budget deal between Republicans and Democrats, there certainly will be some spending cuts and entitlement reform to control rising costs, just as there was in the 1980s to extend the solvency of Social Security. But spending cuts will not be enough without reshaping the public nature of programs like Medicare and Social Security, a task somehow even more suicidal for a politician’s career than raising taxes (Parlapiano et al., 2023). It is thus the case that, for those concerned about fiscal health and want real solutions, taxes must be raised, and they are easiest to raise for wealthy individuals. 

Nonetheless, tax hikes need not be drastic, but rather only a few percentage points of GDP. And they ought to be cautious about which taxes they should raise, as different taxes have different distributional impacts. For instance, sales taxes are typically termed ‘regressive’ since low-income individuals spend more of their income and are more impacted by them than upper-income individuals who save more of what they earn (Gale, 1998). Ironically, the US is a low tax nation primarily because it lacks a Value Added Tax (VAT), while European nations help fund their safety net through incredibly high VATs. To preserve the progressivity of the US tax system (Splinter, 2020), politicians should steer clear from flat national sales taxes, whether they be in the form of VATs or tariffs. 

Instead, raising the top three marginal income tax rates to, for instance, 32%, 37%, and 42%, up from the current 32%, 35%, and 37%, along with imposing new taxes like a carbon tax, are small and reasonable changes that will lessen the burden that cuts in social programs will have to take on. Moreover, moderately raising taxes on the upper and upper-middle classes is a more fair solution than reducing the extent of the welfare state. Politicians must embrace the fact that fiscal reform will require higher taxes. Anything less is unrealistic and unserious.

References

Romina Boccia, 2024. “Medicare and Social Security Are Responsible for 100 Percent of US Unfunded Obligations”. Cato Institute.

Albert Camus. 1942. “The Myth of Sisyphus”. Vintage International (Translation edition: Nov. 2018).

Martin Feldstein, 2016. "Dealing with Long-Term Deficits." American Economic Review, 106 (5): 35–38.

William Gale, 1998. “Don’t Buy the Sales Tax”. Brookings Institute, Policy Brief #31.

Ezra Klein, 2012. “Grover Norquist’s pledge to increase spending, deficits”. Washington Post.

Frank Newport, 2024. “Where Americans Stand on Taxes”. Gallup.

Alicia Parlapiano, Margot Sanger-Katz, and Josh Katz, 2023. “The Programs You’d Have to Cut to Balance the Budget”. The New York Times.

Peter G. Peterson Foundation, 2024. “What Are Interest Costs on the National Debt?”

David Splinter, 2020. “U.S. Tax Progressivity and Redistribution”. National Tax Journal, National Tax Association; vol. 73(4), pages 1005-1024..

Internal Revenue Service. “Federal Income Tax Rates and Brackets”.

OECD. “General government spending”.

OECD, 2024. “Revenue Statistics 2024”. 
Treasury Department. “FAQs About the Public Debt”. TreasuryDirect.