Fiscal Policy

We have become accustomed to thinking that taxes, like hemlines, can only go up or down. This isn't true. Over the centuries changes in the form of U.S. taxes have been at least as dramatic as changes in the rate of taxation.

Are We Still a Middle-Class Nation?
Michael Lind, Whitehead Senior Fellow

America's "Suez Moment"
Sherle R. Schwenninger, Co-Director, Global Economic Policy Program and
Director, Fellowship Program

Despite its unchallenged military might, the United States has an Achilles' heel: its economy depends on foreign capital. Though hardly anyone acknowledges this publicly, China and Japan already hold so much American debt that, theoretically, each could exert enormous leverage on American foreign policy. So far, the economic dependence of these countries on American consumers has kept them from exercising such power. But what would happen if, for instance, Washington changed its one-China policy and officially recognized Taiwan?

Policymakers today confront a number of profound developments, whose significance is certain to increase over the next several decades. Some of these are widely anticipated: demographic and climate change, the scarcity of natural resources, and public health. Other structural issues, such as globalization, rapid technology change, and security threats, will continue to transform the world economy.

Michael Calabrese has proposed a tax-credit based plan with the following key features:

News that major U.S. technology companies, among them IBM, plan to export thousands of high-skill jobs overseas indicates that worrisome trends in the U.S. economy will probably strengthen. Optimists contend that such "workforce flexibility" guarantees that something new -- the Internet, biotechnology -- will turn up to create similar high-paying jobs and carry the economy forward. But rather than triggering real economic development, moving white-collar jobs offshore underscores how reliant the U.S.

Today we remember Medicare's establishment in July 1965 as a ringing affirmation of the ideal of social insurance. Less well remembered is how close Washington came to creating a very different system. Not long before Medicare's passage, the Kennedy administration seemed on the verge of a compromise with Senator Jacob Javits, the moderate Republican from New York. Senator Javits and his allies wanted to give private insurance a leading place in the new program so government could play a smaller role -- an idea opposed by liberal Democrats and organized labor.

While Democrats and Republicans continue to bicker about tax cuts, they are ignoring the debate we should be having. That is, how can this nation fundamentally reform the tax code to achieve three critical goals: simplification, economic growth, and equitable tax burdens? What we need is a complete overhaul of our tax system -- from one that encourages a debt-consumption economy to one focused on saving and investment. This can best be done by instituting a "progressive consumption tax."

With military victory in Iraq secured, it is time to recognise another battle being waged on America's home front -- a generational war. When two countries go to war, one side usually wins. But generational warfare is a losing proposition for all because of the long-term social, fiscal and political strife it creates.