In its report, aside from the regressive Social Security cuts that they decided to suggest (even though Social Security can’t add to the national debt), the commission’s co-chairs also proposed a dramatic rewrite of the nation’s tax laws. The proposed changes include slashing the corporate tax rate and lowering income tax rates after eliminating lots of credits and deductions from the tax code.
But in their quest for budget balance, the co-chairs left some tax ideas on the table that would mitigate the need for the large discretionary spending cuts that they also propose. These ideas would not only help reduce the deficit, but would make the U.S. economy more stable and fair:
– Financial Transactions Tax: In addition to raising revenue, a tiny, fraction of a cent fee on financial transactions like stock trades would slow down some of the hyper-trading that has been popularized recently by Wall Street, but that has no societal benefit. The tax would discourage some excessive speculation and high-frequency trading, but even assuming a 25 percent reduction in trading volume, the tax could still generate about $265 billion in revenue per year. Last year, House Democrats said a transactions tax was “very much” on the table for deficit reduction — and it should be.
– Bank Tax: The Obama administration has already proposed a Financial Crisis Responsibility Fee — which would be assessed on the biggest banks, in accordance with their riskiness — but the idea has gone nowhere in Congress. Besides raising revenue, such a tax would help level the playing field between large and small banks by making it more expensive to be a large, interconnected firm (offsetting some of the funding advantages that such size conveys). The Congressional Budget Office has said that a bank tax would “improve the competitive position of small- and medium-size banks, probably leading to some increase in their share of the loan market.”
– Carbon Tax: As Brad Johnson noted when the commission’s co-chairs released their first report, “Nowhere in their discussion of the prospects for the next generation did they mention the challenge of global warming, nor did they integrate climate policy into their economic suggestions.” Implementing some sort of carbon tax both raises revenue and helps combat the effects of climate change. Rep. Jan Schakowsky (D-IL) — a member of the commission who opposes its final report — released her own deficit reduction plan that raises $52 billion by implementing a cap-and-trade system.
As Paul Krugman put it, the debt commission’s report is really “a compromise between the center-right and the hard right,” so it’s not super surprising that none of these ideas made an appearance. But they are realistic ways to raise revenue and avoid some of the draconian cutting measures that the commission preferred.