💥 Debt burdens, tariffs, and Up Wing thinking

Creating a better world is about more than not quashing the AI Revolution. Maybe.

Item: “The federal deficit will swell to $1.9 dollars this fiscal year and keep growing until the overall national debt hits $50.7 trillion a decade from now, according to a new report from Congress’s nonpartisan bookkeeper. As lawmakers grapple with mounting defense demands and spending on social safety net programs, the Congressional Budget Office projected Tuesday that the federal debt held by the public will equal 122 percent of the United States’ annual economic output by 2034, far surpassing the all-time high. The group revised its forecast from four months ago, when it projected that the debt would reach $48.3 trillion in 2034, and 116 percent of economic output.” -  The Washington Post, 06.18.2024

The current kerfuffle over Donald Trump’s “plan” (really more of a musing, as I see it, which is also how the Trump campaign is now framing it) to replace the entire federal income tax with a mega-tariff … well, it will likely pass from the headlines as quickly as a summer storm. But maybe the debate will play some role in spurring more thought and conversation about the future of the US tax system.

I mean, we absolutely need to think hard and seriously about the best way for Washington to raise needed revenue in the most pro-growth way possible. Now, the answer isn’t a tariff — a disruptive tax that won’t bring back manufacturing jobs and will hit lower-income Americans the hardest — but more likely a broad-based consumption tax of some sort. (A tariff is a kind of narrow consumption tax.)

Congressional Budget Office

There are a lot of smart tax plans out there, but one favorite of mine, as well as many economists, is the elegant Bradford X tax, a flat tax-variant meant to simplify taxation and encourage savings and investment. It consists of a progressive household wage tax with no capital income tax, and a business cash flow tax allowing immediate deduction of investment costs. The business tax rate matches the highest wage tax rate, based on revenue targets and desired progressivity.

Again, lots of good ideas out there. (Here’s another from two of my AEI colleagues.) We should pick one, ASAP. Within the context of this newsletter, one of my main concerns about taxes is how they relate to deficits and debt. A key part of my Up Wing policy agenda involves vastly more spending on science and technology research. And lots of future red ink is the enemy of that pro-future agenda.