Following a contentious midterm election, some 81 percent of respondents to a recent ABC News/Yahoo! News poll said they expect partisan warfare and inaction to continue over the next two years.
There are plenty of ideas on how to return the government to fiscal responsibility. That debate is happening across the country, but officials in Washington are making painfully slow progress on the thorniest issues. There is little agreement within the two parties, never mind between them. To spur debate and move the conversation forward, Yahoo! News asked the American public, through our Yahoo! Contributor Network, to submit fresh ideas. We've chosen some of the most interesting ideas to highlight over the course of this week. We also asked key lawmakers to weigh in on those ideas. And as we go along, we'd like you, our readers, to tell us what you think.
Many Republicans refuse to consider any Tax Hikes at all. And many liberal Democrats — who, ironically, may have even more power in the party now that many of their more moderate colleagues have lost their seats — can't stomach the thought of cutting back government services or programs. The only certainty is that today's path is unsustainable. In fiscal 2010 (which ended on September 30th) Uncle Sam spent $1.3 trillion more than he took in. All told, the nation's outstanding debt stands at nearly $14 trillion. Everyone knows we can't spend far more than we take in forever. Eventually, the bill will come due. Sylvester's solution: A five percent national sales tax that would apply to retail and wholesale sales across the board. "Many states already institute a retail sales tax, and they continue to have healthy economies; the notion that a national sales tax would cripple the economy is false," he argues. "Skyrocketing debt is by far the greater of the two evils." (Read his argument here.)
Could a national sales tax help fix the deficit and gain political support?
Politically that will be a tough sell. Yahoo! News spoke with Rep. Paul Ryan (R-Wis.), the incoming head of the House Budget Committee. A top aide to the new Speaker of the House, Rep. John Boehner, Ryan will be a key player in crafting the budget and negotiating spending and tax decisions when Republicans take control of the House in January — and he's not convinced such a tax is needed. "I do not like the idea, because it skirts the real problem, which is spending," says Ryan. "I am not interested in chasing ever higher spending with ever higher revenue." (Read a discussion with Ryan on the proposal here.)
The idea doesn't seem any more popular on the Democratic side. Yahoo! News also asked Sen. Mark Warner, (D-Va.), a prominent centrist who is well-placed to help forge compromise on economic issues in the new Congress to weigh in. His view: "I have not seen a lot of appetite for that [idea] in this country." (Read a discussion with Warner on the proposal here.)
Why the skepticism? There's little doubt such a tax could raise lots of money. Mr. Sylvester argues it could raise billions from retail sales alone. And it's not just many American states that have sales taxes. As Sen. Warner points out, many other developed countries in Europe and elsewhere have them too. The most common form is known as a Value added Tex, in which new tax revenues are collected on the extra "value added" that each person or company creates each step of the way as a product or service is transformed from raw material to finished product.
Nor is Mr. Sylvester alone in backing the notion. The idea has been kicking around Washington for years, though debate over it picked up steam in the fall of 2009, as Democrats quietly began discussing how to tackle the looming deficit. The most prominent trial balloon backing a sales tax came from John Podesta, a former chief of staff to Bill Clinton and an influential Obama adviser who now runs a liberal think tank called the Center for American Progress. Roger Altman, a former top Treasury official who is now a leading candidate to replace Larry Summers as the president's top economic adviser, also urged the administration to consider a value-added tax at a conference sponsored by the CAP. (Read coverage of their proposal here.)
More recently, Alice Rivlin, the former head of the Congressional Budget Office, and Pete Domenici, the former governor of New Mexico, have also argued for a VAT in one of several reports released in the fall on how to bring down the deficit. (Read more about their report here.)
Like Podesta and Rivlin, many economists think that adding a national sales tax in the form of a VAT would be a better, more efficient way for the government to raise needed revenues than boosting taxes on capital or investment income. While individual shoppers might not like it, economists generally believe that making it cheaper to invest (through lower taxes) and more expensive to consume (through higher taxes) is the best way to encourage economic growth and create jobs over the long term. And no one wants to propose increasing taxes on income; that's too politically unpalatable, as we've just seen in the debate over renewing the Bush Tax Cuts.
Yet if support for a national sales tax has grown in some circles, in others opposition remains implacable. Conservative economists tend to dislike the idea because they think a sales tax will raise costs in the economy overall and thereby stifle growth. They also think it's an easy, almost hidden way for government to raise revenues; they'd rather taxes were more visible, so as to keep the pressure on Uncle Sam to hold them down. Meanwhile, many liberals dislike the idea of boosting Sales Taxes, because they believe the burden would fall heaviest on people with low incomes, since they spend a far higher portion of their income on consumption than do those in higher brackets.
Whatever the economic arguments, however, politicians of all stripes currently see a national sales tax as a political non-starter. Americans tend to hate sales taxes in general; even small increases in sales taxes to pay for worthy things like education have been shot down by local communities when they've been put up for a vote. Given how much anti-tax sentiment already exists across the country, and how heated the arguments have been about raising income taxes even for the wealthy, few politicians appear willing to risk the potential wrath they'd face if they suggested hiking sales taxes across the board as well.
ASK AMERICA: Could the American people get behind a painful deficit reduction plan?
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