Mr. Donlan surmises in this week's editorial:  “. Restoring fiscal sanity in the U.S. means that Americans must pay more and get less. We have had it too much the other way for too long.” 

Sounds pragmatic and conventional, and in fact I often find myself thinking the very same thing.   But is there another way?

Military spending makes up roughly 47% of “discretionary fiscal spending” in the annual U.S. Federal Budget, and there’s even more off balance sheet spending for the military – fighting wars in Iraq and Afghanistan (is Iran next?).   The fraud and waste with a military budget of nearly a half trillion dollars, per annum, is unfathomable.  Think of all the fraud in Iraq wasted on infrastructure spending, and we probably just begin to scratch the surface.  

But neither party, Democrat or Republican, has the guts or the drive to take on this most sacred of cows.  The Republicans, always vigilant to protect America post 9-11, would not dream of taking on the military industrial complex, so what if the generals and military industrial complex (MIC) are busy fighting the last war, and lining their own beds.  The Democrats, don’t want to appear weak on defense, and taking on the MIC – when they are busy ramming healthcare (damn the torpedoes) down everyone’s throat. – just isn’t part of this administration’s agenda.

So the politicians won’t touch military spending, but is there another source of revenue to pay for the American empire, a-hem, I mean being the “world’s policeman?”   The fact is after WWII, America was grateful to be the world’s beat cop:  it’s prevented another nasty war in Europe; it kept the pesky reds at bay –during the height of the cold/hot-war; and it generally did a job of protecting corporate and multi-national interests world-wide.  

Intended, or unintended, beneficiaries of American taxpayer largesse on the MIC and foreign adventurism, are what would seem to be – by American standards anyway - preternatural social spending in Europe and Japan, or a dedication to certain industries, in planned economies (think French and Airbus), that compete against American companies.  While Americans bust their collective tail to make ends meet (complete with drags on their incomes, and on the economy, coming from the Uncle Sam, the Banking Oligarchy - or Team Usury, the Oil Oligarchs, and MIC, etc), the Europeans and much the world get a free ride on U.S. defense spending, not the mention the economic windfall foreign countries receives from U.S. spending overseas, supporting military bases, missions and the troops.

Why should Americans be called upon, exclusively, to pick up the bill for being the world’s policeman?   Why not ask foreign governments to pick up their fair share?  And yes, we recognize Europe’s contribution to NATO, but clearly it’s not enough.  And let’s look beyond foreign governments to pick up the cost of the MIC, U.S. politicians are afraid to touch. What about the multi-nationals and corporate overseas investments that enjoy the benefits of stable foreign markets, brought to them courtesy of the U.S. military, funded by the U.S. taxpayer?  Here lies an un-taxed resource.... foreign earnings of U.S. and foreign multi-nationals.

It seems to this writer that we keep looking to the American tax payer to provide a shield for foreign governments, the likes of OPEC, and overseas corporate and multi-national interests.....isn’t time for our politicians to at least show a little fortitude, and ask that all these free-riders pay their fair share? 

The Romans used to call it “tribute.”  Do American, or foreign, policemen work for free?   Then why should the U.S. military work for free?

Every American who is taxed less has more discretionary income to spend in the economy or to save.  Time to shift the cost of America's military onto the beneficiaries beyond America's shores.

J.M. Hamilton

Editorial Commentary/Barron’s

 | MONDAY, MARCH 22, 2010

What If We Just Raised Taxes?

By THOMAS G. DONLAN | MORE ARTICLES BY AUTHOR(S)

We must do with less or accept higher taxes.

IF IT'S HARD TO FIND A POLITICIAN WHO will outline spending cuts to bring the U.S. back to fiscal responsibility, it's even harder to find one who will list tax increases that can do the job. More than 200 members of Congress have pledged never to vote to raise marginal income-tax rates. Some others are enthusiastic about raising taxes on the rich, but too much depends on the definition of "rich."

President Barack Obama is the current leader of the raise-taxes-too-little-too-late party. He campaigned on a promise not to raise income taxes on American families earning less than $250,000 a year. This makes sense politically, as households earning more account for only about 3% of the population. But as fiscal nutrition, it's oatmeal cookies.

Are they missing something? Could we tax our way to solvency, if not prosperity?

Consider first the magnitude of the problem, as reported by the Government Accountability Office, the Congressional Budget Office, the Office of Management and Budget and the Social Security Administration (the reports differ in details only):

In the next 10 years, the U.S. will spend at least $6 trillion more than it levies. That assumes no changes in current law, so it includes the big tax increase due next year when all the Bush tax cuts expire, and another big tax increase from using the full-strength version of the alternative minimum tax. It also ignores the cost of whatever health-care reform is enacted. An accounting that accepts the continuation of some of the tax cuts calls for more than $10 trillion of red ink over the next decade.

Further Trouble

This 10-year problem gets much bigger as the baby-boom generation retires and consumes Medicare, Medicaid and Social Security. Depending on economic assumptions and the method of calculation, the gap for the next 75 years averages between 5% and 9% of annual gross domestic product.

If it's only 5%, we could fix the 75-year problem by doubling all federal taxes (including the Social Security tax), from about 20% of GDP per year to about 40%.

Even that would work only if we could invest surpluses from the early years and reap investment income in the later years -- which hasn't worked well for Social Security.

(The federal pension program, by the way, currently is running its first annual cash deficit in 26 years, with bigger and bigger deficits looming every year hereafter. To continue to pay full benefits, Social Security must start redeeming Treasury bonds held in its "trust fund," which means in practice that the Treasury must sell new bonds to the public, foreign and domestic.)

If we wait until disaster strikes to close our long-term fiscal gap, the cost will be much greater. If we do nothing until 2020, the tax take required to balance out the next 65 years would be 45% of GDP.

European countries live with such high taxes, notably value-added taxes as high as 25%. But they also receive more social welfare, such as national health programs, early retirement on big pensions, free universities and long-term unemployment benefits. Would Americans accept European-style taxes for American-style benefits?

A Short-Term Tax Program

What tax changes would bring back the good old days for awhile? And by good old days we mean merely deficits running at 2% of GDP -- and starting not now, but in 2015.

Researchers at the Tax Policy Center, a joint project of two Washington think tanks (the Brookings Institution and the Urban Institute) worked it through in a report called "Desperately Seeking Revenue," available for download at

If the Bush tax cuts expire and the AMT is allowed to raise taxes on about 30 million taxpayers and health care doesn't pass, the government still needs $239 billion a year of revenue to bring the deficit down to 2% of GDP in 2015. If Congress continues the tax cuts and repeals the AMT, the government will have to find $775 billion a year, starting in 2015 -- a 21% revenue increase, and still not counting health care.

Keeping President Obama's pledge without reducing the growth of spending means raising the whole $775 billion from the top 3% of income earners. If Congress just raises marginal income-tax rates on those rich folks, they will face a top bracket of 91% on their ordinary income over $373,000, and a 39% rate on their dividends and interest.

When we heard a presentation of this report a few weeks ago, the roomful of tax experts and policy wonks reacted with nervous laughter, perhaps imagining a mass emigration of wealthy taxpayers. But one person loudly declared, "Well, what's wrong with that? We had that rate in the 1950s and there was lots of economic growth."

Indeed, the top rate was above 90% from 1950 to 1963. It was levied on income exceeding $400,000 a year, which would be $2.7 million today. To some Americans who believe in redistribution of wealth and income, it sounds like a vision of heaven.

A Cracked Mirror

The '50s look better in memory than in reality. The dollar was strong, U.S. companies dominated many industries, and life was better than it had ever been. But there were three recessions during the Eisenhower years, and real GDP growth averaged 2.5% over those eight years.

The high top rate was an illusion. Only about 1,000 taxpayers paid the top rate -- there were many more ways to shelter income in those days.

Also, the 1960 system laid a heavy tax on low-income workers. From 1954 to 1963 the bottom rate was 20% on the first $4,000 of income; 22% on the next $4,000; and 26% on the next $4,000. The bottom half of the 60 million returns filed in 1960 had taxable income of less than $5,000, and they paid 16% of the income tax. In today's tax system, the bottom half pay virtually no tax, so today's system is actually more progressive.

The individual income tax took about 13% of total income in 1963 -- about the same as it does now. But the rich pay a much larger share of total income taxes today.

The math of taxation shows that raising the top rate may not actually raise much revenue. It certainly shows we cannot tax our way back to solvency. But we will get what we pay for, and we must pay for what we get. Restoring fiscal sanity in the U.S. means that Americans must pay more and get less. We have had it too much the other way for too long.