Monday, June 2, 2008

My Providence Journal Op-Ed

The Providence Journal Op-Ed is here
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Contributors

01:00 AM EST on Monday, March 3, 2008
MARTIN G. EVANS

CAMBRIDGE, Mass.

IT IS MARCH 2008, and the Iraq war continues. I made a New Year’s resolution to fight to ensure that this generation of Americans pays for the war rather than passing the full cost to our children and grandchildren. They are, after all, members of the generation actually fighting the war. We owe them this.

It seems unlikely that the war can be ended during the rest of the Bush administration. Nevertheless, the administration can be persuaded to start paying for it. The Republicans used to be renowned for their fiscal discipline, so they can probably be shamed into passing legislation to begin to pay the horrifying financial cost of the conflict.

So far, the Iraq war has cost this country over $482 billion. None of this is being paid out of current revenue. Even worse, little of this is being paid for by domestic borrowing. The bulk of the funds used to pay for this war are generated by foreign borrowing. We are placing the viability of this country into the hands of foreign lenders.

It is imperative that this mounting debt be stopped and that the war be financed by a combination of increased revenue and forced domestic borrowing. Yes, we the people have to start making sacrifices alongside our troops.

A surcharge of 5 percent on each person’s taxes would raise revenue of about $41 billion (based on the IRS 2004 income figures, the latest available). This would add about $8 a year in income tax to those with under $10,000 in income; it would add about $150 a year to the taxes of a median income earner; and the precious millionaire whom Bush wants to spare from being taxed would have to pay another $37,000 in taxes. This tax increase would pay for about half the war’s ongoing cost. The rest would still have to be financed by borrowing.

Rather than borrowing from abroad, which, as we have seen with the decline in the dollar, places our whole economy in the hands of foreigners, the country must start borrowing from its own citizens. We could start by trying a voluntary approach through a celebrity supported “War Bond Campaign.” However, trying to raise another $40 billion may not be successful on a voluntary basis.

Therefore conscription of the country’s savings may become necessary. A good model for this is the Post War Credit scheme, based on the ideas of John Maynard Keynes, which was introduced by the British government during World War II to help pay for the war.

Forced saving would again be made as a surcharge on the income tax. The surcharge would begin at 2 percent for taxpayers earning $50,000 to $100,000 and would cost the average taxpayer in this range $130; for the next $100,000 the surcharge would be 4 percent and the additional tax burden would be $300; everything between $200,000 and $500,000 would be subject to a surcharge of 6 percent, with a $3,000 additional tax; for $500,000 to $1 million, the surcharge would be 8 percent and the additional tax would be $12,000; finally over $1 million, the surcharge would be 10 percent, with an additional tax of about $70,000.

The total savings extracted by this scheme would be about $38 billion. This would reduce America’s need to borrow for the war in the financial markets. Each individual’s savings would be credited to him or her and would be paid back once the war was over and borrowing requirements were reduced. Or we could do as the British did, hold the money until the person reached retirement age and pay it back as an annuity (perhaps even a small amount of interest could be credited each year to the account).

These two steps, increased taxes and a major saving effort (voluntary or forced) would benefit America. First, it would bring the costs of war home to each and every one of us. Second, it would prevent our imposing the costs of the war onto the next generation. We should be proud to do this. This indeed would be to support the troops. Both Democrats and Republicans should be willing to endorse this proposal.

Martin G. Evans is a professor emeritus at the Rotman School of Management at the University of Toronto ( martingevans@gmail.com).

2 comments:

m said...

This i from Herbert Belkin (Posted by Permission)

Mr. EVANS,

Your request seems to be that American citizens should subject themselves to a surtax to pay for the conflict in Iraq. I couldn't disagree with you more.

Instead of paying to continue this misbeguided and unnecessary war, we should declare victory and bring our troops home. That's what we did in Vietnam and that's what we should do in Iraq. The reasons the Bush administration gave for getting into this war have proven wrong. Hussein did not have weapons of mass destruction, did not have chemical weapons and certainly did not have a nuclear capability. The basic point was that our national defense or interest were not threatened by Iraq.

As far as funding the war, there are many steps that come long before we ask taxpayers to dig into their pockets. How about ending the $285 billion (yes, that's with a "b") cost overruns for weapon systems that may have served when Russia was our opponent, but have no place in national defense when our enemy for the foreseeable future will be militias whose technology is based on the turbans on their heads and the sandals on their feet.

How about restructuring the tax code so that our system of taxation supports the expense of this war. Our current administration says that we can have guns and butter, as the phrase goes. We can't and we shouldn't try.

But first and last, end the expense by ending the war.
Herbert Belkin

Martin said...

From Alan Bird

I support the position of paying for the war now rather than passing it on to future generations. There are two ways to sacrifice, however, one can raise taxes or one can lower spending in other areas. I currently personally pay more in taxes than over 95% of the country. Any additional taxes are likely to have a disproportionately larger impact on me than on that 95%. I pay a higher marginal tax rate than nearly all of the 535 members of Congress. I favor having everyone sacrifice. We can do this by cutting federal expenditures. We could begin by eliminating all federal earmarks, followed by a 5% across-the-board reduction in federal spending this year and next, followed by a freeze on any future funding increases for 5 years. This would effectively solve the problem and move in the direction of eliminating the federal deficit and paring down the federal debt.

Won’t you please join me in promoting a more just solution to war funding that requires everyone to sacrifice.

Allan