There are a lot of ideas on how to address the looming crisis of trillion dollar annual deficits and a $14 trillion national debt. Congress has ideas and so does the President. All of the ideas involve choosing winners and losers, who will be taxed or receive tax breaks. Given the deep political and economic divisions in the country right now, a starting point for progress is voluntary measures.
There are people, even in this terrible economy, who would volunteer their income to help solve the fiscal crisis. Warren Buffett and former President Clinton are not alone in wanting to be asked to do more. Under a couple of conditions, many people with far less resources than Buffett or Clinton would invest in the future of the country.
First, some semblance of fiscal discipline has to exist in Washington to prevent another federal spending binge. Second, a tangible incentive has to be in place to reward those willing to sacrifice. The first condition is emerging in the form of spending caps.
An incentive, for example, could be a deferred tax break resulting from paying a voluntary direct federal income tax. A new National Debt Reduction (NDR) tax could be a 5% minimum personal or corporate income tax that could be reclaimed in ten years as a tax deduction (plus the interest on a 10-year Treasury).
A deferred tax break would be attractive in an era of tax uncertainty. The revenue collected for this tax would be deposited into a “lock box” that could only be applied to reducing the debt, not collected as revenue supporting annual spending.
To be clear, the size of the deficit and debt mean a 5% voluntary tax will not solve the budget crisis. It is unlikely to even make a dent. Some combination of Congress and White House actions are necessary to control spending, reform entitlements, and broaden the tax base. Still, there is an immediate need for a game changer in American politics to make a comprehensive plan and compromise more likely. A voluntary tax gives civic-minded Americans and corporations the opportunity to make a powerful statement about short-term sacrifice.
An NDR tax could open an entirely new national dialogue about sacrifice. Envision two people standing in line for coffee on a Saturday morning. Both have decided to give 5%. One works in a trade making the median national income of $49,000 a year and the other is a mid-level executive making twice as much, $100,000. One drives a mini-van and the other a luxury sedan. One is a Democrat wanting to invest in the nation’s future the other a Republican loving the tax break.
The person in the trade remarks to the executive, “So, what do you think of the national debt tax?” He or she responds with pride, “I did my part.” “Me too,” responds the tradesman. They smile, nod, and go on with their day. The others standing in line are silent, pretending to not hear the exchange. The same pressures to buy new cars and live in trendy neighborhoods could stimulate the formation of a new political faction in the United States.
The societal divisions a voluntary tax could create would be healthy. It could draw a clear distinction between those willing to sacrifice in the short-term and those who will not. Every reasonable person understands that the unemployed or 46 million people in poverty cannot participate in the tax. The 2.5 million households making over $250,000 per year, conversely, should explain why they will not participate in the NDR tax when people with so much less are willing. Maybe these high income earners have good reasons for not participating. The NDR would end the rhetoric of sacrifice. All Americans would have to defend their own action or inaction.
A voluntary NDR does not solve the budget and debt crises. There is no way to know for sure how many people, businesses, and corporations will actually participate. It could result in a few millions or billions of dollars in revenue.
Its larger importance is symbolic. Bold cultural and political statements of sacrifice can have far-reaching effects on a society. The political parties and factions should be able to agree to give people the choice to step forward and lead, even if they won’t. There needs to be a call for volunteers.
James Windle is a federal employee who has worked for executive branch agencies, the Executive Office of the President, and Congress. The views and opinions of the writer are his solely and are independent from the U.S. government.