TO THE list of things that are worse in anticipation than in fact, perhaps you should add tax increases. Most of the increases over which the president and Congress agonized so long to reduce the deficit are scheduled to take effect this week. The stormy rhetoric surrounding their enactment made them into an ominous prospect. Lobbyists and true-believers did what they are paid or wont to do and said entire income classes or sectors of the economy would be wiped out. They said the same thing about tax reform in 1986; it didn't happen.
The tax increases were the key to an agreement that over time will free the economy from a dangerous dependence on high interest rates and foreign funds and restore the ability of government to do its domestic and international duty -- from combating social problems and restoring the transportation system to giving foreign aid. The price of all that and of paying down the bill for the low-tax party of the 1980s turns out to be about $215 a year for the average family and, as it ought to be, more for those with above-average incomes, less below. Total federal taxes will be increased, after all the shouting, by scarcely more than 2 percent. That's a tiny cost for a large potential gain.
The prices of cigarettes, beer, wine and liquor will go up. It's rightly said that the increases will be regressive, but it's hard to argue that by perhaps deterring some smoke and drink the society will be worse off. The gasoline tax will also be increased, but the nickel will be lost in the price fluctuations from the threat of war in the Mideast. The U.S. price of gasoline is still 1) low by world and even some historical standards and 2) too low to induce the conservation that for energy and environmental reasons should be a national goal.
The income and payroll taxes of the well-to-do will also rise. This makes up in part for the cuts at those income levels that left the tax structure less progressive and the Treasury less full in the 1980s. The top rate will be increased, the bubble (whereby rates fell in the highest income brackets) will be reduced, a toll will be taken from the deductions of those with incomes over $100,000 and the wage base for the Medicare tax (the amount of annual earnings to which this part of the Social Security tax applies) will be more than doubled. That's in addition to the annual increase (to keep up with inflation) in the wages to which the rest of the Social Security tax applies.
Most of the cost of this restorative legislation will thus be borne by those most able to pay. This was a modest tax increase whose pain was magnified by politics and whose fiscal and distributional effects will both be healthy. That makes it doubly the right way to begin a new year.