The Fiscal Reckoning to Come: Paying for Virus Relief in an Era of Tax Cuts

Ajay K. Mehrotra –

To combat the coronavirus pandemic, the federal government has enacted relief packages totaling nearly $2.5 trillion, with more aid likely to come. The fourth and latest effort contains $75 billion in grants for hospitals, and $25 billion to improve coronavirus testing. As economist Austan Goolsbee has rightly noted, “the number one rule of virus economics is that you have to stop the virus before you can do anything about economics.”

At some point, though, there will have to be a fiscal reckoning. The mounting bills of an unprecedented global healthcare crisis and its economic aftershocks will eventually come due. Indeed, commentators have already begun proposing ways to address the impending budgetary shortfalls while tackling economic inequality: from a one-time wealth tax on the wealthiest Americans to a progressive wealth tax for Europeans to an excess-profits tax on the large corporations profiteering from the crisis.

Yet, any possible tax hike in the United States will need to contend with the historical forces that, over the last four decades, have ushered in an equally unprecedented tax-cutting fervor. While now may not be the time to raise taxes, when the time does come, law and political economy activists and experts alike will have to confront the current political fervor for tax cuts. In her most recent book, Starving the Beast: Ronald Reagan and the Tax Cut Revolution, economic sociologist Monica Prasad explains how we got here, how the United States, unlike most other advanced industrialized countries, has abandoned any notion of fiscal discipline and instead embraced tax cuts and deficit spending as the answer to every economic and political dilemma.

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