The solution lies in stone soup

All of the protesting against increasing tax rates for the top earners reminds me of Stone Soup, one of my favorite childhood stories.

In the story a village is starving with each family suffering with meager supplies in the isolation of their own abode. A stranger comes to town and starts boiling water in a big, black cauldron over a bonfire in the village square. When asked what he is doing, the stranger throws some stones into the pot and replies that he is making stone soup. One at a time as each curious villager comes to take a look, the stranger thinks out loud how much better this delicious soup could be if only he had a couple of carrots. When some come back with a couple of carrots, he says the same about potatoes, and then turnip and then onions and pepper and so on. Finally he has a huge pot of hearty soup able to feed the entire village for a week and they all come out to enjoy their collective bounty together.

Those opposed to allowing the bush tax cuts to expire are typically arguing that the increased revenue derived from taxing the highest income earners more will amount to just a few billion stones in a bucket against a deficit and debt of trillions. That may be so. But this is about the need for everyone to throw some concessions in the pot. The middle and lower classes have little and should expect to get even less going forward.

Spending and entitlement cuts are the new normal as we work our way back from the world’s financial suicide of the credit bubble. We all have to figure out ways to get by more efficiently and on less. Every bit of increased revenue and lower spending is part of the solution. We cannot afford to discard any piece of this as too insignificant. Every bit counts. And just as importantly, the appearance of fairness and shared sacrifice is critical to mobilizing mass cooperation behind a mammoth, but not insurmountable task. A brighter future depends on what we are prepared to do to earn it.

Austan Goolsbee, Chicago Booth School of Business economics professor, debates whether President Obama’s call for tax fairness is anti-stock market and anti-investor, with the Kudlow Report’s Larry Kudlow. Here is a direct link to a good discussion on the topic. Goolsbee makes the important points that top tax rates have never been lower in the US. And deficits have never been higher.