We have entered an era of uncertainty and decline in the economy, fueled by the devastating impact of COVID-19 on unemployment, retail sales and personal income. In the coming decades, federal and state spending will need to grow just to enable the government to continue to provide the services it does today. The pressing needs associated with climate change, infrastructure repair and renewal and the incoming Biden administration’s proposals to “Build Back Better” will certainly demand stepped up investments and expenditures if America is to remain sound and competitive in the 21st century. These new economic challenges may call for different and creative ways of raising revenue for government services we have come to rely on.

For some time now, we have routinely generated federal budget deficits that have contributed to a national debt level that stands at $27 trillion. Maine faces a shortfall of $883 million in its next two-year budget cycle. Uncertainty about further pandemic impacts on the U.S. and Maine economy could potentially create even more public financing challenges.

While 40 million Americans filed for unemployment benefits, America’s billionaires saw their net worth grow by half a trillion dollars as the pandemic continues to rage across the country. Prior to the pandemic, Republican-led efforts brought about income tax cuts for the wealthy, reducing the  top marginal rate from 39.6% to 37% and a reduction in the business profits tax from 35% to 21%, even as the economy showed solid performance and low unemployment. Some 100 Fortune 500 companies paid no business profits taxes in 2018. Some states have recently worked to address these inequities and have moved toward more progressive tax schemes.

Raising income taxes for high earners, although essential to any strategic rework of our tax system, will not be enough to generate the revenues needed to secure our future. The formidable set of challenges before us require more comprehensive federal and state tax strategies that are aligned with broader objectives. These may include taxing carbon generation, imposing consumption taxes on goods and services with adverse environmental and health impacts, and overhauling capital gains and taxes on business profits in the context of globalization and extreme income inequality.

Investing in the knowledge, skills and well-being of the population — human capital — has been shown to be positively correlated with productivity gains and economic growth. There is demonstrated evidence that the benefits of human capital investments exceed costs. We have yet to embrace these expenditures as investments with significant long run payoffs. Instead, we pit these investments against current operating expenses in our legislative budget deliberations. And, we have resisted financing human capital investments in health, child care and education through the issuance of bonds.

As we embraced globalization, it has become clear that those with the highest level of human capital investments profited the most (through income gains, wealth accumulation, and social positioning) contributing to growing inequality (now at extreme levels). We have failed to adhere to one of the most important principals associated with the concept of comparative advantage, which is economists’ justification for globalization: The people who gain the most must compensate those who lose out. There is justification for increasing marginal tax rates on the winners for their gains in income and capital appreciation. We have done the opposite and need to rectify.


The environmental calamity before us demands immediate action. Putting a price on carbon will lead to the reduction in carbon output and more rapid growth and innovation in the shift to alternative energy sources.  A more broad-based set of consumption taxes levied on goods and services that generate adverse environmental impacts will not only generate sizeable revenues but also change our behavior in the context of markets.

It is time to put new options on the table that will not only help us get through the pandemic but position us for a more equitable and just future. We need to protect citizens from the hazards and vagaries of an increasingly precarious and unequal economy. This means investing in solutions like publicly funded health care, paid sick leave, support for working parents, protections for workers, and a robust safety net that helps people recover, rather than trapping them in poverty.

These kinds of social investments have upfront costs associated with them. But the evidence is clear that programmatic investments in social insurance, job training, education, and well-being end up paying for themselves in the long term.

At both the federal and state level, we no longer have the luxury of tinkering at the margins. Time is running short and we must embrace bold moves for the benefit of future generations.

John Dorrer is a labor market economist and the former director of the Center for Workforce Research and Information at the Maine Department of Labor. Ryan LaRochelle, Ph.D, is a faculty member based at the Cohen Institute for Leadership & Public Service at the University of Maine. They are members of the Maine chapter of the national Scholars Strategy Network, which brings together scholars across the country to address public challenges and their policy implications. Members’ columns appear monthly.

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