In the short term, as emphasized by Paul Krugman and others, the most important priority is to increase spending to create jobs, even if it means increasing the federal government deficit. But debts have to be paid back in the long run, and it is essential that the government should have a sound plan for restoring fiscal prudence to the country after the Bush years of tax breaks and profligate war spending.
Higher effective corporate tax rates and higher effective taxation of the wealthy are clearly necessary in the near term if fiscal prudence is to be restored without jeopardizing the economic recovery. The overall effect would be to increase somewhat the share of taxes and government in the economy, although the increase should be well within the historical range.
As the economy recovers, attention should shift to longer-run concerns like increasing basic wages. The reduction of health care costs and cutting the financial sector back to size would reduce the unacceptable economic burden of those sectors on consumers, lighten the burden of medical costs on government, and make it less likely that government would be called on once again to rescue ailing financial institutions.
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