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The Question of Taxes

If you had to pick the realm in which Barack Obama's campaign was a huge disappointment, I think you'd have to point to taxes. Obama pretty much managed to rhetorically out-conservative John McCain on the issue. His attack -- that John McCain's tax changes would hit the middle class while Obama's would spare 95 percent of Americans and hit only the rich -- was a neat way of merging the benefits of anti-tax conservatism with the benefits of populism. But it's not a sustainable policy approach. Matt Yglesias has a very good piece on this question in the most recent American Prospect:

To some, Barack Obama's successful 2008 presidential campaign points the way out of the box. As Obama described his plan while debating Sen. John McCain, "If you make less than a quarter of a million dollars a year, your taxes will not go up; if you make less than $200,000 a year, your taxes will go down." In other words, there's no reason to fear tax hikes because you won't be paying them -- someone else will.

Obama did not change the framework so much as find a way to survive within it. A platform of no tax increases for the bottom 95 percent can win elections, but it reinforces rather than debunks the right's fundamental view of the tax question -- that public services aren't worth paying for -- and merely suggests that the correct answer is to get someone else to pay for them. This is, to be sure, better than the alternative, which is to provide no public services at all. And amid a cataclysmic recession, there are sound macroeconomic reasons to eschew any kind of tax increase until recovery is underway. Still, it's hard to see how a long-term progressive agenda can be financed with the revenues raised through this method.

Every estimate we have suggests that government expenditures are going to keep rising. At some point we're going to have to pay for that. The old way that happened was Republicans attacked taxes and but relied on Democrats to raise them. But now we're in a game of fiscal crisis chicken. And no one seems any closer to flinching.

By Ezra Klein  |  June 26, 2009; 2:04 PM ET
Categories:  Taxes  
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Comments

Obama wasn't just trying to get people's votes with promises of tax cuts. He was trying to increase the differences between marginal tax rates.

I suspect that in the 2012 election, tax increases for everyone will be on the table. Obama will probably be honest and admit it. And he'll attack any Republican that denies they'll have to do the same. He'll be right, too. Everybody's taxes are going up after 2012 no matter who gets elected.

Posted by: SteveCA1 | June 26, 2009 2:19 PM | Report abuse

Ezra,
I disagree.
IMO, the conservative frame is that taxes are bad and that wealthy people deserve the most relief from paying them while the rest of us should be content with a smaller break--or even, in the case of some lower income persons, pay more.
The Obama frame is that people who aren't hurting don't need more relief (from what?!) than people who suffer because they can't afford healthcare, the mortgage/rent, savings for retirement/emergencies, education for their kids, etc.
The Obama frame is about priorities. At this moment in history, it's time to restore a little balance. Once we've done that, then and only then would it make sense to ask for more from those who already have less.

Posted by: jefft1225 | June 26, 2009 3:05 PM | Report abuse

Obama's moves are a tiny step in the right direction. History shows we need much higher marginal rates.

During the period 1946 - 1973 taxes were much higher. Marginal rates averaged 70%; they were 93% under Eisenhower. The economy was better than what we now have. For example, median wages went up 3 times as fast as since 1973. Also I recently saw a graph of the national debt as a percentage of the GDP from 1946 to the present. It started high, went straight down until 1973, and then flatten out and in 1980 made a sharp turn and went straight up except for a wiggle during the Clinton administration. CEO's earned 50 times what their workers earned; it is 500 times today. Staring in 1973, the percent of wealth and income taken by the richest 10%, 1%, and 0.1% has gone up at an ever increasing rate. This is a recipe for disaster.

Posted by: lensch | June 26, 2009 3:46 PM | Report abuse

While Democrats can't argue taxes will be lower with their policies than with Republican policies, they should be able to argue that take-home pay, and more broadly standards of living, will be better for most Americans with their policies.

The tax revolt lives on the idea that higher taxes are an obstacle to Americans achieving their dreams, i.e. "If I had taken the money I paid in taxes and invested it at a 7% real return, I'd be a millionaire." Not sure how to respond to that sentiment, but surely the reality is that most Americans made more economic progress under "high-tax" Clinton than "low-tax" Bush.

Posted by: roublen | June 26, 2009 4:26 PM | Report abuse

Simplify and progressify (is that a word?) the tax code. Everyone will pay a bit more but those who are at the top will be paying proportionally (much) more. We should go back to at least 50% marginal rates for incomes over $1 million. Up to $100k stays at current rate. $100-300k 43% $300-500k 45 % $500-700k 47% $700-900k 49% or something like that. No special rates for capital gains after the first $50k of earnings (note: won't affect tax deferred earnings in retirement plans until withdrawal). Cap the home interest deduction. No interest deduction for second homes. Radically simpler and more progressive is what we need.

Posted by: srw3 | June 26, 2009 4:41 PM | Report abuse

Ezra, you're probably right about the long run, but as other commentors are pointing out, there's a heck of a lot of fat to be trimmed from the top-tier, even without returning to Eisenhower-era type tax rates. The disparities in income inequality are astonishing. See the IRS's table 1.4 from 2006 (from here: http://www.irs.gov/taxstats/indtaxstats/article/0,,id=134951,00.html). It shows that all tax returns reporting $1 million or more in income combined -- a mere 1/4 of one percent of all tax returns -- accounted for more than 15 percent of total reported (personal) income for the year. Their combined income was nearly as much as the total combined income of the 58 percent of tax returns that reported less than $40,000 each. Those reporting more than $10 million in annual income (!) account for more than 5 percent of total reported income. Those making $200K or more, Obama's cuttoff, accounted for 31 percent of total reported income. That's a lot of additional tax revenue to be had from even smallish increases on the top marginal rates.

Posted by: JonathanTE | June 26, 2009 6:12 PM | Report abuse

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