Revenue Neutered

Even when taxes were much higher than today, liberals were hesitant to tell the public why revenues were needed. This needs to change.

We progressives are in a bind. We believe that government can play a vital role in building a strong middle class and spurring economic growth. But we go into this fight with one hand tied behind our back. Because we have ceded the language of taxation to the right, we confront a discourse in which any whiff of tax hikes is occasion for hysteria. Progressives now speak the language of tax cuts as fluently (if not as insistently) as conservatives, and the result is a hamstrung movement: always on the defensive, unable to be forthright about what we want to do.

An element of President Obama’s election-year conversion from bloodless technocrat to full-throated populist exemplifies our dilemma. The bywords that fire up the base—“fairness,” “equality”—have become motifs in his speeches and events. The policy correlative of this populist turn is the so-called Buffett Rule, which would slap a minimum tax rate of 30 percent on dollars earned above $1 million per year. It may well be a winning issue for the President; it’s certainly good politics. However, the Buffett rule says much about what our side has already conceded.

There is nothing wrong with making millionaires pay at higher effective rates than, say, teachers or secretaries. But focusing on millionaires represents a long slide up the income scale for Obama, who campaigned in 2008 on repealing the Bush tax cuts for households making $250,000 and up. Even that threshold marked a retreat: Obama was essentially saying that he would bring back the higher Clinton-era rates for only the top 2 percent of taxpayers. Hardly bold, that proposal was nonetheless the centerpiece of Obama’s fiscal policy. And if the President, in a second term, gets around to fulfilling that promise, the preservation of Bush’s middle-class tax cuts—from a tax-cut package that progressives opposed in its entirety at the time—will be seen as a huge progressive victory.

Thus can we see the true extent of conservatism’s decades-long ascendancy. From the grassroots anti-tax revolts of the 1970s grew nothing less than modern conservative dogma, even a national ethos. Taxes are always too high; to be taxed is to be deprived of freedom itself. The triumph of the right’s anti-tax politics is a depressing narrative that has been rehearsed obsessively on the left. Unfortunately, we have been complicit in our own defeat.

The radicalism of the Bush tax cuts—and the way they have reset the baseline for tax talk—can obscure the fact that liberals have always been squeamish about tax politics. For many on the left, the New Deal represents a fantasia of muscular progressive governance, when the keystones of the welfare state were laid down with the willing support of the American taxpayer. But only half of that is true. As historian Molly C. Michelmore points out in her new book, Tax and Spend, the New Dealers were no more immune to anti-tax sentiment than today’s Democrats. “[A]ware of popular resistance to new taxes on any but the richest Americans, [the New Dealers] deliberately obscured the relationship between the obligations and the rights of citizenship and never asked ordinary taxpayers to pay for the economic security many soon came to expect as a matter of right,” she writes.

Indeed, according to historian David M. Kennedy, fewer than one in 20 taxpayers had to file income taxes during the New Deal years. Further, in establishing Social Security, the bedrock of the American welfare state, FDR was adamant that the funds be raised from payroll contributions rather than an increase in general taxation. Kennedy notes that the “‘contributions’ were in fact nothing more nor less than taxes by another name,” but they could “scarcely be called that in public.” The principle enshrined was that you paid for your Social Security—nobody else. This was not welfare assistance but personal participation in an insurance plan. “No dole,” as Roosevelt put it.

When FDR did talk about tax hikes, he took aim only at the “economic royalists” whose ire he aroused. His 1935 “wealth tax” anticipated the Buffett Rule in its essential emptiness as policy. The 79 percent top marginal rate that it set covered exactly one taxpayer: John D. Rockefeller. It also didn’t raise much revenue, much like the Buffett Rule. The wealth tax—and FDR’s populist rhetoric—defused pressure from his left, but New Deal historian Mark Leff dubbed the bill a “symbolic showpiece.”

It took World War II for the majority of the public to become affected by federal income taxes. The Revenue Act of 1942 saw a near doubling of the federal tax burden. Before the war, fewer than four million Americans had been required to file income-tax returns; by war’s end, more than 42 million Americans were ponying up, with marginal rates running from 6 percent to 94 percent. But the new tax regime passed because it had been explicitly tied to the war. The Treasury Department’s appeal to Americans was “taxes to beat the Axis.” It worked—but it also cemented the idea that only a national emergency could justify higher taxes. As Michelmore writes, “the architects and advocates of the World War II tax regime…failed to link these new tax burdens to a coherent theory about the mutual obligations of the state and its citizens.”

Booming growth over the next couple of decades forestalled any tax revolt, but liberals played to anti-tax sentiment anyway. The Revenue Act of 1964, the first big piece of legislation that Lyndon Johnson passed, was also the biggest postwar tax cut to that point. Yet Johnson also embarked on a War on Poverty, affirming liberalism’s commitment to economic security for all. Thus did the Great Society keep faith with the New Deal’s promise of economic security and low individual tax rates.

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