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.

There was something else, too. By its very name, the War on Poverty cemented the idea in the public’s mind that social spending primarily benefitted the poor. (Echoes of the New Deal: Social Security was “no dole,” but a benefit I paid for.) Meanwhile, social spending for the nonpoor majority took the form of tax expenditures like the home-mortgage interest deduction and tax-privileged employer-provided health insurance, federal subsidies, and federal loan guarantees—state benefits that were, as political scientist Suzanne Mettler puts it, “submerged.”

That combination of visible social spending for the poor, invisible spending on the middle class, and a government eager to cut taxes planted the seeds for the anti-tax revolts to come. By cleaving federal income taxes from the benefits enjoyed by a majority of Americans, liberals were especially vulnerable to the emergent right’s attacks in the 1970s and 1980s. When the right’s monomania for tax cuts became GOP gospel, there was hardly anything Democrats could do.

And thus we are left with a disaster in the making. According to David Callahan and Robert Hiltonsmith of the think tank Demos, tax revenues have averaged 18.3 percent of GDP the last 30 years. Over that time, the country was in the red except for a brief period between 1999 and 2001. Callahan and Hiltonsmith argue that “the federal government has raised too little revenue compared to the spending levels desired by both political parties.”

The need for more revenue becomes even more pressing with the impending retirement of the boomers. How high must revenues be to achieve fiscal balance over the next decade? About 22 percent of GDP on average if you include some painful cuts, and 24 percent if you want to avoid those cuts and increase public investment in critically important areas like infrastructure and education. And how have our policy-makers responded to this challenge? The Obama Administration’s 2013 budget calls for revenues at 19.2 percent of GDP over the next decade; the Simpson-Bowles plan, the closest there is to a consensus budget outline, sets it at 19.3 percent; meanwhile, Paul Ryan’s draconian budget calls for revenues at 18.3 percent, making up for the shortfall by essentially slashing all of government that isn’t defense, Medicare, and Social Security.

The fact is that Americans like most of the services government provides for them. They value good roads, clean air and water, safe food and drugs, and a strong military. Then there are the entitlements: 62 percent of Tea Partiers think Medicare and Social Security—by far the two largest contributors to our deficit—are worth the cost. If even they don’t want to touch entitlements, then the only solution is to raise revenues.

Unfortunately, progressives are not well positioned to make the case for higher taxes beyond the very rich. As Ezra Klein writes, “For Democrats who have spent the last decade convincing members of the middle class that they will forever be exempt from tax increases, that’s going to be a tough about-face to make.” In a recent piece, James Kwak asked an even more pointed question of Democrats: “When did we become the party of tax cuts?”

Higher tax rates on the richest among us are all well and good, of course—a progressive tax system is, well, progressive. But when the focus on only the richest comes at the expense of inculcating a sense of obligation to the national project—not to mention the funding of a robust, progressive government—then we need to reassess whether sheltering middle- and upper-middle-class Americans from tax hikes continues to serve progressive goals.

There has been talk of late in these pages about obligation. [See “Restoring the Language of Obligation,” Issue #24.] Our problem is that while we want the public to buy into our notion of a common good, we quake at the notion of explaining to taxpayers that the common good might lead to a few percentage points’ rise in tax rates. The deal from the postwar period remains the deal we present them today: We will provide economic security and we will keep your taxes low. In boom times, that dissonance was hardly consequential. In our more trying era, it’s a debilitating problem.

It goes without saying that we won’t solve our budget crisis until Republicans budge from their suicidal hard-line pledge (suicidal for the country that is; politically, it’s the GOP’s lifeline). But we need to take responsibility for our tax bind as well. The next progressive project has to take on our ongoing failure to talk taxes with the public. This project need not be a Mondale-esque act of political seppuku where progressives are exploited by the right for our candor. Perhaps in a period when robust growth has returned and the labor market has bounced back, we can begin to talk—for the first time—about taxes and obligation.

Other ideas may help as well. A taxpayer receipt (which shows where every dime of your taxes goes) and tax choice (which allows you to apportion a percentage of your taxes to programs of your choice), proposals originally featured in these pages, can help foreground the connection between taxes and benefits. [See “Proud to Pay,” Issue #20.] Reframing taxes through new labels or earmarking might also prove effective in changing attitudes: Could levies specifically targeted for, say, a “Heroes Fund” to increase military, police, and firefighters’ pay and improve veterans’ health, or an “America 2075 Fund,” earmarked for infrastructure and education improvements through 2075, change the way people think about taxes and their purpose?

We face two failures: by the government and of the governed. Our government refuses to be honest with the public about what needs to be done. And that refusal has left us with American taxpayers who don’t realize, or refuse to realize, the choice that looms: higher taxes and the preservation of the American state as they know it; or the rates as they are—even lower!—and an America far different from the one their grandparents built.

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