For reasons that are not quite clear to me, I often seem to have trouble making myself understood in online discussions. My post yesterday on the consequences of the fiscal deal is a good example. Based on the comments thread, I seem to have come across as an austerity-monger who hates poor people. So I’m a little leery about going back to the well on this one, but YOLO, as the kids say.
I can’t claim to be the most progressivy progressive in the history of the world, but I’ve become pretty committed to some notions about the society I want to live in that, I think, would strike many as progressive. I think everyone should have access to quality, affordable health care. Same with education. I think everyone should be able to retire with a certain degree of material comfort. I believe that economic prosperity is built on well-developed and maintained infrastructure. As a consequence, I have a pretty robust view of the role of government.
But you can only have a robust government if that government is appropriately funded. In order to meet the goals I’ve outlines, the federal government will need to spend at a rate of roughly 24-25% of GDP in the future. Maybe if you get a lot of efficiencies and are willing to live with a relatively minimal defense establishment, you can bring that down to 22-23% of GDP.
Here is my problem in a nutshell: Obama’s adoption of anti-tax rhetoric in terms of keeping the vast majority of the Bush tax cuts and the recent fiscal cliff deal that resulted from this commitment caps (for now) federal revenue at roughly 18-19% of GDP. That suggests a “structural deficit” under conditions of full employment of roughly 3-7% of GDP. 3% is actually a perfectly sustainable level. But you can’t just plan for the best case, of course. And furthermore, given current debt levels and the likelihood that debt service will eat up 20% of the federal budget the actually gap between revenue and desired spending is going to be much larger, in the neighborhood of 6% of GDP, and as a result likely not sustainable. Debt/GDP would increase and in time, debt service obligations would choke the federal government.
Yes, all of this is uncertain. You can’t fully predict the futures. And I get that the idea of accepting certain short-term pain (in the form of higher taxes) to stave off uncertain long-term pain (in the form of potential cuts in major programs) strikes many as unattractive. But this kind of argument is problematic. Consider its application to climate change. Most of us would argue for more vigorous action on that front, but the counter-argument is precisely the one I laid out above. Climate change is likely but uncertain (particularly in terms of predicting the long-term effectiveness of mitigation efforts), while the costs of capping or pricing carbon are short-term and certain.
Anyway, all of this leads me to the core of my argument. The biggest threat to the society I want to live in is lack of sufficient funding for government programs. Obama had a historic opportunity to reset federal revenue to a higher level. Instead he locked in revenue at an insufficient level.
But maybe you agree with this argument and just believe that now is not a good time. Yes, I agree. Right now is a terrible time to raise taxes, especially on the poor and middle class. Purely in terms of policy, my preference would have been a two year extension of all the tax cuts followed by a full expiration of all of them.
But then consider the politics. Would it better to have taxes rise in time for midterm elections? How would it affect 2016? Ultimately, it is never going to be a good time to raise taxes. Between politics and policy, there will always been a compelling case for not doing it. As a practical matter and considering political consequences, I think now may have the least bad time for doing it. I could be convinced otherwise, but the case needs to be something more than just noting that it would hit people hard in hard times.
In my last thread a lot of people argued that I was overly pessimistic about the possibility of raising taxes in the future. Most of them said, essentially, “we did in 1993, it can happen again in the future.”
Okay, but what happened after 1993? The GOP got a wave election in 1994. Clinton’s health care initiatives crashed and burned. 1993 is not necessarily a happy story, and I think Democratic strategists are likely to be leery to relying on this analogy. But also, the context has changed. The Democratic Party is now generally much more hostile to taxes. Obama’s two campaigns have been an example of that, embracing anti-tax rhetoric aggressively. I would argue that you just can’t cite 1993 are an example of the possible without walking through the logic of that argument, and how context has changed since.
Finally, while I’d like to raise all the needed additional revenue from the wealthy, who have become richer than ever, I am not sure the math works out there. I suggested above a delta of roughly 3-4% of GDP between where we are and where we need to be in terms of federal revenue. While I agree with all the proposals people suggested in my previous thread — closing the “carried interest” loophole, ending subsidies to oil and gas, cutting defense, reducing the Estate Tax deduction, etc. — I know of no credible study that suggests this will raise anything like the required revenue. Consider this a bleg if you want, but show me the math to prove me wrong on that.
In short, this is an issue of priorities for me. Would I like to see taxes stay low (and go lower) on the poor and middle class? Indeed. Would I like to provide universal health care and a robust retirement safety net? Yes, of course. Would I like to see us reduce income inequality? Sure. More infrastructure investment? Better access to education? Yes to all.
But I’m skeptical that we can get it all. And so, my priority is pushing for a higher federal government revenue base that will allow major programs to remain intact. Others may have different priorities, but I think we all need to acknowledge the consequences and tradeoffs of those priorities.