Okay Obama. You wanna debate taxes?
President Obama has sparked a burst of candor. But the debate has not really begun, and Obama's tax-the-rich approach won't fund all his new spending.
Finally, some candor. In the wake of President Obama’s sort-of State of the Union speech, major newspapers are finally waking up and saying what every serious observer of public policy already knows: If we keep going down the road we are on, taxes will have to go up. Substantially. For everyone.
First, economics columnist David Leonhardt in The New York Times:
Americans have made it clear that they want a certain kind of government, one that can field a strong military and also maintain popular programs like Medicare. Yet we are not paying nearly enough taxes to maintain those programs. Even major changes to the health care system — the single most important step for closing the budget gap — will not close it entirely. Taxes must rise, too….
The real uncertainty is how, in the current political climate, Mr. Obama will manage to persuade people that taxes must go up. In his speech on Tuesday night, he didn’t even try. But he doesn’t have forever to do so. Eventually, the foreign investors lending the federal government billions of dollars every week — to make up for the current gap between taxes and spending — will need a reason to believe that those loans will be repaid. Otherwise, they will begin demanding much higher interest rates. That could create a new financial crisis….
To the extent that Mr. Obama has talked about raising taxes, he has focused on households that make at least $250,000 a year. And their taxes will certainly need to go up. In the last three decades, as the pretax income of the top 1 percent of earners has soared, their total federal tax rate has fallen to 31 percent, from 37 percent, according to the Congressional Budget Office. But the problem can’t be solved just by taxing the rich. That top 1 percent pays only about one-quarter of federal taxes. Once the recession ends, taxes on the not-so-rich will need to rise, too.
Next The Wall Street journal weighed in, pointing out that taking everything earned by “the rich” still wouldn’t be enough for all the new spending. Here's what the editorial page had to say:
A tax policy that confiscated 100 percent of the taxable income of everyone in America earning over $500,000 in 2006 would only have given Congress an extra $1.3 trillion in revenue. That's less than half the 2006 federal budget of $2.7 trillion and looks tiny compared to the more than $4 trillion Congress will spend in fiscal 2010. Even taking every taxable "dime" of everyone earning more than $75,000 in 2006 would have barely yielded enough to cover that $4 trillion.
Exactly right — finally.
In addition to the billions in new “stimulus” spending already approved, our new President promises to expand the military, send more troops to Afghanistan, expand access to health care, improve funding for Social Security, Medicare and Medicaid, provide education to everyone from birth through college, and bail out the financial system, while at the same time only raising taxes on those making over $250,000 and giving all the rest of us a tax cut.
Please.
At the federal level the simple truth is we can’t afford to pay for the government we have now, let alone the government Obama envisions. Our choices are simple, but stark: raise taxes, expect less from government, or keep borrowing money.
When Republicans were in charge they hoped to avoid this trap by convincing themselves that tax cuts would create revenue growth which would pay for popular programs without the need for a painful debate about priorities. The Reagan and Bush tax cuts did produce economic and revenue growth — which promptly led to increased spending and higher deficits. It doesn’t seem to matter who is in charge; the era of big government goes on and on.
And maybe it should, but shouldn’t we at least have an honest debate about it? Our leaders need to look us in the eye and tell us the truth. We can’t live on credit forever. If President Obama believes we need all this new spending, he needs to tell us what taxes will be going up and who will be paying them. If Republicans intend to oppose Obama’s new spending they need to tell us specifically how they would jump start the economy and provide the safety net services Americans now expect and demand.
The same thing is true regarding health care. Its easy to be for “reform,” until you’re forced to admit that reform means higher taxes and some form of government-mandated health care rationing. On the other side of the debate, Republicans need to offer more than just tort reform, and rhetoric opposing “government-run healthcare.” Standing before Congress, the President said too often, “critical debates and difficult decisions were put off for some other time on some other day. Well that day of reckoning has arrived, and the time to take charge of our future is here.”
Good. Americans are awake and listening. So let’s have a real debate.
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Comments:
Posted Wed, Mar 4, 8:19 a.m. Inappropriate
you Seattlites are so funny. The whole rest of the country sees Seattle as a liberal haven, but it's just not true. What is the aversion to taxes? Taxes like pay for stuff. Stuff really happens. I think it's a pathology from the monorail. Get over it.
Posted Wed, Mar 4, 9:02 a.m. Inappropriate
" We can’t live on credit forever" People have been saying that for a long, long time now. And people said house prices could not continue to rise forever. They said that for a long, long time. Both right.
There must be a plan somewhere in someone's brain below the level of articulation that sees the USA printing newly-authorized million dollar currency (trillion dollar bills?) to pay off bonds that are held by institutions and individuals all over the globe. It is not something that can be said out loud but, really, what other plausible outcome is there?
"...in the long run we are all dead." but there is a long run and it does have an end.
Posted Wed, Mar 4, 9:48 a.m. Inappropriate
One other perspective on the 4 trillion of spending in 2010 is to compare it to the overall stock market capitalizaton. Right now, the Wilshire 5000, which is actually composed of about 6300 stocks, captures nearly all stocks of US companies with a market weighted capitalization. The overall value of all stocks right now is about $7.2 trillion. So that means the 2010 planned spending is over 50% of the current value of all US stocks. That is really high!
I have no idea what assumptions the budget is making about capital gains or estate taxes, but with the huge drop in the market from its peak, the cash one was counting on in the past is simply not going to be there from those sources. This means more of a reliance on income taxes, or maybe something entirely new like a national sales tax.
Posted Wed, Mar 4, 10:22 a.m. Inappropriate
It seems to me that the Republicans and probably every body else forgets that with out government of any size we do not get all the things we depend on. Roads to me is the most obvious big one. Out where I live there are a lot of unpaved side roads and not one is ever paved buy the local residents. At most some one scrapes them with a tractor blade. The point being if we counted on the conservative low no tax system there would be a road system not unlike the 1800'. Examples could go on and on. Firefighters used to only go to the house that had the insurance insignia on the door(a collectors item now days). Airplanes flew around the field checked the windsock maybe and set down on the field. Ships wrecked and scavengers grabbed stuff and maybe rescued someone. People got sick or hurt and either had no hospitals close or went in a buggy or not at all. Obviously we could go on and on. Thank you very much for government and I happily pay my tax's when I think of the alternatives. If you get benefits you owe and if you are able to make millions you are getting more benefits and owe more
Posted Thu, Mar 5, 8:45 p.m. Inappropriate
Redman you're confusing me, please note "Chris Vance is a political consultant who lives in Auburn, Wash. He was chair of the Republican Party in Washington from 2001-06, a King County Council member from 1994-2001, and a state representative from 1991-93." Seattle is the land of tax loving Democrats that regularly vote to tax themselves more and more for any good causes. See post just above.
Posted Sat, Mar 7, 10:26 p.m. Inappropriate
Ican put this very simply Jimmy Carter 2.0!!! god help us
Posted Mon, Mar 9, 12:39 a.m. Inappropriate
Everyone wants things, but no one wants to work for them.
The problem with our economy has more to do with too many "coasters" who were riding the hedge wave rather than productive people earning wages that matched their true value.
So, you have people selling over inflated stocks and options acquired in the 80s and 90s during the time Greenspan kept a tight money supply.
Obama is exacerbating the problem by continuing to sap the young and the new of needed capital and hand it over to his cronies in Goverment.
Posted Thu, Mar 12, 1:56 a.m. Inappropriate
pretty much the most condescending headline ever.
Posted Mon, Mar 30, 2:56 p.m. Inappropriate
It's amazing how smart Republicans become on the topic of taxes and economics when Democrats are in power.
Remember, John "The economy is fundamentally sound" McCain?
Remember how the Republicans always said "Deficits don't matter" when Bush was in office?
A little bit of consistency might give the Republicans just a tad bit of credibility.
What Obama should really do is just state what is obvious. The United States is BANKRUPT. Lest we all forget, the Federal Reserve Bank is a private corporation, not unlike AIG or GM. It is bankrupt and should be shut down. All of these casino investments like the credit default swaps should be written off.
Like all political animals, Vance completely misses the point. The point isn't that Obama can't pay for his spending. The point is that the financial wizards of Wall Street have bankrupted the entire system, just like some people have bankrupted themselves by bad financial policy.
Look at Iceland. It declared bankruptcy. It's not like it can't happen. It can happen. And it's happened to the U.S. Maybe this sounds crazy to declare bankruptcy.
As Vance states, what if China quit buying U.S. debt tomorrow? How crazy would bankruptcy sound then? Probably not so much. If Vance wants to blame someone he should at LEAST blame Wall Street for creating this mess.
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