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.
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The green stuff. (U.S. House of Representatives)

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'ꀙs 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 'ꀔ the single most important step for closing the budget gap 'ꀔ will not close it entirely. Taxes must rise, too'ꀦ.

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'ꀙt even try. But he doesn'ꀙt have forever to do so. Eventually, the foreign investors lending the federal government billions of dollars every week 'ꀔ to make up for the current gap between taxes and spending 'ꀔ 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'ꀦ.

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'ꀙt 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 'ꀜthe rich'ꀝ still wouldn'ꀙt 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 'ꀜstimulus'ꀝ 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.


At the federal level the simple truth is we can'ꀙt 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'ꀙt seem to matter who is in charge; the era of big government goes on and on.

And maybe it should, but shouldn'ꀙt 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'ꀙt 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'ꀙs 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 'ꀜreform,'ꀝ until you'ꀙre 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 'ꀜgovernment-run healthcare.'ꀝ Standing before Congress, the President said too often, 'ꀜcritical 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.'ꀝ

Good. Americans are awake and listening. So let'ꀙs have a real debate.


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About the Authors & Contributors

Chris Vance

Chris Vance

Chris Vance, a former Republican party chairman, is a senior fellow at the Niskanen Center.