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.
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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