The “Just Have To” Argument

Clive Crook argues that President Obama will raise taxes on middle income people because he has to:

“Read my lips. No new taxes.” George Bush senior made that fatally memorable promise during his campaign for the White House. Later he saw that for the sake of the economy he would have to break it. When he did the right thing and went back on his word, he was vilified. It was a turning point in his presidency – his one-term presidency.

Not that Barack Obama needs reminding. He finds himself in exactly the same position. During his own run for the White House, he promised that taxes would not rise for families making less than $250,000 a year. If you are middle class, he said in his stump speech, “you will not see your taxes increased by a single dime. Not your income tax. Not your payroll tax. Not your capital gains tax. No tax”. Mr Obama knows the risk if he, too, breaks his word.

But he also knows he will have to. Higher taxes on the broad middle class would be needed even without Mr Obama’s long-term plans for healthcare reform, infrastructure spending and the rest. Factor those plans in, and the need is plain even on the administration’s own flattering arithmetic: its budget leaves an enormous long-term deficit even after the economy has returned to full employment. Make less rosy assumptions, and the hole is bigger still.

Much as Mr Obama would prefer to let the rich carry the burden alone, that will not be possible. The US tax code, contrary to popular perception, is heavily skewed towards taxing the rich. On plans already announced, it will soon be even more so. Before long, especially if you add state income taxes, the US will be a conspicuous outlier among industrial countries in how progressive its taxes are. What about taxing profits? The answer is much the same. Business taxes are already high by international standards.

So the administration’s options are limited. The fiscal gap is so big that closing it will be literally impossible without either broadening the extremely narrow base of the current income tax, or raising other taxes on the middle class, or both.

I don’t know that there’s any argument that I find more baffling than the argument that prudence is dispositive. That has never been the case in a representative democracy. As Robert Samuelson notes this morning, the history of healthcare reform in the United States is one of throwing caution to the winds:

History is unambiguous. Originally, Medicare covered only those 65 and older. In 1972, Congress added the disabled, now about 15 percent of beneficiaries, notes Diane Rowland of the Kaiser Family Foundation. It also covered dialysis for kidney failure. In 2003, Congress created a drug benefit. Along the way, other services (hospice care, mammograms) were added.

Medicaid — the federal-state program for the poor — is the same story, says Rowland. Initially, it covered mainly people on welfare, as defined by states. Gradually, eligibility broadened. Now, children ages 6 to 18 in households under the poverty line ($22,050 for a family of four) get it. Congress also set higher limits (133 percent of the poverty line) for pregnant women and children under 6. In 1997, Congress created the State Children’s Health Insurance Program (SCHIP) to expand coverage further.

Cost control in healthcare, nodded at piously over the period of the last forty years, is observed more in the breach than in the observance and I have little doubt that will be the case this time around.

That raising taxes on business could well be disastrous has never proved an obstacle. That the rich have ways of avoiding paying increased income taxes won’t be, either.

If President Obama raises personal income taxes for middle income Americans, he won’t be re-elected. That’s a reality that unquestionably looms larger for him than any fiscal meltdown.

After all, there’s always borrowing.