Before tax season fades from memory, I wanted to make some remarks about the weird disconnect between the great anger from the Tea Partiers and others over the income tax and the modest character of our actual tax burden. In fact, the national tax bite is at historically low levels – levels that are simply too low to fund the functions most of us want the federal government to perform. We ought to be having a rational debate about how to fix that problem but anti-government anger and anti-tax demagoguery very much stand in the way of that debate.
The low tax rate was dutifully reported in many quarters on Tax Day, and yet this is one of those cases where reporting the truth seems to have little impact on widely held misconceptions – in part because the right works so hard to promote those misconceptions. A fine example of such demagoguery was Karl (He Just Won’t Go Away) Rove’s essay in Thursday’s (April 15) Wall Street Journal. Under the heading “Why Republicans are winning the tax issue,” Rove argues that the reason is that, “Under President Barack Obama taxes are going up – a lot.”
One doesn’t exactly expect Rove to be a stickler for truth. Still, it’s remarkable how false his central claim is – and indeed much of the evidence he cites for it is that opinion surveys suggest that many people think their taxes have gone up or will go up in the future. This is different, of course, from taxes actually rising (a difference Rove often ignores or obfuscates in the column). Here’s the link to Rove’s essay.
In fact, the 2009 federal stimulus legisation included a series of tax cuts that mean almost everyone paid less in 2009 than in 2008. Citizens for Tax Justice estimates that 98 percent of working families paid less taxes this year than last and put the average savings in Maryland at $1,337. So under President Obama taxes have actually gone down — a lot.
Indeed, as has been widely reported, the Heritage Foundation estimates that this year federal tax receipts will be just 14.8 percent of GDP, a historically low level that is well below the average for the last 30 years, which Heritage puts at 18.2 percent of GDP (and I don’t need to remind anyone which side of the tax debate Heritage in on).
Our tax burden is quite low by international standards, too. For 2006, the Tax Policy Center estimates the total U.S. tax burden (state, local and federal) at about 27 percent of GDP (and that was before the recession caused revenues to crater). The average tax rate for the 30 member countries of the OECD that year was about 36 percent of GDP. Here’s the link to the Tax Policy Center’s table on international tax rates:
Tax Policy Center figures on total tax burden in wealthy nations
In recent days, the president has been out crowing about how low the tax burden is – as well he might given the demagogic opposition he faces on this score. But the low rates really aren’t such good news because they leave the federal government short of resources and the nation’s fiscal situation bleak. After years of Reaganism and supply-side economics, the Republicans have succeeded in decoupling taxes from revenues and public services in the mind of much of the public. In an ideal world, the president would be reminding the public that our low tax rates are a big part of the reason that a nation as wealthy as ours faces a trillion-dollar-plus deficit even in the context of all sorts of unmet infrastructural and public service needs.
In recent weeks, we’ve seen some discussion in Washington about using a federal value-added tax to raise revenue. But that’s not a good option because the VAT is regressive and because a federal VAT would step on the toes of the sales taxes states rely on for funding.
The president’s campaign pledge not to raise taxes on anyone but those at the very top of the income distribution (i.e. couples that make more than 250K) is also less than helpful in coming to terms with the problem. Any tax that has an incidental impact on those who are not wealthy can be stigmatized as violating that pledge (for instance, the federal tax on cigarettes has risen and some of the taxes in the health care plan would affect some middle-income people and any such incidental impact can be said to violate the president’s pledge). This ties the administration’s hands unduly – for reasons more of politics than of sound policy.
The good news is that the Bush-era tax cuts are slated to expire this year. That means that if Congress does nothing, we’ll get, in effect, an across-the-board tax hike for 2011 with the largest impact falling on the wealthy. Few politicians will be able to stomach that possibility, and it will certainly be anathema to Republicans. That should help give the administration the leverage it needs to pass its proposal to let the tax cuts for top-earners expire, a plan that will generate about $1.1 trillion in additional revenue over the next decade.
That’s a step in the right direction. But, frankly, I think it would be much better public policy to let the cuts lapse for a larger slice of the prosperous classes; perhaps the top 20 percent of the income distribution instead of just the top 2 percent or so as the administration proposes – because the top quintile can certainly afford to pay more and because we badly need the revenue a more broadly based tax hike would generate. But that approach would clearly violate the president’s tax pledge, and the administration is now boxed in by the promises Obama made to placate the anti-tax demagogues during the campaign.
That’s unfortunate for reasons of principle as well as of revenue. I’m all for strongly progressive taxation and for using the tax code to ease the savage inequalities of wealth in this nation. But I think the progressive left has gotten too addicted to funding its wish lists through calls for increased taxes only on a small sliver of the population, one it is eager to stigmatize as an impossibly wealthy “Other.” That approach not only limits revenues but undermines the principle of shared responsibility for the nation’s fiscal affairs.
The right principles for expanding revenues, it seems to me, are shared responsibility and progressivity. The poor can’t afford a tax hike and the rich certainly should pay more. But I think it’s also fair to ask the prosperous (but not wealthy) middle- and upper-middle classes to do a little more to support the commonweal. Given the modest tax burden these folks now face and the many benefits they enjoy, asking them for a little bit more is perfectly reasonable.
But that won’t be politically feasible until we begin to have a much less selfish and more honest discussion about taxes – one that characterizes tax-paying more as a civic responsibility than as an oppressive imposition by a state many view with ill-disguised scorn.
Today, on the 15th anniversary of the Oklahoma City bombing, its worth remembering that our government is not some alien, oppressive force and that taxes are essential to support the services we need. In our current angry political culture, that’s more than an empty bromide.
