The Eventual Hard Choice

While I've criticized the President for his handling of the banking crisis, I've praised his budget, which really does move toward a more progressive tax code and a very real investment in important priorities like health care, energy and education. Obama's weekly address makes this case once again. But the operative word, of course, is "move." And Matt Yglesias compellingly argues that, if Obama wants to succeed in those investments, he'll need to increase the tax base:

I seriously doubt that this is the line any members of congress are going to take, but as I read through the CBO analysis of the president’s budget it’s clear that the problem is here—the taxes are too low:

"Under the President’s proposals, revenues would climb from 17.2 percent of GDP in 2011 to 18.8 percent in 2013 and remain near 19.0 percent thereafter (see Figure 1-2 and Table 1-4). That level is slightly above the average of 18.3 percent over the past 40 years and below the baseline projection of 20.3 percent for 2019."

The past 40 years have been the 40 years of conservative backlash politics following the unraveling of the New Deal coalition after the advent of Civil Rights and the Great Society. Barack Obama has, quite rightly, an ambitious progressive agenda. But in budgetary terms you can’t really implement an ambitious progressive agenda and pair it with revenues that are only “slightly above” the average at which they rested during an era of conservative governance. This is not an issue in the short-term, since we’re dealing with a recession, but what you see at the right hand side of these charts is not sustainable. And I think the administration is correct to think that they should not compromise on their main policy pillars. The issue, though nobody wants to say it, is that taxes need to be higher.

I think the Administration will attempt to exhaust other options before raising certain marginal rates or applying a broader tax like a VAT. For instance, closing individual and corporate tax loopholes and increasing enforcement would bring in lots of money even if corporate rates are lowered. Sin taxes on cigarettes and alcohol could rise (although cigarettes are probably at a high level already, since they've just been raised to pay for SCHIP expansion). Maybe sweeteners get a tax. And there's the white elephant defense budget. Nevertheless, at some point, some politician has to be brave enough to make the case that investment in long-term economic growth is worth paying for.

On a separate note, I don't think the national canvass by Organizing for America in support of Obama's budget this weekend had anything to do with the budget and far more to do with capturing better lists for long-term field operations. That's extremely smart, and perhaps will help pass better policy at the margins, but only on the outside edge. Only an organizing effort independent of the institutional apparatus will be able to pressure the policymakers into the leadership needed.