Someday Soon, We’re Going to Need a Lot More Tax Revenue

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Ross Douthat says that the $600 billion Obama raised via the fiscal cliff deal is far too small to sustain the liberal welfare state in the face of an aging population and growing budget deficits:

Given these realities, fairness and progressivity are necessarily less important to liberalism over the long run than simple dollar figures, and the American left actually has a long-run incentive to make the federal tax code less progressive, because only a broader base can keep the liberal edifice solvent in the long run.

And here I think liberals have a real reason to be discouraged by the White House’s willingness — and, more importantly, many Senate Democrats’ apparent eagerness — to compromise on tax increases for the near-rich. Liberal pundits seem most worried about what this concession signals for the next round of negotiations, over the sequester and the debt ceiling. But if I were them I’d be more worried about the longer term, and what it signals about their party’s willingness and ability to raise tax rates for anyone who isn’t super-rich. As I’ve suggested before, these negotiations amounted to a test of liberalism’s ability to raise revenue, and it isn’t clear that this outcome constitutes a passing grade: If a newly re-elected Democratic president can’t muster the political will and capital required to do something as straightforward and relatively popular as raising taxes on the tiny fraction Americans making over $250,000 when those same taxes are scheduled to go up already, then how can Democrats ever expect to push taxes upward to levels that would make our existing public progams sustainable for the long run?

I think this is a point worth taking seriously, and it’s why my real preference was for a deal that would have allowed the Bush tax cuts to expire completely. The expiration should have been phased in—perhaps at 25 percent a year over four years starting in 2014—which would have allowed the economy to recover in the short term, but raised the revenue we’re going to need in the long term.

And there’s not much question we’re going to need more revenue. I’ll have more on this in a couple of days, but unless we want to abandon any pretense of decent care for the elderly—and we don’t, no matter what Paul Ryan believes—we’re going to need to raise substantially more tax revenue in the future. But if Republicans remain dead set against tax increases, and even Democrats are unwilling to raise taxes on the middle class, how is that going to happen? As things stand now, not only are tax increases on the middle class unthinkable, but Obama was even forced to cave in on the estate tax thanks to Democratic nervousness about offending the ultra-rich.

In one sense, I guess it’s not worth borrowing trouble. If we’re going to need more tax revenue in the future, let’s deal with it in the future. Maybe political pressure will force Republicans to capitulate. Maybe Democrats will take over Congress. Maybe a latter-day John Galt will come along and invent a free energy machine and none of this will matter.

Still, over the next 20 years we’re probably going to have to increase taxes by something like five points of GDP. That’s an increase of nearly a third in the federal government’s tax haul, and we just fought a battle royal just to get something like half a point of GDP. Eventually, something will have to give.

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