James Pethokoukis
Politics and policy from inside Washington
Explaining Obama’s tax-hike obsession
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It’s the great mystery of the debt ceiling debate: Why is President Barack Obama so darn adamant about raising taxes? “This may bring my presidency down, but I will not yield on this,” Obama told Republicans before dramatically exiting their budget meeting last week.
“This,” of course, is his demand that large spending cuts be “balanced” with tax increases on wealthier Americans, entrepreneurs, investors and unpopular businesses such as Big Oil and Wall Street. But why insist on higher taxes in the middle of weakest economic recovery in the post-World War II era?
Wouldn’t standard Keynesian economics, much beloved in the White House, actually call for cutting taxes (or increasing spending) to boost aggregate demand?
Doesn’t Obama know that even his former chief economist, Christina Romer, says tax increases “will tend to slow the recovery in the near term.” Not that things look much better a few years out. The International Monetary Funds sees economic growth below 3 percent through 2016. And Democrat-friendly Goldman Sachs now thinks a double-dip recession is possible even as it lowers its growth forecast and raises its prediction for unemployment.
But Obama’s tax obsession becomes understandable when you realize the long game he’s playing: Big Taxes to fund Big Government. Decade after decade. See, it’s an almost universal belief among left-of-center journalists, economists, policymakers and politicians that Americans must pay higher taxes in coming years to cover the medical expenses of its aging population – not to mention all sorts of brand new social spending and green “investment.” Dramatically higher taxes. On everybody. And if we have a debt crisis, maybe those tax increases come sooner rather than later.
And it’s not even a secret, really. Here’s liberal economics columnist Ezra Klein of The Washington Post:
The reality is that we’re going to have higher taxes in the coming years, and beyond that, we’re going to have higher taxes than we’ve traditionally had during periods in which taxes were relatively high.
And liberal economics columnist David Leonhardt of The New York Times outlines a completely implausible scenario — at least to himself — to avoid massively higher taxes:
For taxes to remain where they are, Washington would need to end Medicare as we know it, end Social Security as we know it, severely shrink the military – or do some combination of the above.
How high? Three liberal think tanks recently devised budgets to put the U.S. government on a sustainable fiscal path through 2035. Their plans, collectively, called for Washington to collect an average of 23.6 percent of GDP vs. the post-World War II average of 18.5 percent. To put that in further perspective, the highest level of tax revenue that Uncle Sam has ever taken is 20.9 percent in 1944.
And to reach such a stratospheric level of taxation, these groups are calling for unprecedented tax hikes via millionaire surtaxes, higher taxes on alcohol and tobacco, securities transaction taxes, higher taxes on capital gains, higher taxes on corporations, higher death taxes, carbon taxes, and gasoline taxes. None of which, supposedly, would hurt economic growth. Even worse, all those tax hikes would still fail to balance the budget. And when you move past 2035, taxes would almost certainly need to go even higher.
That is the high-tax future the liberal establishment has in store for America. No wonder Obama rejected his own debt commission last December. It would limit the tax and spending burden to 21 percent of GDP. Neither is nearly enough for the Obamacrats and their successors. Just look at Obama’s budget from last February. Over a decade, it never reduces spending to less than 23 percent of GDP and spending is actually higher at the end of the ten-year span than in the middle. And eventually all that spending would need to be paid for via higher taxes. Recall that back in 2009, the White House floated a trial balloon about a instituting a value-added tax to pay for healthcare reform or general debt reduction.
Underlying all this longing for higher taxes is a belief government can’t and shouldn’t be cut. Nonsense. Both the American Enterprise Institute and Heritage Foundation have devised workable fiscal plans that would keep taxes below 20 percent of GDP. And Rep. Paul Ryan’s Path to Prosperity shows how to reduce spending to below 19 percent of GDP by 2040. And rather than managed decline toward a slow-growth, EU-style social welfare state (that even the EU can’t afford anymore,) these plans would help keep America growing and living standards rising as they have for decades. Those are high stakes in the debt ceiling debate — and in the battles over taxes and spending in the years to come.
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Bravo Mr. Pethokoukis for pointing out the absurdity of the tax increase proposition. An even bigger problem that the Democrats fail to debate is that raising taxes to that level of taxation cannot happen only on the rich. They have to go into the middle class, where the majority of income taxes are collected anyway. That is never debated. Yes it is popular to say we will eat the rich, until we realize that is not enough and they will come after us.
Bravo Mr. Pethokoukis for pointing out the futility of the tax increases debate. It is also worth noting the Democrats never mention that these levels of taxation cannot be obtained from the rich and they will have to dip into the middle class, where the majority of income taxes are extracted anyway. It is fun to say take it from the rich until they come for us, which they will eventually.
My sense is that Obama plans to dip into the middle and lower class tax base should he be reelected. Do you call:
“So, when you hear folks saying ‘Well, the president shouldn’t want massive job killing tax increases when the economy is this weak.’ Nobody’s looking to raise taxes right now. We’re talking about potentially 2013 and the out years.” (emphasis added) —
Re-elect me to get massive job killing tax hikes when I’m a lame duck and you can’t do a thing about it. That right there is a sure-fire winner of a message. If you want to morph into Walter Mondale circa 1984.
If we should be so unlucky as to see a second Obama term, the VAT will be his first priority. He knows he cannot mention it now and be re-elected but it is there and should be discussed.
If revenues equal 14.3% of GDP now and there is a massive deficit the question should be ‘why are you so opposed to tax increase that would bring revenues in line with historic averages?’ All the other nonsense in this column is out of context snippets from people that no longer or never did work in the administration. Reagan increased taxes 11 times – I don’t remember anyone calling him a marxist EVER. Obama has lowered taxes twice (the first was the biggest tax cut in history – when he held the senate and congress – and he is the Red Menace personified. You people are irresponsible and greedy in the extreme.
James “Pethokoukis” sounds like a Greek name
and as follows he does not want to pay his
taxes
guys like him were happy not to pay for the useless
Bush Iraq war as there was no tax element to that fiasco
… now the numbers have come back to roost
the poor paid with dead sons the rich skipped on the bill
Only liberal socialists believe we’re not taxed enough. Spending should be caped at historic level of 18%. The combined corporate tax rate is the highest in the world and needs to be cut. I know it’s hard for people like obama who never created a job in his life to understand, but cut taxes on the job makers and you will get more jobs more jobs equal revenues.
You can always tell a socialist, you just can’t tell them anything! Cutting spending represents real change, rising taxes are a given!
Note: Obama didn’t lower taxes, he just didn’t raise them because of the economic crisis FYI! Cutting spending is real change! 1 out of 5 work in government now-more than mnaufacturing and construction combined!
Our economic problems started with Reagan giving the first tax breaks to the wealthy. up to that point we were a creditor nation. after Ronnie and Nancy finished their terms we were a large debtor nations. look it up. Reagan raised taxes over a dozen times, lowered some to look good to his benefactors, but the delta from income to spending spread under him. Then Bush-the -Lesser does the same thing when it has been proven that Voodoo economics don’t work. The Republicans just cannot get that through their myopic minds. They live in the past without having reread it!!! Their hero raised taxes a lot, but when a Democrat does the same it’s like coughing up a hairball.
Look at the Wall Street Banker (et al) Failures who were given up $40 million in severance pay. For what? But Republicans don’t want to tax them. Oh no. After all, they provide campaign funds and employ lobbyists. They provide NO WORKING CLASS OR MIDDLE CLASS JOBS. The rich employed more lobbyists during the Bush/Cheney debacle than at any other time in history.
I’m sorry James, your argument isn’t worth Bull Pastries!!
Ya ya DrJJJ, Bush was on a spending spree, was a war monger and also gave the rich tax rebates and you celebrated.
The tax cuts in the Bush era were supposed to be short term and you are enjoying the lowest taxes in 5 decades… yet still whine when loopholes might be closed and tax credits ended. Boo hoo! Taxes should revert back to Clinton era.
CDN_Rebel pretty well summed up the Republican ideologues!
Very biased article.
Its not an obsession with raising taxes it an obsession with balancing the budget with increased revenue and cuts. Republicons are the ones obsessed with balancing only by cutting. To protect the “job creators” so they say. Everyone knows this is bogus but they pretend otherwise.
Voodoo economics, never works never has worked. The argument don’t raise taxes in a recession is a valid one, its counter productive. But so is cutting deeply. Same basic negative affect economic affect but he has no option here because of congress.
See rich people feel no pain when spending is cut, to be fair we need a combination of cuts and revenue. That is obvious.
“Facts are stubborn, but statistics are more pliable.”
Mark Twain
The figures for the percent of taxation on the overall economy are downright misleading. Break out public insurance programs from the total an the percent of GDP spent on government is at historic lows now and into the future.
Does this author pretend that money spent on retirement and money spent on medical care in retirement as a percent of GDP won’t be spent, or will be less if its distributed through totally private insures instead of public ones.
Of course not. So what is the difference. Money spent on health care as a percentage of GDP is the real problem. The killer stat isn’t government spending as a percent of GDP its medical care spending as a percent of GDP. And shifting costs from a taxes & Medicare to beneficiaries & private corporate insurers only cause this number to go up. It devotes more of GDP not less to medical care. Or rather the part of medical care spending not devoted to medical care, medical loss.
It is ridiculous, scary, and sad all at the same time. There is an inflection point in tax rates where total tax revenue would plummet and destroy all of the beloved programs and probably the country overall. But hey, it’s only their children that would see this trauma. Filthy, selfish pigs.
Wonderful article! It is nice to know that people can think with a clear head. This reliance on gov’t to provide is pushing us closer and closer to socialism, and it is scary.
How frightening so many continue believing the trickle-down farce which has been disproven time and time again. Government spending, including social support programs are far more efficient at pumping dollars into the economy than tax breaks for the already wealthy. The Republicans have shoved through a massive slash of taxes to near record-low taxes during a fiscal crisis, and adamantly oppose ceasing subsidies to oil companies which are generating massive profits.
Corporate America has, with the GOP’s blessing under Dubya, dumped American jobs for overseas labor including forced, unpaid Chinese labor. Profiting off slavery is again legal, thanks to this, so long as the slavery is in another nation. The “jobs” created by CEOs are underpaid and undercut U.S. environmental and human rights laws.
Dramatically higher taxes? How about just paying for the dramatic “cut taxes and spend more” frenzy committed by the Republicans under President Bush? Bush took a rare budget surplus, inherited from Clinton, and created a massive deficit (and an economy just pushed over the cliff) he then passed on to Obama … yet people like Pethokoukis keep attempting to rewrite history.
Reagan destroyed both the government budget and the U.S. economy. The federal deficit skyrocketted under Reaganomics, and again when Bush re-implemented it. Pethokoukis and Republicans call Obama “obsessive” for trying to fix the deficit while they try again something that has never worked before. Really!? What sense is there in trying the same failed strategy again and again?
Cut ear marks, loop holes, fraud-waste&abuse, defense spending, raise retirement age(and lower income limits), outlaw lobbyist, enforce new financial reform, add 2 years to House of Representives term, eliminate the never-enforced debt ceiling, close half of 700 overseas bases, stop giving China, Israel or NATO anything it wants, up Chavez’ chemo, tell Putin the next one’s for him, build a wind factory in Nevada-Utah-Arizona, close Ft.Knox to actually pay for something. If you have time leftover abolish primaries -the parties are indistinguishable anyway. You NeoCon Liberal zealots can have israel and ca. The rest of the world is off limits.
I also want to say that the economy under Obama has already added more jobs than the entire Bush presidency… seriously, there couldn’t be a more devastating comment. Yes, in his last year as pres Bush lost 7.8m jobs, wiping out all but 1.1m jobs from his reign but that 8.9m jobs number would still be about 35% of the number during the Clinton era; under Obama 2.3m jobs have been added despite the sputtering economy. Only counting the first seven years of the Bush reign, Obama is still pretty close to the same pace as Bush despite the ‘job crushing policies’ that blogger personalities like you would have us believe are destroying America. You had eight years and brought a thriving America to the brink – time to give someone else’s ideas a chance!
Agree, but don’t discount that won’t have to make major reforms to Medicare and the military budget no matter what. Social Security is something you have to change very carefully becauise it isn’t an entitlement, those are Social Security accounts that we payed into so horrendously paid into all these years. If you one of those folks who don’t even pay into FICA 52 weeks a year, because you work harder than most of us, then maybe you wouldn’t know what I talking about.
Don’t buy the TWISTED lie and twisting of facts or ignoramuses who are to lazy to make sure what they babble is true.
Reagan “GOVERNED” the nation. And he “governed” taxation policy. Given the fact he was up against a stronghold majority of liberal socialists in the house, his entire 8 years, it’s pretty STUPID for someone to say Reagan just “raised taxes” as if he could override the power of the socialist house of misrepresentation.
But being able to “govern” was something no politician since Reagan, (or before) was/has been able to do. Don’t think it was entirely unplanned to raise taxes during his time. Just remember what the socialists who clamor about him doing so, NEVER spend much time on. The fact that the gipper was so smart, he was way ahead of the socialists and crammed through the largest tax break EVER right after he was elected (489 Electoral votes to Communist Carter’s 49) is not happenstance. It was a concerted, bold, and smart move, that understood long before anyone else, raising taxes in the future was a must, hence gutting them FIRST was the method of choice. And even after all the bickering and wheeling and dealing with the socialist house, some six different times, “The Socialists” NEVER got back all the tax break he outsmarted from them in the beginning. But today, they always call “Reaganites” retards and idiots for “not knowing about the tax raises Reagan LET happen.” Really, may I suggest the retards comments are entirely misplaced? It’s pretty obvious, what the socialists /democrat party is actually upset about, is the fact Reagan did so much damage to communism, in the House of Misrepresentation as well as abroad.He dared to let people keep too much of their EARNED INCOME, and, worst of all, stood up against the Socialist’s labor unions, AND, after all that smart effective “governing” he was re-elected with an even greater majority then the first landslide.
For this, Reagan was shot at, and to this day, continually smeared by the same perverted socialists. Which only proves how badly we need to reinvigorate our internal investigating and removing of all EXTREME COMMUNIST elements. Starting with the entire Administration, as well as the entire White House guest book.
Tax hikes will not bring in more revenues….. When are democrat voters going to take a macro-econ 101 course?
And sure, the tax rates in the Clinton years worked because we had a massive technology boom, in the middle of the boom you could have kicked tax rates to 75% and still had an overheated economy.
We are not living in the 90′s anymore, we now have major competitors in the world of business and manufacturing, and the majority of the investment capital is no longer flowing into America, like it was in the 90′s … that capital is flowing in the China… We are going to need to compete with China if we want that capital to start coming back… which in turn creates jobs.
Our corporate tax rate is 35%, China is 25% …. How did this happen?! how did the communist get better at capitalism than we did???? We need to meet that, or beat that, if we want a chance to compete.
And don’t kid yourself about the rich paying their fair share, the corporate tax rate isn’t paid by corporations, it is paid by you and me when we go to the store and by Kellogs cereal, velda farms milk, or whatever products we buy, we buy them with an inflated price to cover the tax rates the government imposes on these corporations. Businesses are nothing more than a secondary IRS collection agency in a way.
I love to see Liberal brains smoking from overuse
China is winning- we may be toast
I love to see Liberal brains smoking from overuse
China is winning- we may be toast
The implication by many is that increasing tax rates will increase collected tax revenue. This is not a certainty.
All economists, even Obama’s council of economic advisers, agree that increasing taxes will decrease economic activity, which drags down GDP growth, which means lower employment.
What the tax increase proponents postulate is that with increased tax revenue, Government can afford to increase spending further, and make up for the lost economic activity in the private sector. This falls back to Keynes’ aggregate demand equation.
The fallacy in this train of thought is because not all spendings are equal on the right side of the aggregate demand equation. We have ample evidence that government spendings is very ineffective, and will correct only a fraction of the lost investments from the private sector.
The very existence of the US is ample proof that the private sector is the most efficient place for resource allocation. Central planning for allocating resources doesn’t work.
On the other hand, it is very easy to ask the majority to punish a small group of people — ie: tax him, tax her, just don’t tax me. But people concerned with the main problem facing the nation should look at increasing tax revenue by increasing economic activity.
Instead we are relying on simple linear equations when we all know that to keep government spending at 24% of GDP is probably 4-6 percent too high of what can be supported by the taxpayers (regardless of tax rates).
Higher income taxes generate more government revenue and lead to more economic growth, right? Wrong. In fact, that is entirely opposite and Arthur Laffer in the Wall Street Journal has done the research.
In the past decade, the nine states with the highest personal income tax rates have seen gross state product increase by 59.8%, personal income grow by 51%, and population increase by 6.1%. The nine states with no personal income tax have seen gross state product increase by 86.3%, personal income grow by 64.1%, and population increase by 15.5% …
Each and every state that introduced an income tax saw its share of total U.S. output decline. Some of the states, like Michigan, Pennsylvania and Ohio, have become fiscal basket cases. As the nearby chart shows, even West Virginia, which was poor to begin with, got relatively poorer after adopting a state income tax …
Over the past decade, the nine states with the highest tax rates have experienced tax revenue growth of 74%–a full 22% less than the states with no income tax.
Unprecedented? Hey, James, the top marginal tax rate was 91% on income over $400,000 – $2,800,000 to $4,000,000 in today’s dollars – from the ’40′s through 1963. And a high marginal tax rate doesn’t just raise revenue, it changes behavior. It is gospel in most of DC that raising taxes kills jobs, and taxes on labor that must be paid irregardless of profit do, but high marginal tax rates don’t. They actually encourage hiring a marginal worker, because, if your income is above the the cut and the rate is 91%, hiring that guy costs you 9% of the wage while the government pays 91%. The same goes for that luxury car and the 3 martini lunch.
Wow…you have taken the Romer quote totally out of context. Which is surprising because you addressed why you think she was wrong in a previous post…which puts what she actually said in context. Pretty shady.
http://blogs.reuters.com/james-pethokouk is/2011/07/05/why-christina-romer-is-wro ng-on-taxes/
Second, I think you don’t actually understand Keynesian economics.
I will let Paul Krugman explain it so I don’t have to (from his December 14, 2009 blog post),
“…when you’re in the liquidity trap, certain kinds of tax cuts have perverse effects. Cutting taxes on capital income, for example, encourages more saving — which is a bad thing, because we’re suffering from the paradox of thrift. In fact, reduced taxes on capital income actually end up reducing investment.
So what’s the paradox of toil? If you cut taxes on labor income, this expands labor supply — which puts downward pressure on wages and leads to expectations of deflation, which increases the real interest rate, which leads to lower output and employment.
All of this only applies in a situation of zero interest rates, which wouldn’t be interesting except that that’s the situation we’re in.”
The study showing this is here.
http://www.newyorkfed.org/research/staff _report/sr402.pdf
Additionally the claim that, “Underlying all this longing for higher taxes is a belief government can’t and shouldn’t be cut” is itself nonsense. No cuts, is not the liberal position. It is the make believe position you have thrust on them in an attempt to demonize.
If you believe the Ryan plan is anything short of ridiculous, that says it all about your understanding of economics.
Obama is the intransigent one. He has to have his big government solution. Obamacare for one will be unfunded without increased taxation.
Our budget problems started when FDR created the entitlement culture. The problem is that these pyramid schemes (Medicare, Social Security, etc.) are based on the concept that aging citizens will die off before they get to the point where they demand benefits. When the pyramid is bigger at the top (more people receiving benefits) than it is at the bottom (people paying into the system), the system collapses. It inevitably fails. Add to those pyramid schemes all of your government welfare programs, and you have a system that cannot sustain itself and stay within a budget. The government is forced to keep borrowing money or tax itself into non-competitive status.
And does anyone think the rich and their tax lawyers don’t know how to get around paying taxes? Put the tax rates on millionaires up to 95%. They won’t pay it anyway. Why are New York and New Jersey losing all those rich people? And have you ever noticed that the “millionaires and billionaires” always turn out to be two income families whose total income is $200,000 and above? The Democrats have been telling the same lies for fifty years and the Liberal Mob keeps falling for them. Guess that’s no surprise as mobs are incapable of rational thought and the Liberal Mob is no different.
How to explain Obama’s tax hike obsession? Class warfare.
Great article! I pray to God we have a lot of people reading it! Obama is a disaster happening every minute he stays in power. We need to change that in the coming election. We need to take away power of government growing individuals: all Democrat liberals. Well, that pretty much includes every elected Democrat official!
Fundamentally, the Left believes two things: That individuals are incompetent to manage their own affairs, and that differences in the abilities of individuals must be absolutely suppressed.
Right on target article. Only those with a vested interest in continuing Obama’s welfare state still support this man and his agenda. The wrecking ball of a presidency that he has presided over in the last 2.5 years and his loopy policies have made 9.2% unemployment “normal”. He has succeeded in turning citizens against each other (class warfare) in hopes of distracting voters from his dismal job performance. His socialist agenda of wealth redistribution will bring this country to its knees (if not ruin it altogether). We are practically owned by the Chinese and this man continues to push tax hikes as the solution to the deficit.(his own second budget was rejected unanimously by his own party in the Senate, and his first one was just plain silly). He did propose recently to streamline the patent process, as if that’s going to bring in a boatload of money. For the love of God, country and our own children’s future, please vote this pretender out of office next year…
Following this logic, line-by-line budget checks and all the other promises to increase government efficiency would be avoided as they would also raise the question of what to do with that excess money. Many Americans would want it back.
Increasing taxes on the “rich” is a cannard. The truly rich control when and where they realize income and will dodge any increase. The REAL issue is this: In a country where a sure sign of poverty is obesity, WE ARE ALL RICH. None of us gets out of this alive.
@Dustycornfield, the poor, once deprived of a job, housing and lastly food, will simply eat the rich. They lack good protein in their diets.
@jabone, welfare for the rich and corporations rather than working to move the USA forward is what the Republicans are all about … giving the most to those who do not need it, are what people like you don’t/can’t see.
The propaganda machine that is fox news truly worked its magic on the dimwitted… especially being you blame the Democrats for the “class warfare.”
http://www.nytimes.com/2003/09/14/magazi ne/the-tax-cut-con.html?pagewanted=19&sr c=pm