The Real Tax Cut Sellout

I’m no happier with the political bungling of the tax cut debate than anyone else, but it is worth noting that from a policy point of view it’s not like the pre-sellout position of the Obama administration was some kind of progressive gold mine. The Clinton administration left us with a tax code that, though economically inefficient, raised adequate revenues to meet the federal government’s medium-term fiscal commitments. The Bush administration did nothing to improve the efficiency of the tax code, but did cut rates to the point where the revenues raised were pathetically inadequate. The Obama proposal to continue the “middle class” tax cuts (which provided larger tax cuts to rich people than to middle class people) while allowing the tax cuts that only rich people benefit from to expire would have left us with a tax code that was still inefficient and still inadequate to our revenue needs.

Which is just to say that taxes is an issue where I side with Obama’s progressive critics, but I wish critics did a better job of recognizing that the real sellout happened over two years ago when Obama surrendered to the conservative framing that taxes are evil and public services are never worth paying for.

Looking forward, the pledge to never raise a single dime of tax revenue from anyone earning less than $250,000 a year is a way of crippling policymaking. It’s not just that it makes it hard to raise adequate revenue, it actually serves to obscure real questions about the distribution of the tax burden in favor of fake questions about who is and isn’t “really” rich. There are many measures, like phasing out the home mortgage interest tax deduction or the employer provided health insurance deduction, that would be economically efficient and progressive in their distributive impact but that would also, yes, entail some increase in the tax burden paid by some non-rich people. Conversely many “middle class tax cuts” in fact do more to cut rich people’s taxes than poor or middle class people’s taxes.

The progressive goal needs to be (a) adequate revenue, (b) more progressivity, and (c) economic efficiency. The President’s initial proposal achieved (b) but didn’t move the ball forward on (c), didn’t get us close to where we needed to be on (a) and locked us into a rhetoric frame that made (a) and (c) difficult to accomplish. It was, in other words, a bit of a mess adopted for political reasons. And now the Democratic leadership can’t even make the politics work. It’s time to start over.