The debt limit crisis is the best thing to happen to liberalism in 30 years. It's a manufactured crisis, of course. Republicans have conjured it out of thin air, convinced that it will force a radical reduction in the size of government.
But they're wrong. Far from starving the beast, the debt limit debate is just as likely to feed it. By rescuing taxes from the political wilderness, it has given liberals a chance to rebuild the fiscal foundation of progressive government.
A Fake Crisis
As any number of levelheaded commentators have pointed out, the debt ceiling is all about the past, not the future. It's a function of spending and taxing decisions made years ago. (And made by many of the same lawmakers decrying those decisions today.)
By extension, raising the debt limit is really a question of collective accountability. In a democracy, you take responsibility for your government's decisions, even if you didn't like them when they were made and you like them even less today. That's the deal -- you don't get to pick and choose.
Of course, it's possible to transform the debt ceiling into something more than simply a procedural hurdle. If you're suitably rash, you can make it about the future as well as the past. Over the past few months, Republicans in the House have shown us how it's done: Start walking the nation toward the edge of the abyss and threaten to keep on going.
A Real Crisis
But if the short-term crisis over a debt ceiling is fake, the long-term crisis over debt itself is very real. As William Gale and Benjamin Harris asserted in a recent paper for the Tax Policy Center, "The United States faces a large medium-term federal budget deficit and an unsustainable long-term fiscal gap. Left unattended, these shortfalls will hobble and eventually cripple the economy." (For the paper, see "A VAT for the United States: Part of the Solution," in The VAT Reader: What a Federal Consumption Tax Would Mean for America (Tax Analysts, 2010), available at http://www.taxanalysts.com/www/features.nsf/Articles/CC76D307B865852578310059FFD2?OpenDocument.)
Those warnings have been around for years, but politicians have shown scant interest in making the hard decisions that would actually stave off disaster. Politics-as-usual doesn't make room for much in the way of sacrifice.
But the artificial crisis of the debt ceiling debate has recast politics, spurring change in the face of intractable inertia. And in that sense, it's been spectacularly effective. By insisting that payment of past debts be tied to future spending, the House GOP has managed to put entitlements on the table. That's no small feat.
But the debt limit crisis has also put taxes on the table. Sure, Republicans are toeing the Tea Party line against any sort of revenue increase. That hasn't changed, and it isn't likely to change soon.
But for the first time in many years, Democrats are talking seriously -- and even proudly -- about the need for more tax revenue. In fact, the transformation is even more profound, challenging the antitax politics that have dominated national politics since 1980.
Fake Tax Policy
Now let's be clear: The specific tax proposals coming from the White House are less than serious. Years ago, then-candidate Barack Obama staked out his position on soaking the rich, and as president, he's been sticking to it. His speech last week on the debt ceiling impasse was typical:
Most Americans, regardless of political party, don't understand how we can ask a senior citizen to pay more for her Medicare before we ask corporate jet owners and oil companies to give up tax breaks that other companies don't get. How can we ask a student to pay more for college before we ask hedge fund managers to stop paying taxes at a lower rate than their secretaries? How can we slash funding for education and clean energy before we ask people like me to give up tax breaks we don't need and didn't ask for?
Jet owners, oil companies, Wall Street, and himself: These are the usual targets Obama offers up for tax increases. If you're serious about solving the nation's long-term fiscal problems, these tax reforms are a sideshow.
Real Tax Policy
But they're a necessary sideshow, at least for anyone committed to serious fiscal reform. Ultimately, solving the long-term fiscal crisis will require both spending cuts and tax increases. Both elements will be broadly regressive, sparing the rich and soaking the poor.
Lower spending will squeeze programs that principally benefit the non-wealthy, including Medicare and Social Security. Meanwhile, tax increases -- at least the kind necessary to make a real dent in the fiscal gap -- will fall on everyone, not just the rich.
The regressive nature of meaningful fiscal reform -- including the likely introduction of a broad-based consumption tax -- militates for compensatory policy. In particular, it underscores the need for higher taxes on the rich. If political leaders are going to ask poor and middle-class Americans for sacrifice, they have an obligation to make sure that rich Americans share the pain.
Taxing corporate jets, of course, won't do that. To right the scales of tax justice, more substantive progressive reform is vital. In particular, lawmakers should eliminate the preferential treatment of capital gains (which would, of course, solve the carried interest issue, too).
There aren't many Democrats willing to make that argument -- at least not yet. But the sideshow reforms currently in play still represent progress for liberals. By insisting that taxes are a necessary part of any balanced approach, they are building the foundation for a broader program of progressive tax reform.
Democrats have a long way to go. They are nowhere near breaking the bad tax news to lower- and middle-income Americans. But they finally have a president who is trying to restore the value proposition that lies at the heart of progressive governance.
"We all want a government that lives within its means," Obama said last week. "But there are still things we need to pay for as a country -- things like new roads and bridges; weather satellites and food inspection; services to veterans and medical research."
And there it is: the hoary "price of civilization" argument that Oliver Wendell Holmes made famous and American voters made reality. With taxes, we do buy civilization. But Democrats have been afraid to say so for decades. Finally, they may be starting to speak up.
About Tax Analysts
Tax Analysts is an influential provider of tax news and analysis for the global community. Over 150,000 tax professionals in law and accounting firms, corporations, and government agencies rely on Tax Analysts' federal, state, and international content daily. Key products include Tax Notes, Tax Notes Today, State Tax Notes, State Tax Today, Tax Notes International, and Worldwide Tax Daily. Founded in 1970 as a nonprofit organization, Tax Analysts has the industry's largest tax-dedicated correspondent staff, with more than 250 domestic and international correspondents. For more information, visit our home page.
For reprint permission or other information, contact firstname.lastname@example.org