The Planet Money folks have posted a piece I wrote on whether we’ll ultimately need to tax households below the $250K line-in-the-sand set by the Obama administration. It’s a two part answer: 1) ultimately yes, but as long as the middle class is getting clobbered on their pretax income, especially relative to the high-end households, we should hold off for a while, and 2) the President’s recent budget recommendation actually achieves temporary stability without taxing the middle.
I’m afraid it’s become a sign of how tough you are—a kind of budget machismo—to say you’re willing to go after the middle class on taxes.
As I note in the piece:
To hit those families with a tax increase while the economy remains weak strikes me as what a football referee would call “unnecessary roughness.” For many of these families, economic growth has largely been a spectator sport, as whatever prosperity this economy has achieved has done an end run around them on its way to the top 1 percent. (Ok, enough with the sports analogies!)
But it’s the second point above that’s not as well known or understood as it should be. Back in September, President Obama introduced a pretty balanced, progressive budget as his recommendation for the supercommittee, one that cuts the deficit by about $4 trillion over ten years.
The thing is, the budget achieves sustainability, at least temporarily, as measured by stabilizing the ratio of government debt to GDP within the 10-year budget window, as shown in the figure below from this piece by my CBPP colleague Jim Horney. And it does so while sticking to the administration’s policy re protecting the broad middle.
Like I said, in order to collect the revenues we need for an amply funded, sustainable government sector, we’ll need to raise more revenues from more families. And, of course, as I stress in the piece, if we don’t control the growth of health care spending, we’re toast no matter how tough we want to get on the middle.
In that sense, the current hand wringing about the administration’s pledge feels like a distraction…especially given that we could achieve medium term sustainability without going there.