Obama had miraculous success in 2008 by promising to raise taxes on the wealthy as a way to be fair and close the deficit. It simply isn't working as well in 2012, when Obama owns four $1 trillion deficits. He can correct plenty of his staging problems in a town hall, compared to a back-and-forth podium debate. But he needs a bigger argument on taxes.I'm not exactly sure why we should credit this, since Obama has not yet been able to put over his proposed restoration of Clinton era income tax rates on the top 2% and other modest tax increases for the wealthy, and the broad principle of "asking the wealthy to pay a little more" has broad popular support. But allowing that the tax proposals in Obama's proposed ten year deficit reduction plan are a bit lightweight, a few thoughts below about where we are and where we need to head:
- David Brooks complained in 2008 that Obama had put himself in a straitjacket by promising not to raise taxes on the lower 98%, and he was right. Obama remains in that straitjacket.
- Obama's self-limitation on this front reflects the core political dysfunction of the past 30+ years: Republicans cut taxes unsustainably, and Democrats pay in political blood for raising them, or proposing to.
- Chuck Schumer is right to question the bipartisan shibboleth of cutting rates/reducing tax deductions. While the code does cry out for simplification, there is no particular reason to cut marginal income tax rates, which are at historic lows, or to get rid of all deductions, some of which provide good incentives.
- Our tax code exacerbates growing income inequality by under-taxing investment income and inheritance and over-privileging debt. Whatever its flaw, the great virtue of Bowles-Simpson was to tax dividend and interest income at ordinary rates.
- The most productive way to raise federal revenue to the levels required to run a society that invests adequately in human capital would be to tax energy consumption -- ideally, in ways that ease the burden on those least able to afford it.
- We have about as much chance of rationalizing our tax code as we do of constructively reforming the Constitution -- that is, not very much, at least in the short term.