Tax Revolt
Back in 2007, Mark Schmitt wrote a column arguing that we were nearing the end of the great “tax revolt” launched in the late-1970s that’s made it so difficult to do big progressive change. Kevin Drum has some big doubts:
So how’s that going? At the time I remember thinking that Mark’s piece was fairly persuasive, but the 2008 campaign sure doesn’t seem to bear it out. Barack Obama, the progressive candidate, has certainly not campaigned on tax increases. In fact, he has loudly and consistently based his campaign almost entirely on a promise to cut taxes for 95% of Americans. He could probably fund the national debt for the price of the ads touting his tax cutting credentials. Amidst all that, the only teensy weensy concession he’s made to higher taxes is an increase — all the way to 1990s levels! — for the highest earning 5%.
This is, of course, about as moderate a tax policy as you could possibly hope for. But even so, he’s only barely gotten away with it. The response from the McCain campaign to that teensy weensy increase has been to go completely ballistic, accusing Obama of everything from socialism to Marxism to wanting to firebomb Joe the Plumber’s cozy little Ohio cottage. In the end, it looks like this barrage of inanity won’t work, but conservatives are sticking to it and they really do seem to be getting at least some traction with it. If Obama had nodded even slightly further in the direction of tax hikes, there’s a good chance McCain would be making serious inroads on him right about now.
I think Kevin’s reading this evidence backwards. Obama’s tax proposals are a pretty clear piece of defense crouch politics, a proposal carefully crafted out of a desire to raise a bit of revenue without being tagged as a tax hiker. And Kevin’s right that it doesn’t seem to be working — Obama’s still getting slammed as a tax hiker. But the important part is that the slams aren’t working. John Chait points out that by a 50-44 margin, voters tell pollsters that they expect Obama to raise their taxes. Of course that’s wrong, Obama’s plan would cut taxes for the vast majority of Americans. But conservatives have persuaded most people that either that’s not what Obama’s plan would do, or else that Obama is just lying and he’ll go back on his pledge and offer a bigger, broader tax hike than he’s officially proposed. So Obama’s losing the argument. But he’s winning the election anyway which is perhaps an indication that he could have gotten away with a plan that did more to boost revenues.
That said, it’s everywhere and anytime politically difficult to raise taxes. Probably the greatest blow Ronald Reagan struck against American liberalism was changing tax law so as to index income tax brackets to the Consumer Price Index. Before that, each and every year inflation created a small tax hike. Consequently, the default scenario was for revenue to grow. That created a situation where for three decades following the end of World War II, politicians steadily increased the volume of public services while also offering the occasional tax cut. And until the economic malaise of the 1970s, voters liked the outcomes just fine. But by seizing the opportunity provided by the 1980 election to change this, Reagan was able to shift the structure of American politics in a fairly significant way. In many ways the biggest challenge facing an incoming progressive administration backed by progressive congressional majorities is to find some equivalent measures — things you can pass at a moment of political strength whose impact will continue to be felt long after that political moment fades.
41 Responses to “Tax Revolt”
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October 31st, 2008 at 4:20 pm
I’ve been thinking a lot lately about that last sentence. What sorts of things absolutely need to get done in this once of a lifetime chance for dems? I’d say single payer, getting a whole generation to vote dem, similar to FDR. Obamas probably not going to push something this radical for lots of reasons, so congressional dems will have to buckle down and get done what we’ve tried get done since truman. A significant recession is the best time for this type of ’save the taxpayer money’ proposal to fly, against the usual socialism charges, as we’ve seen in the campaign.
October 31st, 2008 at 4:27 pm
Actually, it scares me to death. It seems to prove that the conservative lying machine still works, only this once people are too busy evacuating a burning house to worry about their tax burden.
October 31st, 2008 at 4:29 pm
“But by seizing the opportunity provided by the 1980 election to change this, Reagan was able to shift the structure of American politics in a fairly significant way.”
And what’s such a drag about the ‘08 elections is that Obama seems intent on missing the equivalent opportunity to shift the structure of American politics to the left.
We’re wasting our “Reagan moment” on electing an Eisenhower.
October 31st, 2008 at 4:30 pm
Yeah it’s a real pity American’s don’t get an automatic tax increase year after year.
October 31st, 2008 at 4:31 pm
“And until the economic malaise of the 1970s, voters liked the outcomes just fine. But by seizing the opportunity provided by the 1980 election to change this, Reagan was able to shift the structure of American politics in a fairly significant way.”
Uh, it would seem that the economic malaise of the 70s is what created the opportunity, not just that Reagan managed to win the 80 election. And if liberals are going to start advocating for a restoration of the tax system that existed before Reagan, Republican are going to have the shortest political exile in history.
Mike
October 31st, 2008 at 4:39 pm
But conservatives have persuaded most people that either that’s not what Obama’s plan would do, or else that Obama is just lying and he’ll go back on his pledge and offer a bigger, broader tax hike than he’s officially proposed.
Like Bill Clinton, our last Democratic President.
John Chait points out that by a 50-44 margin, voters tell pollsters that they expect Obama to raise their taxes. Of course that’s wrong, Obama’s plan would cut taxes for the vast majority of Americans….So Obama’s losing the argument. But he’s winning the election anyway which is perhaps an indication that he could have gotten away with a plan that did more to boost revenues.
Yeah, this doesn’t follow. If he actually proposed to raise taxes, the vast majority of voters would think he planned to raise their taxes, not just 50%. And it would cost him. I mean, you’ve got to think most of those 50% are solid Republicans. Also, note that the same poll says that 46% of voters think McCain would raise their taxes. There’s probably just widespread skepticism that either candidate can afford to not raise taxes, what with the bailout. But if either actually said he planned to raise taxes, that would be something quite different.
October 31st, 2008 at 4:44 pm
I’m with JohnH. Sure, Obama is losing the battle, 54-40. But how worse would it be if he didn’t have the 95% tax cut in there? “Of course that’s wrong, Obama’s plan would cut taxes for the vast majority of Americans.” See, right there, you felt the need to point out Obama’s tax cut, just like every liberal has over the last year. Joe The Plumber? Hey, don’t listen to him, he’d be getting a tax cut! It’s been a refrain in this election, and even if it hasn’t been entirely persuasive, I’m heavily skeptical if Obama rolled out a plan to raise taxes on 50% of Americans, he’d be taking more of a hit.
And this is an incredibly Democratic year, with an unpopular incumbent, a terrible Republican candidate, and a tanking economy. What happens when things go back to normal? Are people going to welcome a tax increase, or are they going to turn into Republicans again?
October 31st, 2008 at 4:46 pm
Yes, it was precisely the fact that people were paying more of their real income in taxes, combined with increasing crime rates, increasing welfare and other social services (which were, remember, supposed to reduce crime), that soured the American people on liberalism. Liberalism over-promised and underperformed. Voters rewarded conservatives because they did a better job at running the country than the liberals. Obama himself has said so. Now it’s the conservatives who are screwing up. Let’s not respond by going back to the “good old days” of feckless incompetence.
October 31st, 2008 at 4:51 pm
Yes, it was precisely the fact that people were paying more of their real income in taxes, combined with increasing crime rates, increasing welfare and other social services (which were, remember, supposed to reduce crime), that soured the American people on liberalism.
That’s code-word for racism. You see, non-racists don’t mind crime, as long as it is committed against whites, because whites deserve to be mugged.
October 31st, 2008 at 4:58 pm
And what’s such a drag about the ‘08 elections is that Obama seems intent on missing the equivalent opportunity to shift the structure of American politics to the left.
He doesn’t seem intent on doing that to me. And he helped create the opportunity, which is to his credit.
October 31st, 2008 at 5:02 pm
I think the indexing of tax brackets to the CPI gives us a much better chance of higher marginal rates on tax brackets. You don’t want the middle class to feel like those marginal rates are creeping up on them.
October 31st, 2008 at 5:23 pm
It would only be poetic justice if the 50% of Americans who think Obama will raise their taxes do end up getting their taxes raised. After all, they’re expecting it, so they can’t get too upset right?
October 31st, 2008 at 6:18 pm
The thing is, he couldn’t have gotten away with tax rises on the 75k-250k a year group, which is going to need to be taxed higher if we want any investment. He could have gotten away with raising taxes on the working class, who incorrectly he’s going to raise their taxes too.
October 31st, 2008 at 7:50 pm
Now that gas is down to 2.50 or so a gallon, I fully expect right after the election for someone to propose raising the gas tax.
It would be IMO a good idea, but clearly it would be a tax increase on ‘the middle class’. I wonder if the Democrats will have the intestinal fortitude to follow through with it.
October 31st, 2008 at 8:03 pm
What you forget is this: the post WWII era, up until the 70’s, was a unique period in US history. Every single potential economic competitor was either recovering from the devastation of the war, or had opted out of the global system (the USSR and China). The US was able to dominate economically without regard to how high the levels of taxation were.
The world isn’t in that position any longer. We compete with many, many other nations, and it’s increasingly easy to move jobs into lower tax regimes. So sure, a progressive candidate can attempt to lift taxes – and then we can watch that candidate (and Matt) end up befuddled by the job migration.
You already see this locally within the US – there’s a reason that Japanese car companies build plants in low tax, low regulation, non-union mandating states, and it’s the same reason that many companies relocate their headquarters out of places like NYC.
If you make the environment within the US too hostile from a tax and regulation perspective, you’ll see more of that happening across borders. Sure, you can try to raise tariffs (et. al.) to prevent that sort of thing – but there are lots of negative consequences to that, too.
It’s not the same world as it was in 1958, and wishing won’t make it so.
October 31st, 2008 at 8:31 pm
I think Kevin’s reading this evidence backwards.
Heh heh. Generalize this and you have a covering theory explaining Drums’s main approach to policy analysis.
October 31st, 2008 at 8:50 pm
I couldn’t agree more, and that’s my biggest beef with the Clinton administration. He didn’t accomplish much that couldn’t be undone by a stupid/incompetent/mendacious Republican.
October 31st, 2008 at 8:58 pm
Not anymore, they don’t. The workforce there is too poorly-educated, and it costs too much for a private entity to provide health insurance.
No kidding. I much prefer crushing national debt and federal deficits.
October 31st, 2008 at 9:12 pm
Umm, Notorious – they aren’t building in the high tax, high regulation states. The fact that they are building offshore in even lower tax areas doesn’t help your cause much.
October 31st, 2008 at 10:52 pm
if liberals are going to start advocating for a restoration of the tax system that existed before Reagan, Republican are going to have the shortest political exile in history.
Seriously. The two things that the conservative revolution has produced are cultural shifts in how the country views taxes and guns. When the most liberal democratic candidate for president in a 1/4 century talks about “tax relief” it’s a measure of how much attitudes have changed. I don’t doubt Obama will raise taxes modestly, and I’m pretty ok rolling things back to Clinton-era tax levels, but trying to restore pre-Regan era tax levels will result in the shortest ruling majority ever.
November 1st, 2008 at 1:07 am
Of course Obama is going to raise taxes. Bush just spent a trillion dollars in a month, and we were overextended before that. He’ll spend more. It’s going to become very obvious, very quickly, that the United States of America is broke.
The American people know Obama is going to have to raise taxes, and, according to the polls, they’re going to vote for him anyway. Taxes just aren’t a decisive issue in this election.
November 1st, 2008 at 6:43 am
FDR can never get re-elected if he remains dedicated to his socialist interventionist high-tax agenda, and a Republican Congress will soon follow!
November 1st, 2008 at 10:48 am
El Cid:
It’s not 1932, and the unemployment rate isn’t at the kind of level it was at when FDR took office. It was nearly 24% when he came in; with conditions that bad, the bar for radical changes (from any side of the political spectrum) was way, way lower.
When Obama comes in he’ll face unemployment in the 6% range, a financial crisis that is still in major flux, and an enormous deficit – one that both parties can take equal credit for over the last 40 years.
The unemployment rate means that while we have a recession, it’s not an immediate crisis for most people – and tax hikes (no matter how steep) cannot address the deficit. The reality that neither party wants to face is that spending – all spending – is too high. We cannot afford the military we have, but we cannot afford our social welfare spending either. Both have to be pared back, and the sooner that’s done, the less pain there will be.
The social side may be the easier one in many ways; all that’s really required is some demographic reality – i.e., the age when you become eligible for social security and /or medicare will have to go up.
Obama will enter with a Democratic Congress, but with a number of structural issues that FDR didn’t have. If he and the Congress decide to go through with the promises he’s made on the trail, then the deficits and spending levels over the next four years will make Bush look like a saver – which I would not have thought possible a year or two ago.
November 1st, 2008 at 11:02 am
Re: When Obama comes in he’ll face unemployment in the 6% range,
Throw in underemployment and discouraged workers and it’s more like 11%. That’s a long way from Depression levels, but that 6% no longer means what it did back in 1960. Temp work, part time work, the prison system and disability payments sweep a lot of employment problems under the rug these days.
rE: and an enormous deficit – one that both parties can take equal credit for over the last 40 years.
The lion’s share of the blame goes to the GOP. The budget was balanced the last time a Democrat was in the white House.
Re: We cannot afford the military we have, but we cannot afford our social welfare spending either.
What we can’t afford is both together. Either separately is doable.
November 1st, 2008 at 11:19 am
Umm, whatever on the unemployment rate. The reported rate is what matters, because it’s what people talk about. On deficits, don’t make me laugh. The budget was “balanced” under Clinton only if you take into account various budget shenanigans. Having said that, the primary reason it was balanced was divided government – had Clinton had a Democratic Congress the entire time, spending would have looked more like 2002-2006 – it’s what single party rule generates.
And no, ew cannot afford the military or the social spending. We need enough military to safeguard our trade routes – there’s already piracy in places, and it will grow if we don’t police the sea lanes. That requires a lot less than we have now, but it does require a significan navy and air arm.
On social spending, you simply have to face demographic reality. Too few younger workers supporting too many older ones. You need look no further than the raw crisis in underfunded pension plans (public and private). Unless you have a constantly growing population (larger growth than we have now by a lot), continuing to pay salary and medical for retired workers for 20-30 years is not sustainable. It’s a simple math problem.
November 2nd, 2008 at 9:30 am
Re: We need enough military to safeguard our trade routes
Which means a strong navy, a good airforce and a small but very good marine corp along with special ops and similar support. We could downsize what we currently have considerably and still have what we need. If piracy is becoming a problem right no it’s because we have gotten ourselves suck in the quicksand of Iraq.
Re: Too few younger workers supporting too many older ones.
The real number that matters is the total number of workers vs the total numbers of consumers– the latter category including not only retirees, but children, the disabled, the incarcerated, and non-working spouses. The ratio of workers to consumers was smaller in the 50s and 60s (due to the baby boom and fewer working wives) than it is now. Add in some reasonable assumptions about productivity and we are not in any real crisis there. If we were we would see skyrocketing wages and miniscule unemployment. That certainly is not the case. Instead we are having trouble coming up with enough work for everyone who wants it– and that was true even before the current downturn.
Re: Unless you have a constantly growing population …
No, no and no! Not a constantly growing population– constantly growing productivity.
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