A taxing moment

August 8, 2017

I wrote a bit on what real tax reform would look like for yesterday’s WaPo, and the NYT editorial board followed up w/ a similar piece today. Both pieces make an important distinction between tax cuts and tax reform.

The definition of the former is obvious, and in R’s hands, tends to be regressive cuts that hemorrhage much-needed revenues. Real reform, OTOH, avoids exacerbating market-driven income and wealth inequalities, while raising the revenues needed to meet the challenges we face.

That last bit may sound esoteric, so let me give a very concrete e.g. of what I mean. According to CBO, demographic and others pressures are such (see my piece) that by 2027 it will take 2.5 percentage points more of GDP to meet our obligations to Soc Sec and public health care programs. We either raise that in revenues, cut spending elsewhere, cut benefits, or put it on the debt (adding “or we grow at some unrealistic growth rate” not allowed).

The NYT piece is very up front about raising revenues and suggests lots of great ways to do so, including a link to my old financial transactions tax oped. I still like that idea and do not understand why an FTT generates so little buzz among progressives.

In fact, some on the left, or at least center-left, argue that the NYT approach to tax reform is misguided. To lead with your chin like that–to explicitly lean into revenue raisers–in the hurly-burly of the debate just reduces to “R’s want to cut taxes; D’s want to raise them; you choose.”

D’s can counter that they just want to raise taxes on the rich, sometimes adding that they want to cut middle-class taxes. Here’s my take on that:

Between now and 2040, the share of our population over 65 is expected to rise by more than a third (from 15 percent to 20 percent), generating pressure on both the spending and revenue sides of the budget. Global warming, rising sea levels and weather changes will require investments in infrastructure and science. Increased inequality leads to stickier poverty rates, diminished mobility, and the need for increased investment in children’s education and their parents’ well-being.

Politicians, and not just conservatives, are in denial about much of the above. Even many Democrats fear that to come clean on the need for ample revenue to meet these needs would lead to defeat at the polls. Maybe they’re right, but while Republicans make empirically indefensible growth predictions to pretend to offset their tax cuts, Democrats have long been reluctant to explain to constituents that the necessary role of government they represent will require more tax revenue than we can raise from solely the top 1 percent (though that’s the right place to start).

Progressives cannot beat Republicans in a fight over tax reform as currently defined — i.e., if tax reform means tax cuts, we’ve already lost. As their health plans revealed, Republicans’ goal is to shrink government and give the proceeds to the rich. Democrats’ response cannot be that they’ll instead cut taxes for the middle class.

Instead, they should explain what true tax reform is, why it is so necessary and how it must support a robust role for a government that is amply funded to meet the steep challenges we face.

This morning on Bloomberg radio, Tom Keene asked me if we’re overtaxed. My response was that this is not a simple question. First off, it’s important to point out that contra Trump, we’re low in terms of revenues we collect at all levels of gov’t as a share of GDP relative to other countries (about 27% here compared to ~37% among our comparables, according to OECD data).

But as I went on to say, the sensible way to answer that question is to look around and ask yourself if we have the revenues we need to ensure that our social insurance programs remain intact, if not improved, our public goods–schools, roads, water systems–are world class, our preparedness for climate change and geopolitics are adequate. I think not, ergo I’m for #RealTaxReform.

What are you for? And why don’t the D’s have a coherent alternative to the R’s tax cuts? As my old Obama-team compadre Tim Geithner used to say: “plan beats no plan!”

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