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Not Yet the Home of the Brave

March 26th, 2009 . by economistmom

Two op-eds in today’s Washington Post basically scold the Administration and Congress for being wimps when it comes to tax policy and fiscal responsibility.  The Brookings Institution’s Alice Rivlin says:

Designed to facilitate a rapid economic rebound, the [Obama] budget’s humongous multiyear deficits (overwhelmingly attributable to the recession itself, the financial rescue and the temporary stimulus) are both inevitable and appropriate. But as the economy recovers, that higher spending should be recouped. The “pay-fors” in the Obama budget are well designed, but they are not big enough to compensate for the increased spending once economic growth returns.

Obama would shift tax burdens from average working Americans to those who earn most, but the proposed shifts are modest and, on balance, would reduce future revenue…

The pay-for package is persuasively designed, but it will not fully compensate for the rising spending…

Congress could greatly improve the president’s budget by accepting its main outlines but adding steps to reduce long-run deficits. Lawmakers could phase out the income tax cuts at a lower level by protecting, say, 92 percent of taxpayers from tax increases instead of 95 percent. They could convert tax deductions to tax credits in a way that raises more revenue or redesign the climate-change proposal to increase revenue faster (perhaps adding a small gas tax increase that would rise in the future).

Congress could increase funding for health-care reform by including part of employer-paid health benefits in taxable income. It could put the Social Security system on a sustainable long-term basis by making minor tweaks to benefits and revenue to take effect a decade or more hence. Or it could pare back future spending on programs not contributing to raising productivity. All of this may sound politically poisonous, but so does unsustainable long-term borrowing.

There is also a serious risk of Congress making the president’s proposal much less fiscally responsible by accepting the new spending and tax cuts but rejecting the pay-fors. That is a scary scenario that only strong, responsible congressional leadership can avoid.

And E.J. Dionne similarly chimes in on the lack of fiscal courage regarding tax policy, accusing the politicians of playing “deficit dodge ball”:

The debate on the budget is phony, the howling on deficits a charade. Few politicians want to acknowledge that if you really are concerned about long-term deficits, you have to support tax increases.

That’s why the most significant moment of President Obama’s news conference on Tuesday was not his dodge of a question on AIG but his defense of the least popular tax increase in his budget: limits on the benefits wealthier taxpayers get for their charitable contributions and mortgage payments.

It has been a long time since a president was willing to defend raising taxes. You have to go back to Bill Clinton and his 1993 budget. The consequences for Democrats who voted for that budget — no Republicans did — were grave. Republicans swept the 1994 elections and held on to the House for 12 years. No wonder politicians are so phobic about taxes.

Obama himself is going only part of the way on tax increases. He is still arguing that he can fix things with hikes on just the top 5 percent of taxpayers.

He’s right that a large share of any increase should hit those who enjoyed the biggest income gains over the past decade. But in the end, no politician (with the possible exception of libertarian Ron Paul) is willing to cut the budget enough to contain the deficit without a general tax increase down the road…

In an ideal world, Obama would come right out and say we’ll need broad-based tax increases. But that would be suicidal right now. Witness the reaction to his effort to put a 28 percent ceiling on deductions. His proposal would affect only 1.2 percent of taxpayers, yet even that idea seems to be dying in Congress…

Fine, kill it. But then, how else will we pay for health-care reform? Obama’s across-the-board limits on itemized deductions would raise $318 billion over 10 years. Does anyone have a less painful way to raise that much money?…

The task of those who genuinely care about deficits is to make the world safe for tax increases. Under current conditions, it’s a whole lot easier for politicians to talk a lot about deficits, and then just let them grow.

So I challenge you politicians:  where’s the “real man” around here when it comes to tax policy?

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