…and I hope Matt’s right (my emphasis added):
Obama never answered the question [at his March 24 press conference] of how his epic debt can be squared with his call for generational responsibility. He can’t, because it can’t.
Behind this fudge is a secret: Obama and his advisers expect to limit such debt via broader tax increases, presumably in a second term. As every honest observer knows (and as I show in this chapter of my book The Tyranny of Dead Ideas), once this recession is past, taxes will go up in the years ahead no matter who is in power. John McCain’s top economic advisers from the campaign say so themselves. That’s because we’re retiring the baby boom, which means we’ll be doubling the number of people on Social Security and Medicare. We already have trillions of dollars in unfunded promises in these programs. The math simply doesn’t work at current levels of taxation…
By conspicuously fudging on debt and taxes, Obama undermines his reputation for intellectual honesty, one of his most attractive traits, and one which helped legitimize his claim to being a different kind of leader. In the end, Obama has made the judgment that, for now, some truths are just too hard to safely trust the public with…
Matt then offers the President some advice about how to level with the American people:
“Job one, two, and three is economic recovery,” Obama might say. “For the next three years that means unprecedented deficits to help boost this economy. I wish we didn’t have to run up $3 to 4 trillion in new debt to jumpstart growth—but I make no apologies for doing whatever it takes to get the economy out of the hole I found it in. Once we get past this downturn and back on the path to growth and prosperity, however—and we will—we’ll need to examine ways to ratchet this debt down much faster. The debt numbers in my budget for five or eight years from now are in that sense placeholders until we get through this mess. At that time, my view is that everything should be on the table. But first things first.”
When reporters ask, “does that mean higher taxes will be on the table,” Obama should merely repeat that “everything should be on the table—that’s the only sensible way for a great nation to tackle its challenges.”…
My criticism of the President’s tax policy agenda goes a bit deeper than Matt’s. I don’t think the President can put off for “five or eight years from now” the reckoning on taxes. The first thing the President needs to contend with are the expiring Bush tax cuts–and to admit that maybe he and at least his Democratic friends in Congress don’t have to go along with even the $2 trillion worth of them (over just the next ten years) that are considered the “middle class” portions of the Bush tax cuts, which the President has proposed in his budget and anointed as somehow deserving of deficit financing (unlike his own tax cuts). Those tax cuts expire on December 31, 2010, when most economists believe we will be out of the current economic recession.
Here’s what the President said in response to the excellent follow-up question from the same reporter (from the transcript, my emphasis added):
QUESTION: But even under your budget, as you said, over the next four or five years, you’re going to cut the deficit in half, then, after that, six years in a row, it goes up, up, up. If you’re making all these long-term structural cuts, why does it continue to go up in the out-years?
OBAMA: Well, look, it is going to take a whole host of adjustments, and we couldn’t reflect all of those adjustments in this budget.
Let me give you an example. There’s been a lot of talk about entitlements in Medicare and Medicaid. The biggest problem we have long term is Medicare and Medicaid. But whatever reforms we initiate on that front — and we’re very serious about working on a bipartisan basis to reduce those deficits or reduce those costs — you’re not going to see those savings reflected until much later.
And so a budget is a snapshot of what we can get done right now, understanding that, 8, 10 years from now, we will have had a whole series of new budgets and we’re going to have to make additional adjustments.
And once we get out of this current economic crisis, then it’s going to be absolutely important for us to take another look and say, are we growing as fast as we need to grow? Are there further cuts that we need to make? What other adjustments are — is it going to take for us to have a sustainable budget level?…
Note that the President didn’t say “in my next term” it will be important to look at other possible “adjustments.” He says we’ll need to look at them “once we get out of this current economic crisis”–which I believe will be before his next term and probably before the expiration of the Bush tax cuts. And I think we ought to look at (study) those possible “adjustments” and plan for them while we’re in the crisis, so that we’re ready to implement them as soon as we’re out of it. And as the President describes those “other adjustments,” he doesn’t seem to rule out tax increases–although Matt is right that the President was quick to point out spending cuts as examples.
The reckoning on tax policy–that federal revenues as a share of GDP will have to come up (and I mean above the 40-year historical average of 18.3% of GDP)–will happen, no matter what any politician’s current stance on it or their party affiliation. I predict that even the House Republicans’ alternative budget plan (which sets as a goal keeping taxes at or below 18.3% of GDP) won’t be supported by even the House Republicans once the details of the unspecified, “brute force” spending cuts required to keep revenues that low and debt at a more sustainable level are spelled out. Perhaps even the author of the House GOP budget, Congressman Paul Ryan, has some secrets of his own regarding where he thinks taxes will have to go in the not-so-distant future. It’s just a hunch…
As Bruce Bartlett has recently written, federal tax reform is “long overdue” as it’s clear our current tax system is inadequate to meet our nation’s revenue needs (my emphasis added):
Going forward, the Obama administration has little choice except to make tax reform a major initiative…it has proposed more than $3 trillion in tax cuts over the next 10 years, including the extension of many Bush era tax credits of dubious value. Unless something is done to clean up the mess, the tax code will become completely incomprehensible even to tax lawyers and accountants.
The Obama administration also needs to think about raising revenue at some point. Although massive budget deficits are justified today by economic circumstances, they will become a drag on growth once the crisis is past. Some economists are already warning about renewed inflation and high interest rates not too far down the road, which will create political pressure for deficit reduction that will necessarily involve tax increases on those making less than $250,000.
Obama has a very ambitious domestic agenda. So far, he has been able to avoid explaining how to pay for it by the temporary need for large deficits. But eventually his spending will have to be paid for. Raising rates more than Obama has already proposed will only magnify all of the existing deficiencies of the tax code.
In the long run, the success or failure of his domestic agenda may depend on reforming the tax system in order to raise additional revenue at the least possible cost to the economy.
Yes, the dirty little secret inside the DC Beltway is that taxes will have to come up, and we won’t be able to put it off much longer. And it’s a secret that everyone’s keeping–on both ends of Pennsylvania Avenue and on both sides of the aisle. I think it’s time the politicians start coming clean about it. They can use Matt’s suggested script as a starting point.