Washington’s Counterproductive Consensus on Taxes
The two parties spent most of this week, as they tend to spend most of every week, arguing about taxes. Democrats are for ‘em. Republicans, against. Right?
Wrong. These tiresome debates obscure the near-consensus in Washington on taxes: Republicans don’t want to raise taxes on anyone, and Democrats don’t want to raise taxes on almost anyone. The argument between the two parties rages over that sliver of territory between “anyone” and “almost anyone.”
The consequences of this unhealthy consensus stretch far beyond the budget deficit. Consider, for instance, our roads.
We used to have a straightforward way to fund infrastructure in this country: the federal gas tax. In 1956, President Dwight Eisenhower raised the tax from 1.5 cents a gallon to 3 cents to help pay for the creation of the interstate highway system. In 1959, he increased it from 3 cents to 4 cents. In 1982, President Ronald Reagan raised the gas tax to 9 cents. In 1990, President George H.W. Bush raised it to 14 cents, with half of the increase going to reduce the deficit. In 1993, President Bill Clinton raised it to 18.4 cents.
In other words, from 1956 to 1993, there was a bipartisan consensus on the federal gasoline tax: Both parties agreed that it occasionally needed to be raised in order to help pay for the nation’s infrastructure. But since 2000, there has been a bipartisan consensus against raising the federal gasoline tax.
Nine Bipartisan Failures
In 2005, the Bush administration joined with congressional Republicans to support a big transportation bill. But rather than raise the gas tax, the law just exhausted the Highway Trust Fund. In 2009, that law expired. Since then, Republicans and Democrats have failed to pass nine -- nine! -- short-term extensions, in large part because they can’t agree on how to fund infrastructure. But they do agree on one thing: Neither party intends to raise the gas tax.
“It is true we haven’t raised it in a very long time, for obvious reasons,” Senator Barbara Boxer of California, the ranking Democrat on the Environment and Public Works Committee, told me in March. “We don’t want people to feel the pinch. But we are facing a big problem here. The good news is we’re getting better fuel economy. The bad news is the Highway Trust Fund then gets less money. So we have to figure out another way to fill that trust fund.”
There are currently at least two irresponsible tax pledges governing Washington. The first is Grover Norquist’s now- infamous pledge that keeps Republicans from ever raising taxes on anyone, for any reason, at any time. But Democrats have their own pledge: President Barack Obama’s promise never to raise taxes on anyone making less than $250,000 a year. That’s 98 percent of the country.
And lately, Washington has been seized by an even narrower argument than that. The “Buffett Rule” looks to impose a minimum tax rate of 30 percent on annual income of more than $1 million. That’s not the top 2 percent. It’s not even the top 1 percent. It’s a fraction of the top 1 percent.
Republicans view taxes with an almost religious fervor: They are profane and must always be fought. Get thee behind me, revenues! Democrats see them as a kind of moral cause: They are about “fairness,” and should be used to help rectify some of the most glaring inequities in the economy. Lost on both sides is a more practical view of taxes: They are how the government pays for itself.
You can see this in the deficit-reduction plans proposed by the two parties. Representative Paul Ryan’s budget includes a tax-reform component that details trillions of dollars in tax cuts but not a dollar in offsets. Obama’s budget includes $1.5 trillion in tax hikes, all of them on earners making more than $250,000. Looking at just these two plans, it really does seem that the two parties are very far apart on taxes.
Two Bipartisan Commissions
But these plans are in stark contrast to those of the major bipartisan deficit commissions. The Simpson-Bowles plan proposed slightly more than $2 trillion in new taxes. The Domenici-Rivlin plan included almost $2.5 trillion in new taxes. Both chose to raise revenues through comprehensive tax reform. Those are the sort of plans you get when you’re not bound by ridiculous pledges and view taxes as a straightforward matter of budgetary math.
The Obama administration protests that it has been able to make its numbers add up without increasing taxes on anyone making less than $250,000. And they’re right. Inequality is now so extreme that modest tax hikes on the top 2 percent can raise trillions of dollars.
But that’s a one-time play. As the baby boomers retire and health costs continue to grow, more revenues will be needed. For Democrats who have spent the last decade convincing members of the middle class that they will forever be exempt from tax increases, that’s going to be a tough about-face to make.
If there’s a bright spot, it’s that Obama and the Democrats, to their credit, are willing to break their pledge. They effectively raised future taxes on people making less than $250,000 when they passed the excise tax on high-value health- insurance plans as part of health-care reform, for instance.
Republicans have been less public, but during the (not so) supercommittee and the debt-ceiling talks, some privately discussed small tax increases in return for massive spending cuts. There have also been individual moments of courage, as when Senator Mike Enzi proposed indexing the gas tax to inflation, or when Senator Tom Coburn picked his fight with Norquist.
But in the long run, this anti-tax orthodoxy is likely to harm both parties. Democrats cannot, in the coming decades, pay for the social welfare state they say they support by raising taxes only on the rich. Yet sharply raising taxes only on the rich -- the most noxious and counterproductive kind of tax increase, according to Republicans -- is all but guaranteed if Republicans continue to oppose any and all attempts at revenue- raising tax reform and force future tax hikes to come entirely through Democratic votes.
That may be the final irony: The longer they cling to their ridiculous tax pledges, the more both parties lose their ability to shape public policy on the issues they claim to care about most.
(Ezra Klein is a Bloomberg View columnist. The opinions expressed are his own.)
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