President Obama sent a message to Congress today outlining a plan to reduce the deficit by $4 trillion through a combination of tax increases on the wealthy, corporate tax reform, spending cuts and efficiencies.
You can check out the report here for a wonky look at what the White House envisions, but the graphic above is probably more relevant to what’s going to happen in Congress: The vast majority of Republicans have promised to oppose any tax increases, regardless of circumstance, which takes compromise off the table.
The key to deficit reduction is always figuring out how to fairly balance the impact of spending cuts and revenue increases needed to close the gap. Traditionally, Republicans endorse spending cuts, while Democrats support higher taxes; deficit reduction deals during the George H.W. Bush and Clinton administrations used a little of each to increase fiscal responsibility.
Today, that doesn’t look likely to happen. Republicans, led by House Speaker John Boehner but fueled by the Tea Party, are insistent that fiscal adjustments should focus on spending cuts and reductions in spending on earned benefit programs like Medicare and Social Security. President Obama and the Democrats have consistently argued that major cuts need to be balanced with tax increases, both by ending the Bush administration’s tax cuts on the wealthy and by closing corporate tax loopholes. Obama attracted vociferous criticism from the left for his willingness to reduce beloved Democratic programs in exchange for tax hikes.
While some Republican leaders flirted privately with a grand bargain during this summer’s fiscal negotiations, they have repeatedly taken public positions opposing all tax increases, including signing Americans for Tax Reform’s pledge. This refusal to consider tax increases regardless of history, context, or economic conditions is the definition of ideologically blinkered, as the president said today and repeatedly during his administration. And if House Republicans refuse to support compromise and Senate Republicans filibuster it, there’s little chance of anything getting done.
“The Speaker says we can’t have it ‘my way or the highway,’ and then basically says, my way—or the highway,” the President said in the Rose Garden. “If we’re going to meet our responsibilities, we have to do it together.”
It’s important to understand that discretionary spending, where cuts have been focused, are already at their lowest levels as a share of the total economy since the 1950s. Tax receipts are also at record low levels, in part because of the flagging economy but also because of numerous reductions in the past decade and as part of President Obama’s economic stimulus policy. There is little evidence that returning tax rates to their Clinton-era levels would hurt growth, but it would reduce the deficit significantly. Corporate tax reform, even while garnering more revenues, would in theory create faster growth through more efficient investment decisions.
A balanced approach to deficit reduction lessens the negative repercussions of fiscal consolidation—economists present significant evidence that spending cuts will reduce our already-low economic growth, and cuts will go deeper the less revenue is included—but also for issues of justice. If the wealthy continue to pay historically low tax rates, profitable agricultural and petroleum companies are lavished with subsidies, and world-leading defense spending continues to grow without oversight, it’s going to be hard to convince citizens who see reductions in social services, job cuts, and public investment that their government is acting in the public interest.
For these reasons, the White House has threatened to veto any deficit reduction plan that cuts earned benefits to make room for lower taxes on the wealthy.
President Obama has consistently advocated for higher taxes on the wealthy and corporations since his 2008 campaign, though he has included tax cuts in emergency stimulus measures designed to forestall a second recession. Indeed, the majority of the public supports including tax increases in a deficit reduction deal. The latest twist on the president’s tax advocacy has him seizing upon legendary investor Warren Buffet’s proposal for more tax equity by endorsing a “Buffet rule”: People making over $1 million shouldn’t pay less in taxes than those in the middle class.
It’s a simple proposition and a popular one, yet nearly an entire political party opposes it and has the power to block it from becoming reality.
