Quick reaction to Obama’s budget…

… or, Why I Support Raising Tax Revenues Rather Than Gutting Spending

This week President Obama released his projected budget for the year. According to the news reports, the headline to take away is that Obama still wants to raise taxes on wealth. It’s interesting how Obama never goes all in and demands higher taxes on wealth, but he never totally gives up the idea, either. So here it is again, the tax debate Obama won’t give up on, but won’t sell out for. I wonder though if that’s about to change. I wonder if he’ll make the tax debate the central issue of his re-election platform. In speeches and prepared statements, there’s evidence that he is doing just that. And now this budget.

If so, it’ll create quite a showdown with the GOP, who have become the party of no tax increases, never, under any circumstances. Such inflexibility is always a sign of bad thinking, and this case is no different. As a way of tackling our debt problems, raising tax revenues is economically far superior than cutting spending, for many reasons. To be sure, I am aware of the political difficulties of doing so. And I’m enough of a libertarian to find legitimate some of the objections to aggressive state action, on principle. But we ought to support raising tax revenues for analytical not political reasons: because we need to create demand. Under the circumstances, it makes more economic sense to raise tax revenues than gut social spending because the American middle class (the country’s consumer base) is deeply struggling. Our economy suffers from too little demand from the middle-classes. The GOP plan — cut social spending and lower taxes — would undermine the consumer base further.

If we continue to de-invest in the institutions that support consumption — like education, health, and jobs — we will continue to create a situation in which the only American businesses that successfully support themselves do so by investing outside of America, not inside. Big businesses can afford to go wherever on the globe demand is. The typical American medium and small business can’t, and therefore won’t be able to persevere. The situation calls for using taxes and spending to build up a consumer base here at home.

So, like Obama, I continue to think raising tax revenues is the way to go, though, like Obama, I’m sensitive to the political and moral problems associated with favoring public power over private action. But reasonably speaking, raising some taxes and not others makes for good economic policy, in this case, right now, under the present circumstances.

Remember, the goal is to dig ourselves out of the Great Contraction, not win a moral victory on principle.

Mark Austen Whipple
02.14.2012 4:18pm

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