The NY Times's Main Economics Writer Pushes a Familiar Budget Solution: Tax Hikes

The New York Times's chief economics writer David Leonhardt proposed his usual solution – tax hikes – to the ongoing budget and debt-ceiling battles between congressional Republicans and President Obama in his confidently titled Wednesday column “Why Taxes Will Rise In the End.” Leonhardt struggled to ponder why his fellow citizens stubbornly refuse to raise the debt ceiling.

Polls show that most Americans are opposed to raising the federal debt ceiling. Even when the Pew Research Center included the consequences in its question -- a national default that would damage the economy -- slightly more people were against raising the ceiling than were for it.

How could this be? Above all, I think it reflects a desire to return to the good old days. Not so long ago, nobody was talking about tax increases or Medicare cuts, and the federal budget seemed to be in fine shape. If only we could get back to the past -- get spending under control, as the cliché goes -- we’d be O.K. The debt ceiling, with its harsh finality, offers the chance.

Unfortunately, this nostalgic view depends on a misunderstanding of the budget. It imagines a budget in which the United States indefinitely has the world’s highest medical costs, its largest military, an aging population and, nonetheless, taxes that are among the world’s lowest. Economists have a name for that combination: a free lunch.

Free lunchism is ultimately the problem with the no-new-taxes pledge that so many politicians have adopted. A refusal to raise taxes, no matter how principled, cannot take us back to the good old days. It would instead lead to a very different American society. For taxes to remain where they are, Washington would need to end Medicare as we know it, end Social Security as we know it, severely shrink the military -- or do some combination of the above.

Leonhardt has argued before that high taxes are the inevitable result of wealthy modern society. Sure enough, Leonhardt spied a familiar solution through the budgetary thicket.

Eventually, though, drawing up a credible deficit plan with neither Ryan-like cuts nor higher taxes will be impossible. And you can already see the start of a potential Republican compromise.

It revolves around raising taxes, on net, by shrinking corporate or individual loopholes. The country’s highest-ranking Republican, John Boehner, the speaker of the House, signaled his openness to such a deal last week. (Mr. Boehner abandoned the deal under pressure from Representative Eric Cantor, the No. 2 House Republican and a Tea Party ally.)


After noting the fact that more people support the mortgage interest deduction than actually benefit from it, Leonhardt saw some promise in allowing the Bush "tax cuts" to lapse.

So what kind of tax increases do Americans support? The old-fashioned kind. Seventy-two percent support raising taxes on income above $250,000, according to a recent New York Times/CBS poll, and a large majority likewise favor raising Social Security taxes on the affluent.

In the end, the most likely tax increase may be the one that’s already on the books. On Jan. 1, 2013, all the Bush tax cuts -- on the affluent and nonaffluent alike -- are set to expire, which would solve roughly one-quarter of our long-term deficit problem. If Republicans have their way, all the tax cuts will be extended. If the Democrats have their way, most of them will be.

But if the two parties each control a branch of government after the 2012 elections, neither may be able to get their way. Instead, they would have to compromise -- or a stalemate would cause the Bush tax cuts to disappear. After the last few days, a stalemate doesn’t seem like such a bad bet.

Clay Waters
Clay Waters was director of Times Watch, a former project of the Media Research Center . Read more: http://archive.newsbusters.org/bios/clay-waters.html#ixzz3CdgxLFgQ