How Obama moved the tax debate to the right

February 21, 2013

If the 2012 election was fought over any one issue, it was tax revenues. Mitt Romney thought tax rates were fine where they were. President Obama thought they needed to go considerably higher.

Obama won that election and with it, many thought, the argument over taxes. But a few short months later, the "center" on taxes appears to have shifted to the right -- even as compared with the months after Republicans won the 2010 midterm elections. And the blame for that may lie as much with Democrats as Republicans.

The initial budget plan released in December 2010 by former Republican senator Alan Simpson and former Democratic White House chief of staff Erskine Bowles, if passed today, would raise taxes by more than $2.6 trillion over the next 10 years. The new Simpson-Bowles proposal, released earlier this week, would raise taxes by barely half that.

Simpson-Bowles isn’t alone in sharply reducing its tax ask. The bipartisan debt commission chaired by former OMB director Alice Rivlin and former Republican senator Pete Domenici released its first report in November 2010. It called for more than $3.5 trillion in revenues over the next decade -- some of which would’ve been raised through a value-added tax. But the post-election update of their report called for only $1.5 trillion in revenues, and it scrapped the value-added tax.

Obama ran for reelection with a budget calling for $1.7 trillion in tax increases and a promise that he’d oppose anything that didn’t raise tax rates on families making more than $250,000. In the end, the fiscal-cliff deal raised a bit more than $600 billion in revenues and raised tax rates only on families making $450,000 or more. Today, White House officials say they’d be willing to settle for $1.2 trillion in total revenues.

The Republican position on taxes, meanwhile, is best summed up by Senate Minority Leader Mitch McConnell. "The tax issue is finished, over, completed," he said after the completion of the fiscal-cliff deal. But even this represents a shift to the right. Both in 2011 and again in 2013, House Speaker John Boehner had offered the White House $800 billion in new revenues -- though only through tax reform, and only as part of a larger deal that included deep entitlement cuts. The fiscal-cliff resolution included less than $700 billion in new revenues, but Republicans say that's as far as they're willing to go, even if that means getting no new entitlement cuts at all.

Bowles partly blames Obama for the shifting of the center on taxes. “I think it is fair to say if you go back and look at what was said after we came out with the original Simpson-Bowles plan, the White House and the president hit us up pretty hard for two things: They said we had too much revenue and too much defense cuts,” he says. “And being far out front of the president on revenues wasn’t something I wanted to do again.” He notes that the $1.3 trillion in taxes that his plan envisions is identical to Obama’s final offer during the fiscal-cliff deal.

Many liberals echo Bowles’s statement, arguing that Obama’s tendency to begin negotiations in the middle has abetted the GOP’s efforts to pull the discussion in a more conservative direction.

“This is the success of the radicalization of the right,” says Neera Tanden, president of the liberal Center for American Progress, which has released its own tax-reform proposal calling for $1.8 trillion in revenues. “This is the issue of having a moderately progressive-slash-centrist president pitched against the right. Everyone moves right to appear in the middle.”

No, you blink first. (Jewel Samad / AFP/Getty Images)
No, you blink first. (Jewel Samad / AFP/Getty Images)

But part of the difference between the trillions in new revenues envisioned by the major bipartisan commissions and the more modest sums endorsed by the Obama administration dates back to a pledge Obama took during the 2008 campaign, to resist any tax increases on Americans making less than $250,000.

“One of the problems the president has is his promise that there won’t be a tax increase on anyone below those income levels,” says Alan Viard, a tax specialist at the conservative American Enterprise Institute. “It’s a straitjacket. You have to have some increase in tax burdens or benefit cuts on people making less than 250,000 to close the fiscal gap.”

That pledge made the kind of revenue numbers envisioned by Simpson and Bowles or Domenici and Rivlin in their respective plans -- both of which do increase taxes on some Americans making less than $250,000 -- effectively impossible. And it set up a new, and much more cramped, zone of the possible on taxes, where the Republican position is that taxes shouldn’t be raised on anybody, and the Democratic position is that taxes shouldn’t be raised on almost anybody.

This is a dramatic change in negotiating postures, says Bob Greenstein, President of the liberal Center for Budget and Policy Priorities. “Many people forget that when the Reagan tax cuts turned out to lose far too much revenue, the leader in scaling back the revenue loss in 1982 was Bob Dole, a Republican! It’s as though with each iteration of the debate the contours sort of shift a bit further to the right in terms of revenue.”

Yet even as the tax debate has moved to the right, the spending debate has moved to the left. Republicans today promise to leave Medicare and Social Security benefits untouched for at least the next decade. They also want to increase defense spending above its current levels and are beginning to make their peace with the permanence of the Affordable Care Act, which Boehner now calls, pointedly, “the law of the land."

The consensus on spending, in other words, requires a very different consensus on taxes -- or vice versa. “If we keep Social Security, Medicare and Medicaid largely unchanged, we’re going to need a significant amount of additional revenue,” says Viard. “In fact, we’ll need additional revenue even if we curtail them somewhat. It’s just not realistic to think we’ll cut their growth enough to not need more revenue. And some of that revenue is going to have to come from the bottom 98 percent.”

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Neil Irwin · February 21, 2013