- Julian Zelizer: It has become politically unthinkable to back across-the-board tax hikes
- He says presidents from LBJ to Reagan supported hikes to cut budget deficits
- With trillion-dollar deficits, the only talk is about ending temporary cuts, he says
- Zelizer: A solution to high budget deficits can't be found if tax increases are ruled out
The tax debate is heating up. With the federal government racking up trillion-dollar deficits and President George W. Bush's tax cuts set to expire, Democrats and Republicans are trying to position themselves so that they can avoid being attacked as members of the party of tax hikes.
Democrats have called for an extension of the tax cuts for incomes under $250,000. They argue that Americans earning more than this sum should not have their tax cuts extended so that the money could be used to reduce the budget deficit.
Republicans insist that the tax cuts should be extended for all levels of income, including that of the wealthiest Americans. They have accused Democrats of dividing people by income and supporting tax policies that would stifle the economic recovery.
The parties are not totally united on this point. There are some Democrats in the Senate who either want to extend tax cuts for everyone or who want the dividing line to be $1 million. Some Republicans, although often in private, agree that continuing with all of the Bush tax cuts, which were meant to be temporary, is unsustainable.
What is remarkable is how the notion of using tax increases to curb the size of the deficit has been abandoned as a legitimate form of debate, at a time when tax receipts as a percent of GDP are at their lowest level in decades. Right now, the most radical proposal on the table, from President Obama and congressional Democrats, is to allow temporary tax cuts on the wealthy to expire while extending tax cuts for millions of other Americans. This is a far cry from previous eras when presidents in both parties agreed to across-the-board tax increases to lower deficits.
Until recently, taxes and deficit reduction have often gone hand-in-hand. The history books are filled with examples of when presidents, with congressional support, have resorted to this strategy.
In 1968, President Lyndon Johnson along with Congress were finally able to reach agreement on a 10% tax surcharge, combined with spending reductions, to help lower the the deficit that had ballooned as a result of spending on Vietnam and the Great Society. President Ronald Reagan, the icon of conservatism, reversed his own policies in 1982 and 1983. After having passed the largest tax reduction in American history in 1981, Reagan grudgingly signed on to tax increases in 1982 and 1983, with strong support from Senate Republicans.
President George H.W. Bush agreed to a tax increase in 1990, despite his campaign pledge against doing so, which caused a huge backlash from Republicans like Newt Gingrich. This was a turning point in the GOP, where the political costs for a Republican to agree to higher taxes seemed too great. President Bill Clinton, who campaigned as a moderate Democrat, pressured his party into accepting a tax increase in 1993.
But in recent years, it seems that it is almost impossible for a politician to support a tax increase. Even now, with ballooning deficits, the most that some Democrats and Republicans are willing to do is to propose not extending temporary tax cuts for some Americans. What happened?
The first change has been a shift in the Republican Party to the right. Scholars have documented how congressional Republicans have moved to a more hardline conservative position on most issues.
Congressional Republicans have been insistent on keeping their pledge to conservative activist Grover Norquist with more passion than they have for keeping the promises they made to their own constituents. The younger generation of Republicans revere and fear him. This hardline stance makes it difficult for any member of the GOP to break with the party. His power has become so great that some Republicans, like former Florida Gov. Jeb Bush, are now questioning his role. Bush's father, President George H.W. Bush, recently asked, "Who the hell is Grover Norquist, anyway?"
The second change is the impact of President George W. Bush's tenure. Bush, even in a time of war, stood steadfast in resisting tax increases and received strong Republican support. He refused to make the same mistake as his father. As then-House Majority Leader Tom DeLay said during the younger Bush's administration, "Nothing is more important in the face of war than cutting taxes."
In many ways, Bush proved to be more purely devoted to the anti-tax idea than Reagan and certainly his father. As time progresses, we learn more and more of the impact that Bush's presidency had on reshaping American politics. Certainly, Bush's rigid commitment to avoiding any tax increase was one of the most lasting consequences of the period.
Bush's temporary tax cuts have also had a powerful effect since they continually force Congress to deal with the issue of extending tax reductions, which saps up any political space for debates over increasing them.
The third change is that Obama himself has sent mixed messages. Even though there have been many times when Obama has called for ending the tax cuts for the wealthy, as he does now, he conceded to the GOP in December 2010 as part of a broader deal that included the extension of unemployment benefits.
His decision now puts Democrats in a difficult position. They need to take a big political risk if they go along with the president while they are unsure of whether Obama will follow through on his pledge, and whether he will leave them lying on the ground like Charlie Brown when Lucy keeps pulling the ball away from him.
The problem is that deficit reduction is virtually impossible without tax increases.
In the short-term, any decision to extend the tax cuts to all income brackets will certainly make deficit reduction virtually impossible to achieve. In the long-term, some kind of revenue-raising plan, from rate hikes and loophole-closing reform, will have to be part of a bargain if the government is going to be serious about reducing the amount of red ink. Until the politics change, however, the nation is on a path where one of the basic tools that are normally available to government leaders to run its finances is unused and unwanted.