President Obama’s 2012 budget contains an impressive array of spending cuts: Pell Grants, EPA state water infrastructure programs, and housing for the elderly, just to name a few. I, like many other writers at TNR, am unhappy with some of these cuts. Deep cuts were probably inevitable, given the professed determination to balance budgets. But these cuts would have been more tolerable had the Obama administration put an equal emphasis on increasing revenues.
Thatt’s not to say that Obama didn’t try at all—he clearly did. The budget proposes to end preferential tax treatment for firms that operate overseas. It would increase tax revenue by more than $300 billion over the next ten years by reducing the deduction wealthy people can take for home mortgage interest and charitable giving. A host of tax breaks for the dirty-energy industries would disappear. And big banks would be hit with several billion dollars in fees each year, in order to make the government whole after bailing out the financial sector during the recent crisis.
But most of these proposals are small, relative to the size of the federal budget. And even the big revenue raisers, like Obama’s plan to limit itemized deductions, end up offsetting other tax breaks—in this case, a three-year patch in the alternative minimum tax. All told, “of the $1.1 trillion in net deficit reduction that Mr. Obama claims over the next decade with his budget proposal, two-thirds would be from cuts in spending and one-third from added revenue,” reports the New York Times.
These cuts aren’t easy, a fact that even the Obama administration is emphasizing. “This budget has a lot of pain,” Office of Management and Budget Director Jack Lew declared on Good Morning America. But if the cuts are so painful, why isn’t Obama trying to avoid more of them by increasing taxes instead? After all, if the economy is strong enough not to be derailed by spending cuts, then logic suggests it would be equally resilient in the face of tax increases of a similar magnitude.
What alternatives did Obama have? For one thing, he could have called for imposing a small tax on stock and derivatives trading. That would raise (by a congressional advocate’s estimate) more than $100 billion a year and it would have the added bonus of reining in speculation. Or Obama could have proposed a tax on carbon emissions, which would raise billions of dollars and combat global warming. Or Obama could have proposed raising the gas tax. It’s been sitting at 18.4 cents per gallon since 1993. Adjust for inflation and that means its value has declined by a third.
The substantive objection to raising taxes is that it might slow the still sluggish economic recovery. And there may be something to that. On the other hand, the objection would apply just as accurately to the budget’s proposed spending cuts. The political objection is that voters will tolerate cuts to programs for the poor and elderly more than they will tolerate new taxes. That may be the case. But it’s still very depressing. If even a Democratic president won’t stick up for liberal priorities, it’s hard to imagine anyone else with power will either.