Yuval Levin is a reasonable guy. He looks at the above chart and draws a perfectly reasonable conclusion over at NRO:
The idea that you can leave today’s spending trajectory in place and pay for it with rising taxes is just a fantasy. Revenue is now a bit below its postwar average, but a return to that level (which CBO projects, again based on potentially dubious expectations of robust growth) would do precious little to address our coming fiscal calamity. What you see here is a spending problem, and it requires a spending solution. That’s not a matter of ideological preference but of the actual nature of our budget trends. … This is the problem to be solved. And it cannot be solved with tax increases, for reasons both political and economic. The Democrats have spent years arguing for a tax increase on the wealthy, now they’ve gotten it and basically gained nothing in the fiscal debate, and they aren’t getting any more tax increases. So can we get to work on the actual problem?
I think the answer from Democrats will be “No.” And here’s why:
1. Many on the left simply don’t believe or accept the numbers reflected in the chart. The spending number is driven by Medicare spending. And liberals now think the CBO is wildly exaggerating the cost of Medicare going forward.
2. Many liberals think the U.S. can afford to raise taxes dramatically from current levels. Research from liberal economists Peter Diamond and Emmanuel Saez suggests — wrongly, I believe — the top marginal rate could go to at least 70% without hurting economic growth.
3. Another example: The liberal Economic Policy Institute has created a model budget through 2035. It pegs spending at 27.8% of GDP (40% above its postwar average) and revenue at 24.1% (a third above its postwar average).
And the increased revenue comes almost entirely by raising taxes on the wealthy and on business including a) letting the Bush upper-income tax cuts expire, b) adding a 5.4% millionaire surcharge, and c) taxing all investment income at labor income rates. Clearly liberals think their tax-hike strategy has plenty of room to run, even though it makes our lopsided tax code even more distorted. They believe the long-term fiscal problem can be solved with a big helping of tax hikes and some IPAB cost controls lightly sprinkled in.
4. Is it true that liberals “aren’t getting any more tax increases”? I argued earlier today that President Obama may get some more tax hikes as part of the sequester/debt ceiling battle. But beyond that, what happens in a debt/dollar crisis? At that point, as we have seen in Europe, the politicians will include tax hikes as part of — or even the bulk of — of any austerity program. Bring on the value-added tax.
I hope Yuval is right, and he would be in a Washington where economic reality prevailed. But the evidence at hand would suggest that is not the case.