When an economy is booming and jobs are plentiful, a “do no harm” approach to public policy will suffice. If GDP were expanding at a 4% annual rate, the unemployment rate were at 5%, and the national debt were low, then the fiscal cliff deal might be tolerable rather than terrible. While it won’t create any jobs or add to growth — just the opposite in fact — and it will only cut the national debt by a rounding-error amount, passage does avoid an across-the-board income tax hike and probable recession.
So that’s something. But good enough? Not really. Avoiding major unforced errors is necessary but insufficient when you’re way behind in the game.
But we’re not even doing that. Total taxes are going up some $220 billion this year, including both the Obama income tax hikes and the Obamacare tax hikes. Even worse, the income tax hikes raise the burden on working, saving, and investing. They make our mess of a tax code even more damaging to growth than what it was before.
Nor is Obama done pushing higher taxes. As he said on New Year’s Eve, concerning the outstanding issues of the sequester and debt ceiling:
I want to make clear that any agreement we have to deal with these automatic spending cuts that are being threatened for next month, those also have to be balanced, because, remember, my principle always has been let’s do things in a balanced, responsible way. And that means the revenues have to be part of the equation in turning off the sequester and eliminating these automatic spending cuts, as well as spending cuts. Now, the same is true for any future deficit agreement. Obviously we’re going to have to do more to reduce our debt and our deficit. I’m willing to do more, but it’s going to have to be balanced. We’re going to have do it in a balanced responsible way.
How much more “balance” does Obama want?
1. Well, the fiscal cliff deal is a $620 billion tax hike, according to the Congressional Budget Office. Obama’s original offer to House Speaker John Boehner called for $1.6 trillion in tax hikes, including a) $960 billion in higher tax rates and higher taxes on investment income along with b) $600 billion in additional taxes, such as limiting tax breaks for wealthier Americans.
2. In a November policy memo, White House economists thought a tax hike of around $500 billion was doable via broadening the tax base.
3. Also recall that the president’s 2013 budget called for a $300 billion corporate tax hike.
So adding it all up, it would seem the president’s second term goal is for roughly $2 trillion in new taxes. We’re only one-third of the way there.
But what leverage will Obama have to make good on his tax-hike threats? As The Wall Street Journal editorial page notes today, “The President has had unusual leverage over Republicans because he just won re-election and because taxes were going to go up even if they did nothing.”
One potential Obama bargaining chip is the sequester, particularly the $500 billion in defense cuts that many GOPers loathe. So perhaps Obama can offer to turn off the defense cuts in exchange for $500 billion from limiting tax breaks for the rich. And then maybe another $300 billion in corporate tax hikes for agreeing to change how Social Security benefits are calculated. Many scenarios are possible. What’s for sure is that Obama desires vastly higher taxes to pay for his expanded welfare state. Desires and needs them. And it’s now Democrat economic theology that tax rates could return to pre-Reagan levels without hurting growth.
Tax hikes? Obama is only just getting started.