By James Kwak
Paul Krugman describes the battle lines this way:
“Democrats want to preserve the legacy of the New Deal and the Great Society — Social Security, Medicare and Medicaid — and add to them what every other advanced country has: a more or less universal guarantee of essential health care. Republicans want to roll all of that back, making room for drastically lower taxes on the wealthy.”
I think he’s right about the Republicans. But I don’t think he’s right about the Democrats.
If you want to preserve Social Security, Medicare, and Medicaid, in a world where the population is aging and health care costs are going up, then it’s obvious that your top priority should be higher tax revenues. Without a reasonable level of federal tax revenues, there’s no way we’ll be able to pay for those programs in the future.
Instead, President Obama chose tax cuts for the “middle class.” That doesn’t make him a bad person: those tax cuts help the middle class, at least in the short term. (The one thing that I always found indefensible about his position, however, is defining the middle class up to $250,000 in annual income per household, which was his threshold before the compromise at $450,000.)
But those tax cuts came at the expense of future federal tax revenues, which means they came at the expense of—you guessed it—Social Security, Medicare, and Medicaid. In other words, Obama and the vast majority of the Democrats in Congress chose goodies for low-, middle-, upper-, and very-upper-income families today (the only people not getting goodies are the super-upper-income families that make more than $450,000*) over the fiscal capacity required to preserve our social insurance and safety net programs.
That’s the problem with the tax deal—not the fact that the threshold was set at $450,000 rather than $250,000, which Krugman correctly notes doesn’t make much of a difference. And you can’t say the tax cuts were a necessary choice to keep the economy from slipping into recession. If that were the case, they should have been temporary, not permanent, and Obama has been trying to make them permanent since 2010.
The Democratic Party today, as I’ve said countless times over the past year, has become the party of smallish government and tax cuts for most people, while the Republican Party is the party of tiny government and tax cuts for everyone. There is no party dedicated to the New Deal and the Great Society. We need one.
* And even they are getting goodies. First, they benefit from the lower marginal tax rates on income up to the $450,000 threshold; second, they benefit from the treatment of dividends as capital gains, not as ordinary income; and third, they benefit from the $5 million estate tax exemption.