Tax Analysts Blog

Worth It?

Posted on Jun 18, 2009

Matthew Yglesias has a great article in the current issue of the The American Prospect arguing that progressives should rediscover the virtues of taxation. Until the 1970s, he says, most Americans considered taxes a necessary evil. But over the last thirty years, egged on by conservative political leaders, voters have focused less on the "necessary" and more on the "evil." He writes:

    [S]tarting in the late 1970s, political entrepreneurs on the right helped launch a broad "tax revolt" that completely changed the public's view of taxation. Before [the revolt], higher taxes were a price that one might or might not want to pay in order to finance an expenditure. After [the revolt], taxes became an unmitigated evil, and "to do that, you'd have to raise taxes" became an unanswerable objection to any policy endeavor.

President Obama hasn't challenged this mindset, Yglesias contends. Indeed, Obama's focus on taxing the rich -- and only the rich -- serves to underscore it.
    Obama did not change the framework so much as find a way to survive within it. A platform of no tax increases for the bottom 95 percent can win elections, but it reinforces rather than debunks the right's fundamental view of the tax question -- that public services aren't worth paying for -- and merely suggests that the correct answer is to get someone else to pay for them.
For progressives eager to build a just society, this is no small failure. Progressive government is expensive. And assuming that huge and unsustainable deficits are not part of the progressive game plan (a big assumption, if you take seriously the head-in-the-sand commentary of the liberal punditocracy), then you need higher taxes. And not necessarily progressive ones.
    If you care about inequality, in other words, the thing to focus on is not soaking the rich through the tax code but rather ensuring that there's enough tax revenue to finance generous public services .

Like many before him, Yglesias looks overseas to find evidence for his case:
    The Scandinavian model of a cradle-to-grave welfare state financed largely through regressive taxation is not regarded as punitive to the poor. By contrast, the pre-New Deal United States had an extremely progressive tax structure -- a simple income tax levied only on the wealthy -- but it resulted in meager revenue and financed no noteworthy social-insurance system or public services.

Yglesias is right about Scandinavia but wrong about the United States. Before the New Deal, Americans relied heavily on regressive taxes, including tariffs (until World War I) and relied on sin taxes on alcohol and tobacco (until the late 1930s). Indeed, the New Deal itself made liberal use of regressive taxes, tolerating a host of excise taxes on consumer goods, not to mention the Social Security payroll tax.

But that last point actually bolsters Yglesias's argument. Franklin D. Roosevelt understood that regressive taxes could be put to progressive ends. The point, as Yglesias says, is just making sure that you have adequate, sustainable, politically viable revenue.

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