Americans have always understood that our nation’s prosperity rests on two pillars: A vibrant free-enterprise system that rewards innovation and risk-taking, and a fiscally responsible government that invests in basic public goods and services that cannot be provided by the private sector. But to benefit from these investments, citizens must pay sufficient taxes to finance them — and for more than two decades now, U.S. political leaders have not asked them to do so.
Last year alone, the federal government spent $2 trillion more than it raised in tax revenue. Our country can afford to borrow when addressing temporary emergencies, but it cannot sustain debts growing faster than our economy in perpetuity. Unfortunately, that’s the path we’re on today, as the costs of health-care and retirement programs such as Medicare and Social Security continue growing faster than the revenues needed to finance them. If this structural mismatch between taxes and spending continues unabated, rapidly rising interest costs will further crowd out critical public investments and smother our economy.
Anti-tax zealots on the right have argued the imbalance can be solved entirely through spending cuts. Yet they have been unable to produce a plausible plan to do so without eviscerating core functions of government, such as food safety and basic scientific research that plants the seeds for innovation. The reality is some higher tax revenue is necessary to finance the needs of our aging population.
President Joe Biden at least partially grasps this reality and has called for raising taxes by almost $5 trillion over the next decade. However, his approach also is marred by political expediency. In Biden’s telling, our current spending trajectory can largely be sustained — and even raised — simply by raising taxes on the top 2% of income-earners, without any contribution from the vast majority of Americans. During his 2020 presidential campaign, Biden famously pledged not to raise taxes on households making under $400,000 (hereafter referred to as “the $400K pledge”). Since taking office, his administration has reinforced this pledge by saying no household earning under $400,000 will pay a penny more in taxes from his policies and proposing to prevent $1.7 trillion of temporary tax cuts that benefit these households from expiring.
Biden is right that the rich need to pay more in taxes but that simply isn’t enough. As this report demonstrates, raising taxes only on households with incomes over $400,000 is insufficient to fund current promises, let alone the new initiatives Biden has proposed during his presidency or the wish list of expanded programs sought by progressives. In addition to starving the government of needed revenue, the $400K pledge prevents the adoption of commonsense tax simplification measures and efficient revenue-raisers that most other advanced economies use to fund their welfare states
But the final problem with the $400K pledge is perhaps the most serious: it destabilizes our democracy. Asking fewer than 3 million households to bear the burden of financing a government meant to serve 330 million people is neither fair nor practical. It removes the incentive for prudent fiscal policy by severing the crucial link between citizens’ demands for more government spending and their willingness to pay for it. After all, why should voters care about wasteful or corrupt government spending if “somebody else” is paying for it? Meanwhile, the few households that are footing the bill will likely reduce their output in response to confiscatory levels of taxation. Government programs in a democratic society can only be sustained if most of the citizens who can contribute are willing to do so.
Pragmatic progressives must pressure the Biden administration to soften the president’s misguided tax pledge heading into a potential second term. They must start making the case to voters why progressive programs are worth paying for. That means advocating for not only progressive tax increases, but also for broadening the tax base to close inefficient loopholes — even those that benefit the middle class — and adopting new taxes, such as the consumption taxes that fund European welfare states. Beyond that, progressives must propose to modernize rather than expand existing spending programs, because the public’s tolerance for taxation only goes so high. Bringing spending into alignment with revenues at a sustainable level voters truly support is essential for Biden to establish a durable legacy.