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Magazine / NEED TO KNOW: WHITE HOUSE

Crossing the Rubicon

The president has gambled that Americans want the rich to pay more. His budget puts his money where his mouth was.

It's all falling into place: Obama is sending a calibrated campaign-year message.(AP Photo/Susan Walsh)

photo of Major Garrett
February 16, 2012

President Obama’s economic populism is now codified in ink, and analysts in both parties see his election-year budget request for nearly $2 trillion in higher taxes as a declaration that Democrats, wisely or unwisely, no longer fear a high-profile tax debate with Republicans.

No Democratic president running for reelection since Harry Truman in 1948 has called for the magnitude of new and higher taxes that Obama now seeks ($1.7 trillion over 10 years, according to the White House; $1.9 trillion, according to congressional Republicans). Obama has campaigned for higher taxes before—ending President Bush’s tax cuts for top earners, trimming deductions for the wealthy, and erasing subsidies for the oil and gas industry. But the president breaks new ground with his calls for a tax hike on stock dividends (from 15 percent to 45.4 percent), a higher estate tax (from 35 percent to 45 percent), the so-called Buffett Rule to capture at least 30 percent in federal taxes from millionaires, and $61 billion in new fees on big banks and insurers.

What started in Obama’s December speech in Osawatomie, Kan., as rhetoric reminiscent of Teddy Roosevelt, is now spelled out as Democratic doctrine. “He’s crossed the Rubicon here, and he thinks he has the public behind him,” Will Marshall, president of the Progressive Policy Institute, says of Obama’s tax-increase gambit. “This is an election-year statement.”

 

The White House believes that three rounds of deficit and debt pugilism with congressional Republicans last year bruised both sides and imperiled Obama’s reelection strategy. Then Obama pivoted to a jobs bill to be financed by higher taxes on the wealthy, and GOP hostility gave him an enemy. His poll numbers improved while Congress’s approval stagnated. From that skirmish came a revelation now vividly apparent in the budget’s fine print: Populism wins. “Republicans are still operating under the delusion that America is still in the grips of taxophobia,” Marshall said.

Polls consistently support Obama’s perspective. An ABC News/Washington Post survey earlier this month, for instance, found that 72 percent of respondents agreed that taxes should rise on people earning more than $1 million; 68 percent said the wealthy pay too little. Against this backdrop, Obama’s election-year gambit constitutes the highest-stakes political gamble on tax policy since Truman—who, coincidentally, also positioned himself against a Republican “Do-Nothing” Congress too cozy with the wealthy.

In the post-Truman era, Democrats have tiptoed around the tax debate. John F. Kennedy cut marginal tax rates. Lyndon Johnson’s 1964 budget called for a reduction in the federal workforce to offset the costs of new antipoverty programs. Johnson also said that revenue would rise due to “a strongly growing economy spurred” by Kennedy’s tax cuts. Jimmy Carter didn’t propose higher taxes in 1980, and cuts he sought in social spending prompted a bitter primary challenge from Edward Kennedy. Walter Mondale called for tax increases in the campaign against President Reagan and lost 49 states, darkening the shadow that the issue has cast over the Democratic Party.

Bill Clinton raised taxes in 1993 but lost control of Congress to the GOP in 1994. So he declared, “The era of big government is over” in 1996 and spoke no more of higher taxes. He cut them in 1997 with GOP cooperation. Even Obama’s 2008 campaign trod carefully: The candidate promised to keep taxes low for those earning less than $250,000.

Ruy Teixeira, a senior fellow with the Center for American Progress, has beseeched Democrats for years to abandon their fear of the tax debate and champion higher taxes on the wealthy. The Obama budget, finally, reverses decades of Democratic reticence: “I feel a little bit vindicated,” he says. But Teixeira doesn’t credit Obama nearly as much as he does changing public attitudes about wealth and wage disparities—and a post-bailout sense, exemplified by the Occupy movement, that redistribution is retribution. “Voters have been willing to give inequality a pass because they didn’t think it affected their own mobility,” Teixeira says. “People aren’t so sure about that anymore.”

If Teixeira feels vindicated, Republicans are appalled. They contend that if Obama gets his way on taxes (and if the taxes built into the health care law are allowed to take effect), marginal tax rates for high-income Americans could approach 45 percent—higher than at any time since 1987, when top rates were cut from 50 percent to 38.5 percent. “It lays bare the president’s shocking disregard for what it takes to get our economy moving,” says Lanhee Chen, policy director for Mitt Romney’s campaign. “I don’t think the American people are itching to redistribute income. They are itching to create jobs.”

Some Republicans say that Obama drafted his budget specifically for a general-election campaign against Romney. “They think Romney is most vulnerable on the issue of higher taxes on the wealthy,” says Rep. Pat Tiberi, R-Ohio, chairman of the Ways and Means Subcommittee on Select Revenue Measures. “Romney’s ability to defend his wealth and his ability to make money has not been very good. They thought, ‘Hey, this budget is a twofer.’ I understand why they made that calculation.”

Still, Tiberi sees Obama’s approach to higher taxes as something that may poll well in the abstract now but look far more economically ominous in the fall. “People will start to connect the dots and see all these higher taxes are consistent with redistributing wealth and not hope and change,” he says. Yet the muscular White House approach is very much anchored on hope and change: namely, Obama’s hope that the tax debate has changed.

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