Middle-class tax

Hillary Clinton's pledge to avoid middle-class tax hikes is bad news for progressive politics

by Matthew Yglesias

Hillary Clinton — like Barack Obama before her — wants voters to know that however much she may favor defending and expanding useful federal programs, she won't be asking the 97 percent or so of American households that earn less than $250,000 a year. She's so eager to make this known, she's even made it a point of pride in her primary campaign against Bernie Sanders.

The bar on middle-class tax hikes is the perfect policy stance for a 21st-century Democrat, blending timidity in the face of the public's skepticism about tax hikes with boldness in the face of the liberal base's rage about income inequality. And directionally it's the right idea. A huge share of the income gains over the past generation have gone to a tiny minority of high-income households, so those are the ones who are going to have to pay the bulk of the tab for useful new investments.

But offered as a formal Grover Norquist–style pledge, the way Barack Obama and Clinton have, it's also destructive of the long-term possibilities of progressive governance. The best and most effective American (and, for that matter, foreign) social programs are used — and paid for — by everyone, creating a virtuous cycle that keeps them reasonably effective and reasonably popular. Democratic communications professionals — including people who've worked for Obama and people who currently work for Clinton — swear the tax pledge is a political necessity. If that's true, it also speaks to a certain amount of intellectual bankruptcy in contemporary American liberalism. It's an ideology that stands for the creation of new government programs but won't stand up for the idea that these programs are actually sufficiently valuable to ask people to pay for them.

Consider a couple of existing programs whose creation would have been blocked by the "no middle-class tax hikes" principle — Social Security and Medicare.

These two programs are highly effective at their core goal of bolstering the living standards of retired people. And they're also extremely popular, not despite being the most expensive government programs around but because they are so expensive. These are not narrowly targeted welfare for the poorest or most deserving of senior citizens. They are broad programs that serve essentially all elderly Americans as a matter of right. That bolsters middle-class support for the programs, but it also enlists the middle class in actually using the programs and helping to ensure that they work well, creating a virtuous circle of public support and reasonably high-quality service delivery.

Part of what makes that universal structure work is that the burden of paying for the programs is spread across the whole population. Yes, the rich pay the most. But basically everyone pays some — in part because it's really hard to pay for a giant expensive program unless everyone pays some.

That's the reason the paid family leave bill from Sen. Kirsten Gillibrand and Rep. Rosa DeLauro includes a small 0.4 percent increase in Social Security taxes. They want to create a program that, like Social Security and Medicare, nearly everyone will use. To do that, they need a broad tax base. Clinton's approach simply rules out trying to make the case on the merits of big new social insurance programs.

Indeed, even as Obama's political team insisted on the necessity of avoiding middle-class tax hikes, Obama's policy staff found it impossible to construct his signature health care program without relying on them. Both the individual mandate to purchase health insurance and the Cadillac tax on expensive health insurance plans are, in effect, tax hikes that at least some middle-class families pay.

The federal gasoline tax was set at 18.4 cents per gallon back in 1993 and has stayed there ever since. Inflation has eroded the real value of that tax to something closer to 11 cents, and improved fuel efficiency of the American fleet has reduced the number of gallons consumed per car on the road. The result has been a huge structural problem for federal transportation funding, which is traditionally tied to federal gas tax revenue. Congress generally ends up devising some gimmick or other to plug the gap. But higher gas taxes would be a much better way to raise the revenue that's needed.

The reason is that taxing fuel consumption accomplishes a lot of socially useful things. It reduces traffic congestion and highway accidents. And as you've probably noticed if you've ever taken a nice deep breath in a parking garage, burning gasoline has nasty effects on air quality.

Ian Parry, Margaret Walls, and Winston Harrington calculated in 2007 that the total social cost of burning a gallon of gasoline was about $2.10 and that the local pollution cost alone (i.e., ignoring climate change, traffic congestion, and car crash mortality) is about 42 cents. People don't like the idea of paying more at the pump, in other words, but the social benefits of making them do so are considerable. If you manage to actually do something useful with the revenue, that's gravy.

But the middle-class tax pledge rules out raising gasoline taxes as well as a range of other similarly useful taxes:

• No higher taxes on cigarettes, alcohol, sugary soda, or other public health hazards
• No higher taxes on carbon dioxide emissions, the leading cause of climate change
• No congestion taxes to reduce automobile congestion

If taken very literally, the pledge would also rule out broad-based tax reform. You could make the US tax code considerably more efficient by eliminating or curbing special subsidy programs like IRAs and the mortgage interest tax deduction and using the revenue to finance broadly lower rates. These tax subsidies largely help rich families, and reforming them could easily result in lower taxes for the middle class as a whole. But some middle-class families do use them, and any feasible reform would lead at least some of those families to pay higher rates.

Beyond the literal policy issues, the Obama-Clinton pledge carries an implication that liberals should be a bit embarrassed to hear from their leaders: Government programs aren't worth the money. Sure, they're fine if someone else can pay the bill. But that's a low bar. The message is that investing in infrastructure might be nice, but not so nice that we should expect ordinary drivers to help pick up the tab. Universal preschool might be a good idea, but not such a good idea that we should all chip in and pay for it.

Here, though, liberals should be less troubled by Clinton's pledge than by the context in which she's making it. She is touting this message not in a showdown with Marco Rubio or Ted Cruz, but in a Democratic primary showdown with Sanders. She is counting not on the median voter but on the Democratic base to rebel against Sanders's vision of a broad Medicare-like tax to pay for a broad Medicare-like health care system.

The implication is that the Clinton campaign thinks that even Democratic primary voters would rebel at the idea of actually being asked to pay higher taxes in order to deliver more and better social services. Clinton may well be right about this — Obama and his team appear to believe it as well — but if she is, it speaks to a profound problem in the larger liberal project, and pledges that the 1 percent will pay for everything reflects a fairly shallow solution.