A Mandate for a Conservative Victory on Taxes?

The tax cuts enacted by Congress under George W. Bush in 2001 and 2003 stand as the greatest achievement ever for small government conservatives. While a good chunk of Reagan's historic tax cuts had been cancelled out before he even left office, Bush's tax cuts have lived on and on, draining trillions from the U.S. Treasury.

These cuts have not, as hoped, triggered deep cuts in government spending and "starved the beast." Instead, they have simply fed the debt.

Now, though, the stage may finally be set for the Bush tax cuts to start achieving their goal of downsizing government—all with the acquiescence of a Democratic president and Congress. That's because, bizarrely, the mainstream Democratic position is that the bulk of the Bush tax cuts should stand and, instead of repealing those cuts in their entirety, the U.S. should only end tax breaks for the rich and then make up the rest of the lost revenue by enacting deep cuts in government spending. As I wrote yesterday in a Reuters:

Obama promised on the campaign trail that he wouldn’t raise taxes on the middle class and implied that repealing the Bush tax cuts for the wealthy would yield enough revenue. In fact, more than three-quarters of all revenue lost by the U.S. Treasury because of the Bush tax cuts is due to cuts that benefit households making under $250,000, according to the Congressional Budget Office. Simple math suggests that as long as the vast majority of earners are paying the lowest tax rates in half a century, it will be hard to tame the deficit without deep spending cuts. . .

Amid all the focus on the “1 percent,” it has been easy to forget that the middle class and the poor compete for resources. Taxes paid by middle-class households make up the bulk of federal revenues that, in turn, fund programs like Medicaid, food stamps, housing assistance and Pell grants. Only by running large deficits has the United States has been able to maintain a strong safety net and historically low taxes on the middle class.

This situation can’t go on forever; the trade-offs will only get harder as the population ages and more low-income seniors need assistance. Robert Greenstein of the Center for Budget and Policy Priorities has estimated that revenue as a share of GDP needs to be 23 percent to 25 percent in future years to maintain current domestic programs – a goal that is impossible to achieve without repealing the Bush tax cuts in their entirety.

Democrats have been remarkably silent on these facts of fiscal life. They have embraced hiking taxes on the rich – and the rich alone – with such fervor that they have ignored how this would, over time, translate into a historic defeat for the progressive project of compassionate government.

The right progressive position on the fiscal cliff is that any deal should raise comparable revenues to those that would come from letting the Bush tax cuts lapse in their entirety. Otherwise, Congress will spend coming years downsizing government in order preserve lower tax rates—exactly the long-term goal of the Bush tax cuts.

That's not the mandate that Obama won on Tuesday.

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