Higher Taxes on the Rich Won't Be Enough

The Washington Post recently reported that, in town hall meetings across the country, Congressional Republicans have faced criticism from their constituents about their unyielding opposition to raising taxes, particularly on the wealthy and corporations. These protests come at a time when, as the article observes, Democrats are aiming to “change the national narrative on taxes” in order to shore up public support for steep increases on the wealthiest one to two percent of Americans.

Exactly what the new narrative might be remains unclear. But one thing is certain: While raising taxes on the wealthy remains a crucial policy imperative, it won't be enough to address the nation's revenue needs. Following Warren Buffett’s most recent demand that the federal tax code stop “coddling” millionaires with generous deductions, the Joint Committee on Taxation along with the Congressional Budget Office and the Treasury released an analysis estimating that a repeal of the Bush tax cuts for those making over $1 million per year would yield a mere $500 billion over the next decade. Similarly, a Treasury report from July of 2010 found that repealing the Bush tax cuts only on households making over $250,000 would produce $670 billion in revenues over the next decade -- compared to $3.67 trillion in revenues if those tax cuts were repealed for all households.

In short, as we have noted before, the wealthy alone cannot shoulder the burden of raising federal revenue; middle class Americans will have to contribute as well, either through the categorical elimination of the Bush tax cuts or, alternatively, through the reduction or elimination of expensive individual tax breaks such as home mortgage interest deductions.

The need for middle class tax hikes reveals a major challenge in changing the narrative on taxes. The Obama Administration has long argued for tax increases on the wealthy in terms of “fairness” -- asking those who have done the best economically to give the most. While the “fairness” frame may be useful in galvanizing popular support for taxing the wealthy -- and polls do show strong public support for this step -- it will not convince middle class Americans of the need to pitch in themselves and share responsibility for raising new revenues.

Many beneficiaries of middle class tax expenditures do not even understand themselves as recipients of these breaks. For example, Suzanne Mettler of Cornell University published a study last year revealing that fully 60 percent of those who benefit from the home mortgage interest deduction do not view themselves as beneficiaries of any government program; similar statistics also apply for beneficiaries of other major middle class tax exemptions such as those that go toward 529 plans and payments for child and dependent care.

If the Obama Administration wants to marshal public support behind the kind of tax increases that are truly necessary, it certainly will need a new narrative on taxes -- one that goes well beyond a focus on the rich.

Only when middle and upper middle class Americans recognize how many tax perks now come their way, and how their federal taxes are now at a record low today compared to the past, can we begin to have a serious conversation about the shared responsibility that is required to address the nation's fiscal challenges.