THE BLOG
04/24/2016 09:09 pm ET Updated Apr 25, 2017

Let's Hear It for Tax and Spend

There was a truly silly dogfight last week between the Clinton and Sanders camps on who was the worse offender when it came to possibly raising taxes on the middle class. Clinton had supported Philadelphia Mayor Jim Kenney's proposed three cents an ounce tax on sugary drinks to pay for universal pre-kindergarten. Sanders countered that this was a tax increase on working people.

He said: "Frankly, I am very surprised that Secretary Clinton would support this regressive tax after pledging not to raise taxes on anyone making less than $250,000. This proposal clearly violates her pledge. A tax on soda and juice drinks would disproportionately increase taxes on low-income families in Philadelphia."

Sanders, as it happens, has proposed a number of tax increases that would hit working families, including higher payroll taxes to finance his proposed Medicare for All program. My American Prospect colleague Paul Starr has calculated that all of Sanders' tax hikes would add up to about $1.5 trillion a year. That's about eight percent of GDP.

Most of these proposed taxes would hit the wealthy, but some would bite the working middle class. And as Starr observes, some of the proposed tax levels on the wealthy are so high that they are implausible economically, such as a top capital gains rate of 64.2 percent.

Behind this latest Clinton-Sanders squabble are several momentous policy questions.

*How badly under-funded are social needs in the United States?

*Can increased public outlays be financed mainly by raising taxes on corporations and the very wealthy?

*To the extent that some taxes are raised on the middle class, can they be offset by benefits?

*And how can a program of increased public outlays supported by higher taxes be made to work politically?

For starters, Sanders proposal to increase the public share of GDP by something like eight percentage points is not crazy. Total public spending in the US is about 37 percent of GDP. Raise that by 8 points and it would be 45 percent, still well below the level of the most advanced nations of Europe.

Much of that increase would simply be the result of shifting money that is now inefficiently spent on private health insurance premiums and converting that outlay to far more efficient universal health insurance.

If we also want to modernize our decaying infrastructure, reverse climate change, reduce the reliance on debt to finance higher education, and add services that other nations take for granted like universal child care, then spending 8 percent more of GDP socially is not a crazy goal.

Can we get that money mainly by taxing the rich? We can surely get most of it.

In the period after World War II, the top marginal income tax rate on individuals was in excess of 90 percent. The effective corporate tax rate was a lot higher than it is today. And the economy of that era boomed.

Sanders and Clinton have criticized each other for raising some taxes on the non-rich, but this criticism is misplaced. There are taxes that are good and necessary policy, even they fall partly on the middle class. Examples are payroll taxes that finance Social Security and Medicare, taxes on tobacco that deter tobacco consumption and taxes on carbon.

The issue is not whether taxes should ever be levied on the non-rich. Rather, the question is offsets and benefits.

High taxes on sugary drinks and on tobacco make sense to deter unhealthy consumption. If they fall heavily on the working class, that impact can be offset with other benefits -- such as broader health and pre-k coverage.

Higher payroll taxes to finance universal health insurance make sense, because the result over time will be lower costs and a more efficient system. Carbon taxes can be offset with tax credits for the non-rich.

That said, not everything in Sanders' program makes good sense as tax policy. But the idea of a big and long overdue increase in public outlay deserves mainstream consideration. And the details of how to finance it deserve thoughtful debate.

However, after more than two decades of often joining in the government-bashing, the Democrats will need to play catch-up. Sometimes, it was hard to distinguish the anti-government rhetoric of Hillary Clinton's husband from that of Ronald Reagan. (It was Bill Clinton, not Reagan, who declared, "The era of big government is over."

For more than two decades, the right has been playing a cynical game of starving the or privatizing the public sector; then, when citizens are dismayed at the low quality of public services, the right can crow that government doesn't work.

The right's well-heeled supporters win both ways. They don't use tax-supported services anyway, and they reap the benefits of tax cuts when government is starved.

Democrats, whether led by Bernie Sanders or Hillary Clinton, will need to reverse this psychology. They will need to invest some political capital in the proposition that we need more public services, not fewer; and that the era that began with Reagan, of proposing to solve every economic ill with a tax cut is what's over.

Sanders and Clinton should stop bashing each other as big taxers. That only nourishes the rightwing line about liberals. The debate about how to pay for a more effective government is an important one. There is real work to be done.

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Robert Kuttner is co-editor of The American Prospect and professor at Brandeis University's Heller School. His latest book is Debtors' Prison: The Politics of Austerity Versus Possibility.

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