Dan Hall: Obama's tax plan has an eye toward the future

Dan Hall

When President Bush went to war in Iraq, he mouthed some inspirational words about the need for national sacrifice. Those were empty words.

The only real sacrifice came from the tiny few who actually fought, and from their families. He gave the rest of us tax cuts and told us to take out our credit cards and go shopping. Future generations will pay the bill.

Now, in the face of a global financial crisis that threatens a repeat the Depression of the 1930s, both parties in Congress are acting essentially the same way.

Despite the prospect of budget deficits in the trillions of dollars for as far as the eye can see, Democrats are shying away from their own president’s request for about half-a-teaspoon’s worth of tax increases, which would affect only about 1 percent of the population.

Even more irresponsible are House Republicans. On Friday, they released a plan to freeze all domestic spending at current levels, cut the marginal tax rate from 36 percent to 25 percent on the highest-income couples, and reduce it to 10 percent on couples earning $100,000 or less.

That is not a serious proposal. It is their first big propaganda salvo of the 2010 congressional election.

Republicans have never made good on such promises, not under President Reagan, not under President Bush the first — and certainly not under Bush the second, even though they controlled both houses of Congress throughout most of his time in office.

The last president to raise taxes was President Clinton in 1993. He paid a heavy political price —  not a single Republican voted with him, and they won control of the House the following year. Still, Clinton’s tax increase helped set the stage for an economic boom and the first balanced budgets after decades of deficit spending.

The Bush tax cuts erased the budget surplus he had inherited and bequeathed Obama a $1.7 trillion deficit even before he took office. Now, Republicans say they want to double their bet.

True, we all learned in Economics 101 that it is usually not smart to raise taxes during tough economic times. Herbert Hoover did that and helped make the Depression of the 1930s worse than it would have been otherwise.

Still, history does not necessarily repeat itself exactly.

In 1942, Congress again raised the highest marginal tax rate to 94 percent, to finance the battle against the Germans and Japanese. That was a much different crisis than the one we face today, but still, tax rates remained high for decades  afterward — by the mid-1980s, the top rate still hovered at 50 percent. Yet most of that period ranks as a time of great prosperity.

It would be economic suicide to push rates anywhere near that high now. But Obama’s proposal is modest: Two years from now — when, he hopes, the economy will be in better shape — he would increase the current top rate by three points, to 39 percent. That’s where it was under Clinton.

All he wants Congress to do now is to lower the ceiling on deductions for home mortgages and charitable contributions from 36 percent to 28 percent, affecting only the highest-income taxpayers.

Why should they deduct 36 percent, while the rest of us can take off only 25 or 15 percent? Even Obama’s proposed 28 percent at the top still gives them the better deal.

Some argue that Obama’s plan would hurt charities, but it is probably safe to say that only a few people base the size of their contributions on the size of the kickback they will get.

Republicans are right on one point: Obama’s spending proposals on clean energy, health care and education are bigger than we can afford right now. Congress should trim them back.

Yet the need for those three programs is urgent. The only way we can build a healthy economy for the future is to make at least a serious start on addressing them now — and paying for them ourselves. 

We cannot do that without raising taxes at some point. Moreover, we cannot push the whole load onto the rich. There are not enough of them.

This time, our president has to mean it when he calls for sacrifice from everyone. We owe future generations that much.

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