Building an Economy that Works for Everyone

Why do deficit hawks suddenly appear, every time Obama is near?

It’s been about eight years since we’ve heard the “deficit hawks” sing their song – but it’s an easy one to remember because the tune is always the same. Funny how it’s always sung loudest when the conversation turns to investments in improved health, education or infrastructure.

So says Robert Reich in The Great Debt Scare is back, in response to New York Times article predicting a sea of red ink in federal finances. The bottom line, as David Fiderer writes, the Obama administration has inherited a situation in which future deficits will dwarf all those prior to 2009.

Most states don’t have the option of deficit spending — and with the worst recession in generations now gripping the country, they’re grappling with steep declines in tax receipts. Faced with massive cuts to K-12 education, public universities, health programs, and other vital public structures, elected leaders are looking for new revenue to balance the books.

University of Massachusetts Amherst economics professor Nancy Folbre writes that support for doing so could be coming from some unexpected places, in her blog post Raise My Taxes:

We live in a country where the most visible support for raising taxes on the rich comes from … the rich. So much for the seeming dictates of economic rationality and the logic of class war.

A few states are  taking steps down that road. Oregon legislators are taxing high-income earners and corporations more now and less later (rates will drop in future years), socking some away in a “rainy-day” fund, and taxing hospitals and health-insurance premiums to cover more uninsured children and adults.

California school districts are asking voters to consider special property taxes for local schools, which might work  for wealthier districts, but sells kids short that are growing up in less affluent areas. And Wisconsin is looking at a package of tax increases on high incomes, and new taxes on tobacco and oil.

Washington’s legislators and governor passed an all-cuts budget instead, and State Sen. Rosa Franklin writes that more of the same is ahead, due to the state’s over-reliance on sales taxes for revenue. The Washington Budget and Policy Center backs that up by pointing out that we’re losing an ever-greater share of sales tax to e-commerce.

Franklin’s tax proposal would:

  • Lower the state sales-tax rate from 6.5 percent to 3.5 percent;
  • Phase out the state share of the property tax and cap property tax at 0.64 percent;
  • Require that any future change in tax rates be approved by two-thirds of both the Legislature and Washington voters; and
  • Provide business-and-occupation tax and public-utilities tax credits.

While her proposal was unsuccessful year, Franklin says she will continue to press for this legislation in the next legislative session:

As our current economic struggles continue to illustrate the inadequacy of our outmoded tax structure, I expect to build support for a structure more in tune with the needs of our era.

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