Taxing the Middle Class

August 4 - Yesterday, White House Press Secretary Robert Gibbs reiterated the administration's pledge not to raise taxes on Americans earning less than $250,000 per year. This came on the heels of statements by cabinet members Larry Summers and Timothy Geithner over the weekend that did not rule out the possibility of raising taxes on middle class Americans to curb budget deficits. The administration moved quickly to quell rumors that they supported such policies.

Such a pledge, unfortunately, could stymie efforts to put the budget on a sustainable path, and sustainability is needed now more than ever. In CRFB's recent analysis of the CBO's Long Term Budget Outlook, we pointed out that debt held by the public is projected to rise to around 100% by 2040, with much of the growth in costs coming from entitlement spending from programs such as Medicare and Medicaid. The release said: "Ultimately, revenue increases and/or spending cuts will be necessary to prevent 'a vicious cycle in which the government had to issue ever-larger amounts of debt in order to pay ever-higher interest charges.'" New initiatives, including health care reform, will likely put even more pressure on an already-strained budget, and make it even more difficult to cut deficits without broad-based tax reform and increases.

CRFB Policy Director Marc Goldwein recently made this point in the Washington Post:

I think the president has backed himself into a corner here... If the president cares about the deficit and wants to make it a priority, he has to make a major budget deal at some point," he said. "On the table has to be Social Security, health reform, budget cuts and revenue. And it is going to very difficult to get that revenue from just the top sliver of the income scale.