Now that all the speeches are over, the concessions have been made, and we can finally close the book on this presidential campaign, one thing is clear: this was an election that hinged on fairness. And no issue illustrated the candidates’ contrasting visions and values more vividly than taxes. The differences between Governor Romney and President Obama could not have been sharper—while the President consistently called on the wealthy to contribute a little more, Governor Romney refused to raise their taxes by even a penny.
No issue was more litigated in the debates, in the ads, and on the stump. In his closing ad, the President pledged to “ask the wealthy to pay a little more.” And rather than merely defending his tax plan, President Obama went on offense, using his closing argument tour to make the case that the wealthy should contribute more so that we can “reduce the deficit and still make investments in things like education and training, and science and research.” Even senior Republicans like Rep. Tom Cole (R-Okla.), a member of the House Budget Committee, have acknowledged that this election was “a referendum on taxes” for the wealthy.
Now that the election is over, Congress and the White House will be under tremendous pressure to reach a deficit deal to avoid the “fiscal cliff”—the large automatic spending cuts and tax increases that are set to go into effect at the end of the year. As these negotiations get underway, the President’s victory should be understood as a mandate for a balanced agreement that raises new revenues from the highest income Americans.
We need new revenues because revenue levels have fallen precipitously over the last decade; by 2014, domestic investments—non-defense discretionary spending, in budget-speak—are set to hit their lowest levels in over half a century. Under these circumstances, Bowles-Simpson, which would increase revenues to 20 percent of GDP by 2020, the level at which we last achieved balanced budgets under President Clinton, is a good benchmark. This is the absolute minimum level of revenue necessary to make crucial national investments while stabilizing the debt.
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Asking the wealthy to pitch in a little more to provide this new revenue is both fair and smart. It’s fair because over the last few decades those at the top have reaped extraordinary benefits while the rest of the country has struggled. U.S. GDP more than quintupled from 1979 to 2008, but nearly 60 percent of that growth went to the top 1 percent, while real incomes for the bottom 90 percent declined. Yet in spite of their spectacular good fortune, the richest 1 percent today pay a smaller percentage of their income in federal taxes than they did in 1979. Raising revenue from the rich will also ensure that the middle and working class Americans who have been left behind in recent decades can continue to rely on critical programs like Medicare, Social Security, and Medicaid.
Asking the wealthy to pay their fair share is also smart policy. We need new revenue not only to reduce our budget deficits, but also to invest in key areas like education, infrastructure, and new energy and medical research. Only by making these investments today, can we lay the foundation for growth and prosperity tomorrow. Let’s remember that after raising taxes on the well-off in 1993, we experienced eight years of high economic growth.
Conservative supply-siders obviously have a different view: for decades they have insisted that cutting taxes for the highest income earners is the way to spur economic growth. But as a recent report by the non-partisan Congressional Research Service confirmed, there is no evidence that this is true. Indeed, conservatives have it exactly backwards; according to a growing number of economists, high inequality increases economic instability and reduces growth. Given the gross inequality in the United States today—the top 1 percent of American households are now wealthier than the entire bottom 90 percent—the smart pro-growth policy is to make our tax code more progressive, not less so.
Yesterday, American voters sent Washington a message; congressional Republicans should heed that message and partner with the President to craft a plan that will reduce our deficits and fund necessary national priorities by maintaining progressivity in our tax code and asking the wealthy to pay a little more. If we follow this course, we can strengthen the middle class and set America on a path to shared prosperity.
Neera Tanden is the president of the Center for American Progress.