Losing the tax argument

Pub date February 24, 2009
SectionEditorialSectionNews & Opinion

EDITORIAL The lead topic on the local cable TV show City Desk News Hour Feb. 21 was the state budget, and a panel of local reporters were talking about the mix of tax increases and service cuts the Legislature finally passed. After a bit of back and forth, Scott Shafer, host of KQED’s California Report, piped up. "Everyone knows it’s a bad idea to raise taxes in a recession," he said.

Shafer, who was a press secretary to former Mayor Art Agnos, is hardly a conservative commentator. In fact, at the risk of damaging his credentials as an unbiased reporter, we might even call him a liberal. And to judge from the response of most of the panel, nothing he said was particularly controversial. Sure, raising taxes in a recession is bad; so is cancer, and violent crime. Next question.

But that’s not just a limited viewpoint — it’s factually inaccurate. Raising taxes during a recession can be an excellent economic idea, if it’s done right. Because the one thing almost every credible economist outside of the far-right intellectual swampland agrees on these days is that cutting government spending during a recession is a terrible idea — and if the only way to keep the public sector jobs, the social services, and the welfare payments going is to raise taxes, then raising taxes on those who can afford to pay is not only good politics, it’s good policy.

And it’s infuriating that this point seems to have dropped out of the mainstream of debate. That’s a major failure of the Democratic leadership, in California and nationwide.

Historians can argue forever about the direct impact the New Deal had on ending the Great Depression. But it’s pretty clear that what Nobel Prize winning economist Paul Krugman calls the great jobs program of World War II turned the American economy around. And during World War II, tax rates, particularly on the wealthiest individuals and corporations, were exceptionally high. The top marginal income tax rate exceeded 80 percent. Corporations that made more than a modest return paid a high excess-profits tax. The high income tax rates on the richest Americans remained through the postwar boom era, a time when inequality declined and overall wealth grew.

That money went into the public sector, not just for the war but for retooling and rebuilding U.S. industry. High taxes on the rich paid for the interstate highway system, the University of California system, the California Water Project, the birth of the Internet. It took almost half a century for the Republicans and no-taxers to wreck the economic gains of that high-tax era.

And yet, despite all the consistent, clear evidence, we still hear the news media, the commentators, and even liberal Democrats saying that tax cuts are good for the economy and tax hikes are bad.

What we’ve got here is failure to communicate.

One of the most important goals of the next year or two, under the Obama administration, is to change the national debate over public and private priorities. That won’t be easy. President Obama has started off in the right direction, although the Republicans forced him to include several hundred billion in wasteful tax cuts in his stimulus bill. The tax hikes in the state budget plan are almost entirely regressive (sales taxes and a flat increase in the income tax.)

Here in California, and here in San Francisco, elected officials who claim to represent the Democratic Party’s future need to stop mouthing the old Republican line. None of the Democratic candidates for governor, including Mayor Gavin Newsom, have been our front about the need for more government spending, even if it means higher taxes on the wealthy (say, a business tax that hits harder on the biggest and less so on the small). In fact, Newsom has taken the opposite line, writing in a Feb. 13 San Francisco Chronicle op-ed piece that "we have to reduce spending." The San Francisco supervisors are at least talking about new revenue sources, but polls show that will be a hard sell.

Why do the polls show that? Because people like Newsom — and to some extent, the supervisors — aren’t using their bully pulpits to change the tone of the discussion, to make the case for economic sanity, to challenge the demented wisdom that’s brought us to this nightmare.

That has to change, now, or there will be no way out. *