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Attention Democrats: Stop Promising Not to Raise Middle Class Taxes

Getty Images/Win McNamee

At the Washington Post on Monday, Zachary Goldfarb made a very good catch: President Barack Obama’s policy proposals for paid family leave have not lived up to his rhetoric. It’s easy to see why. A paid family leave program, which would likely cost more than $20 billion a year, would be financed by an increase in payroll taxes. In other words, a tax increase on middle and lower class families—something Obama explicitly promised he wouldn’t do. In turn, the president has found himself in a position Republicans know well: Trapped by a shortsighted campaign promise that has made him unable to govern.

In September 2008, then-candidate Barack Obama made a clear promise to supporters in New Hampshire. “And I can make a firm pledge: under my plan, no family making less than $250,000 will see their taxes increase—not your income taxes, not your payroll taxes, not your capital gains taxes, not any of your taxes,” he said. Politifact believes he has already broken that promise because the Affordable Care Act includes a tax on indoor tanning services. And in the Supreme Court’s words, Obamacare’s penalty for not buying insurance is a tax. Obama disputes Politifact’s interpretation, but regardless, an increase in payroll taxes would unquestionably break his pledge. The result: Obama is stuck unable to propose anything substantial.  

This isn’t entirely Obama’s fault of course. Politically, proposing taxes on anyone, but the rich is difficult. Senate Democrats are not exactly clamoring to do so. But they are going to frequently find themselves in this position if they continue to promise not to raise middle class taxes—especially when they define the upper threshold of middle class at $250,000 in income. Ninety-nine percent of Americans made less than $250,000 in 2012. It’s absurd to argue that just 1 percent of Americans are in the upper-class.

But beyond this definitional problem, Democrats must admit that middle class taxes will have to rise to finance all of their policy priorities. New programs like paid family leave or universal pre-k cost money, year after year. The New America foundation has a plan to create an additional social security benefit. It would cost 3.7 percent of GDP in 2035. For comparison, individual income taxes in total brought in 7.9 percent of GDP in 2013. We can finance these liberal programs with debt for a short period—and in this economic environment, I would argue that’s smart policy—but eventually we will need to address our long-term debt. And that’s going to require more than increased taxes on the rich.

The Congressional Budget Office estimates that raising the top two marginal tax rates by 1 percent would bring in an extra $10 billion in revenue. Increasing the payroll tax cap on maximum taxable income from $113,700 to $177,500 and taxing capital gains as ordinary income would each bring in approximately $50 billion. A financial transaction tax would increase revenues by $18 billion. These four policies combined would increase revenue by 0.8 percent of GDP. That’s a substantial amount, but it’s nowhere near enough to reduce our long-term debt and fund liberal priorities.

That’s why it’s a mistake for Democrats to promise not to raise middle class taxes. If the Democratic presidential nominee makes that a campaign pledge in 2016, it’s going to limit what they can accomplish if they win the election. Winning elections isn't very useful if you prevent yourself from governing along the way.