Recently, President Obama gave a controversial speech, saying that wealthy people ought to be willing to pay more tax because the government helped them accumulate wealth. He noted that nobody gets rich without good teachers and good infrastructure, so rich people shouldn’t grumble about his plan to raise taxes.
His comment to business owners that “you didn’t build that” drew particular ire — though the president’s defenders insist he was talking about infrastructure that supports businesses, not businesses themselves.
Obama is right about the broad point: The government does lots of valuable things, and people should be willing to pay for them. Where he goes wrong is in limiting that admonition to business owners and people with high incomes.
There’s something odd in how Obama talks about businesses. He’s been distressingly willing to praise “good” companies and criticize “bad” ones; in this year’s State of the Union, he praised Siemens (for partnering with a government agency, no less) while railing against US companies that do business abroad. He also sets overly specific goals for private business, such as increasing exports. The president talks like he views businesses as an instrument for achieving government policy, so it’s easy to understand why businesspeople would be wary of him.
Meanwhile, the programs that are busting the federal budget don’t disproportionately benefit business or the wealthy. By and large, they are middle-class entitlements like Medicare, Social Security, and the new health care entitlement in Obamacare. These programs may have incidental workforce benefits that make it easier for firms to hire, but their main benefits accrue directly to their beneficiaries, most of whom are not wealthy.
Obama has resolutely defended Obamacare and Social Security against Republican proposals to cut spending on them. He has put in place mechanisms to cut Medicare spending in future years, but not enough to make it sustainable — and he has attacked Republican proposals for further cuts as “ending Medicare as we know it.” (Of course, Republicans have also attacked the president’s Medicare cuts while proposing their own.)
But at the same time he opposes cuts in these programs, Obama is promising the middle class they won’t have to pay more for them. The numbers do not add up. The Congressional Budget Office projects $11 trillion in federal budget deficits over the next decade. The president’s proposals to increase taxes on the wealthy, the ones he was defending in his speech, would only raise $1.9 trillion over that period.
And this is why it’s reasonable for business owners and wealthy people to be sore that the president is singling them out. If Obama won’t make the case to the general public that government is good and worth paying for, why should the wealthy be swayed by the message that they — just they — should pay up?
The president’s real talk to America’s rich — you have it good, the government helped you have it good, now the government needs your help — would be more credible if it came with some real talk for the population as a whole. Entitlement programs cost money, and as the population ages and health care costs expand, they’re getting even more costly. Making the programs more generous, as Obamacare does, also costs extra money. Are we willing to pay for that?
Other advanced countries tend to have more generous welfare states than America does. They pay for that by taxing the middle class much more heavily than we do. America is the only advanced country of significant size without universal health coverage, and the only one without a value-added tax. That’s not a coincidence.
We won’t be able to keep our middle-class entitlement programs on their current trajectory without a middle-class tax increase. That’s a tough sell — in part because some government programs are more valuable than others. But it would be more honest than the president’s current insistence that the rich can pay, and it could actually lead to tax policies that put the president’s spending proposals on sound fiscal footing.
If Obama wants a tax system that can pay for his spending, he’ll have to build it.
Josh Barro blogs about economic and fiscal issues for Bloomberg View.