Painful truth of debt crisis: We must raise taxes, even on the middle class

Rather than relying on higher taxes to pay for social and economic security, postwar liberals used the tax revenues automatically generated by economic growth; earmarked payroll taxes, like those paid for Social Security and Medicare; and hidden tax spending to underwrite the American welfare state. For more than 75 years, this middle-class welfare state has provided not only social security, but also economic opportunity and individual mobility to the vast majority of American citizens.

Much of this work was done through the federal tax code. Instead of using tax dollars directly to do such important and popular things as promoting homeownership or providing workers with health insurance, the federal government has instead relied on tax expenditures – special exemptions, deductions, and rates written into the tax code – to subsidize important social priorities. The tax law that allows taxpayers to deduct mortgage interest in order to reduce their tax bills – a provision that will cost the federal government more than $130 billion this year – is only the best-known example of this tax spending.

In fact, the federal government loses more than a trillion dollars in tax spending each year. And while some of these tax breaks benefit the wealthy, corporations or special interests, many of the biggest tax benefits go to ordinary American families.

Economic security depends on governmental support

Because these benefits are provided through the tax code, however, many of us don’t recognize the extent to which our own economic security depends on governmental support. Hiding the federal government’s role in underwriting the American Dream, and providing assistance to the majority of Americans only indirectly – through policies like loan guarantees and certain kinds of tax spending – has allowed most middle and working-class Americans to see themselves not as the beneficiaries of any state largesse, but rather as the overburdened victims of the tax code. Since the mid-1970s, the American right has benefited from these policy choices by translating Americans’ hostility toward taxes, and our ignorance of what the government actually does for us, into a rejection of the state itself.

Budget battle: Four points of advice from Ike

Postwar liberals and their conservative successors promised Americans that they could both have the economic and social security ensured by government programs and pay very little in taxes. Neither liberal nor conservative versions of “tax cut and spend” can meet our present crisis. It’s time for Congress and the country to admit the truth. If we want all the “stuff” the government provides for us, hidden and not, we’re going to have to pay for it.

Molly Michelmore, PhD, is an assistant professor of American history at Washington & Lee University and author of “Tax and Spend: The Welfare State, Tax Politics and the Limits of American Liberalism” to be published next year.

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