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Read their lips: Mixed signals from Obama team on taxes

The White House said Monday that Obama's commitment not to raise taxes on the middle class stands firm. Some economists question if that's realistic, given America's fiscal plight.

By Staff writer / August 3, 2009

White House Press Secretary Robert Gibbs speaks to the media during the daily briefing at the White House in Washington Monday.

Alex Brandon/AP

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Divergent messages from the Obama administration in the past two days hint at a tough political reality: Nobody likes higher taxes, but that may be the price of getting America's fiscal house back in order.

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Although Barack Obama campaigned on a pledge of no tax hikes on the middle class, top administration officials on Sunday appeared to open the door to rethinking that position. Then on Monday the White House press secretary said the door really isn't open.

Either way, the discussion of possible tax hikes is already out of the stable. Economists generally agree with Treasury Secretary Timothy Geithner that the nation is on an unsustainable fiscal path, and that hard choices will need to be made – although the reckoning may not occur on Mr. Obama's watch. Some say the magnitude of the hole to be filled is so large that spending cuts alone are unlikely to do the job.

"It’s going to take a combination of things that will slow the growth of spending ... and increasing [tax] revenues," predicts Jim Horney, a budget expert at the Center for Budget and Policy Priorities, a left-leaning Washington research group. Virtually “all agree that under our current path we’re going to see over time an explosion in deficits and debt."

The path of inaction would have serious consequences, he warns: slower economic growth, greater risk of rising interest rates, and a growing burden of debt dumped on younger generations of Americans.

Political peril of tax hikes

But the path of action has consequences, too, if tax hikes are involved. Just ask George H.W. Bush, who lost the White House in 1992 after departing from his pledge, "Read my lips: No new taxes."

In the election, Obama pledged that tax rates wouldn't rise for Americans with household incomes below $250,000 a year. Recent polls confirm that Americans are generally not in a mood for a broad tax hike. Asked if they are willing to pay more taxes to reduce the federal deficit, 56 percent said no and 41 percent said yes in a New York Times/CBS News survey late last month.

Deficit outlook worsens

But the mammoth federal spending designed to lift the economy out of recession, coupled with a recession-related slump in tax revenues, has made the outlook for budget deficits much worse. Add the projected costs of covering healthcare for baby-boomer retirees and, possibly, those who are currently uninsured, and it's clear why the issue of taxes is weighing heavier on the public and politicians lately.