Americans Don't Need Higher Taxes. But They Do Need an Honest Appraisal of their Choices.


The title of Ezra Klein's latest Washington Post column announces that "Yesterday's tax revenues can't support tomorrow's America." The piece makes the case that tax revenues will have to increase from their historical average of about 18 percent of GDP in order to support higher health costs and an aging population.

But you could just as easily make the argument in reverse: An honest look at the history of America's federal revenues strongly suggests we can't afford the same level of health and retirement benefits into the future. To put it another way: Historical tax revenues can't support projected increases in entitlement spending.

The core of Klein's case is that the growing senior population and the rising cost of health care means that continuing to provide entitlement benefits roughly equivalent to today's will require greater revenue:

Projected deficits are driven by two factors: health-care costs and old people. The coming years will bring more of both. Today, the elderly make up 13 percent of the U.S. population. By 2050, they're expected to be 20 percent. There's no way that the tax receipts of the 1980s will support the demographics of the 2020s or 2030s. Anyone who says otherwise isn't taking the numbers seriously, or is planning cuts to Social Security and Medicare that dwarf anything that has been openly discussed in Washington.

Out on the basic outlook, Klein and I agree on quite a bit: What the nation is doing now with regards to tax revenues and entitlements is not sustainable in the long term. But Klein thinks that overall tax revenue levels will have to rise, because the alternative would be cutting Medicare and Social Security far more than any legislator is actually talking about.

Yet the same is more or less true when it comes to taxes: Continuing to provide entitlement benefits at today's levels will require far higher levels of taxation than most of today's elected officials are willing to admit. 

This is what the Congressional Budget Office has been telling people for a long time. Leaving entitlement benefits at roughly their current levels would require raising federal revenues "significantly above their average share of GDP" since World War II. Yes, it's "possible to keep the policies for those large benefit programs unchanged," the budget office says, "but only by raising taxes substantially, relative to current policies, for a broad segment of the population."

Klein is right that politicians haven't been keen to discuss the kind of entitlement cuts that would be necessary to put the budget on a sustainable path. But neither has the political class embraced the kind of broad tax hikes—tax hikes that would have a noticeable effect on large swaths of the middle class—that would be necessary either.

Right now there's not much appetite for a major overhaul of the entitlement system. But there isn't a lot of support for a large tax hike on the middle class either. 

The real problem here is that the public isn't getting the sort of honest appraisal it deserves. Republicans tend to focus on tweaks to the entitlement system that won't produce big savings. Democrats heavily emphasize tax hikes on the wealthy that won't come close to providing the sort of fiscal course correction the federal government needs. But neither side talks seriously about the fundamental budgetary challenges the country faces—or the kinds of policy solutions that addressing those challenges might require.

Yet what the CBO has made clear over and over again is that what we need are big changes, the kind that won't be easy: "Making policy changes that are large enough to shrink the debt relative to the size of the economy—or even to keep the debt from growing—will be a formidable task." Right now it's a task that neither party is up to. And that goes a long way toward explaining why we're our current impasse. We don't necessarily need higher taxes to resolve our budget woes. But we do need politicians willing to level with the public about the scope of the policy changes that will eventually need to be made.