Obama's Secret Plan to Raise Taxes

When Obama returns home, former Clinton adviser Matt Miller says he'll face a mounting budget crisis—and will have to come clean about needing to raise our taxes.

04.06.09 9:06 PM ET

Just before President Obama left for his boffo European tour, he offered an uncharacteristic evasion at home that revealed a looming political vulnerability. It came during his prime-time press conference on March 24, when he called on Chip Reid of CBS.

“At both of your town-hall meetings in California last week,” Reid began, “you said, quote, ‘I didn't run for president to pass on our problems to the next generation.’ But under your budget, the debt will increase $7 trillion over the next ten years. The Congressional Budget Office says $9.3 trillion. ... Isn't that kind of debt exactly what you were talking about when you said ‘passing on our problems to the next generation?’”

For a president who has been unusually willing to answer the questions he is actually asked, Obama’s reply was a telling Beltway dodge. He talked about his Republican critics having failed fiscal responsibility when they were in charge. He tweaked the GOP for lacking the courage to offer an alternative budget themselves. He offered a sidebar on the assumptions used by the White House and the CBO in their projections—differences that were irrelevant, because whichever forecast you believe, the new debt slated to be added on Obama’s watch is unprecedented. And he peddled the stock administration line that you can’t fix the budget without renewing economic growth and slowing the surge in health costs.

The one hard truth Barack Obama won’t utter is that all Americans will have to pay higher taxes before long.

But Obama never answered the question of how his epic debt can be squared with his call for generational responsibility. He can’t, because it can’t.

Behind this fudge is a secret: Obama and his advisers expect to limit such debt via broader tax increases, presumably in a second term. As every honest observer knows (and as I show in this chapter of my book The Tyranny of Dead Ideas), once this recession is past, taxes will go up in the years ahead no matter who is in power. John McCain’s top economic advisers from the campaign say so themselves. That’s because we’re retiring the baby boom, which means we’ll be doubling the number of people on Social Security and Medicare. We already have trillions of dollars in unfunded promises in these programs. The math simply doesn’t work at current levels of taxation.

This makes Obama’s debt dilemma an interesting case study in how an uncommonly forthright politician weighs the virtue of candor versus its political cost. Remember, Obama is the candidate who wouldn’t join the pandering when both McCain and Hillary Clinton were peddling that bogus gas-tax “holiday” last summer. He’s the president who routinely eschews happy talk, telling us the economy may well get worse before it gets better. But the one hard truth Barack Obama won’t utter is that all Americans will have to pay higher taxes before long.

Why not? The answer, at one level, is obvious, but it’s instructive to dissect. Having sat in such meetings in the early Clinton years, I suspect the conversation at the White House ran something like this. Yes, the president’s advisers told him, at some point taxes will need to rise broadly for the reasons described above. If we didn’t inherit this economic mess, we might be discussing it now as part of a plan to put Medicare and Social Security on a sounder footing. But tax cuts are needed for most Americans to combat the recession—and, by the way, that’s what you promised in the campaign. Saying the truth publicly—that taxes will need to rise once the recession is past—will let the GOP brand you as a tax-and-spend socialist. They’ll try to do that anyway based on the modest taxes for the top you’re proposing, but if you go this further step, their charge may well stick. Given how tough times are for most Americans today, floating the prospect of future tax increases would cost you too much support, and your ambitious agenda—hard to enact under any circumstances—would be imperiled. Better to finesse this tax thing for now.

The next question Obama’s team would have pondered is: What’s the political hit we’ll take for putting out a budget that appears to endorse enormous levels of new debt in the decade ahead? And how can we muscle through that? As Obama’s advisers would have explained, the White House would be giving Republicans the ability to say that in a few short years Barack Obama will add more debt than all the presidents that came before him combined. Centrist Democrats will share this concern, and will fear the political cost of embracing this path.

In the end, Obama and his team would have arrived at the strategy of finessing this vulnerability via the Blast-The-GOP-Change-The-Subject-And-Focus-On-Health-Care approach, which Obama deployed at the March 24 press conference. Meanwhile, with the White House able to focus the media on Obama’s wider activities and agenda, they’d hope to keep the debt issue from becoming politically salient.

This is a sensible strategy, to a point. But one piece of collateral damage is an intangible. By conspicuously fudging on debt and taxes, Obama undermines his reputation for intellectual honesty, one of his most attractive traits, and one which helped legitimize his claim to being a different kind of leader. In the end, Obama has made the judgment that, for now, some truths are just too hard to safely trust the public with.

Was this the right choice? I’ve debated this with friends and fellow commentators, who, like me, want Obama to succeed. Does he really have to be intellectually dishonest here? Would the price of candor be as high as the White House has calculated? In one sense, the very notion that this is up for debate shows how far we’ve moved from the Bush years, when intellectual dishonesty could simply be assumed. As I’ve mulled these questions, I’ve even hesitated to write a column like this—because it might give aid to the enemies of (what I view as) progress.

In the end, I’ve decided to weigh in because I’m convinced the political insufficiency of his current stance will force Obama to alter his position in any event. He may as well get out ahead of it. The drumbeat from the GOP about Obama’s colossal debt, previewed in the offstage budget skirmishes of the last two weeks, will become a primal Republican scream in the midterm elections. So rather than the divert-and-evade strategy, here’s how I would frame the debt issue if I were the president:

“Job one, two, and three is economic recovery,” Obama might say. “For the next three years that means unprecedented deficits to help boost this economy. I wish we didn’t have to run up $3 to 4 trillion in new debt to jumpstart growth—but I make no apologies for doing whatever it takes to get the economy out of the hole I found it in. Once we get past this downturn and back on the path to growth and prosperity, however—and we will—we’ll need to examine ways to ratchet this debt down much faster. The debt numbers in my budget for five or eight years from now are in that sense placeholders until we get through this mess. At that time, my view is that everything should be on the table. But first things first.”

When reporters ask, “does that mean higher taxes will be on the table,” Obama should merely repeat that “everything should be on the table—that’s the only sensible way for a great nation to tackle its challenges.”

Gamblers talk about a poker player’s ‘tell”—the small facial movement or tic that reveals when the player is bluffing. Obama’s tell on debt and taxes is the word “adjustments.” At the end of his long and otherwise cagey answer at the March 24 press conference, after being pressed in a rare follow-up question, Obama’s instincts led him to concede that when recovery came, to contain the debt, there might be a need to look at other “adjustments.” But the ones he stressed were further spending cuts.

Obama’s intellectual honesty is a political asset. Better that he adjust his rhetoric to say that once happy days are here again, everything needs to be on the table if we’re to solve the country’s problems.

Matt Miller, a senior fellow at the Center for American Progress, is the author of The Tyranny of Dead Ideas: Letting Go of the Old Ways of Thinking to Unleash a New Prosperity. He hosts “Left, Right & Center,” public radio’s popular weekly political roundtable, and blogs at