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Tax Hike? Some Say Now's The Time To Pounce

The Obama administration did some quick backpedaling on taxes this week.

It began when Treasury Secretary Timothy Geithner was asked if a middle-class tax hike might be necessary in order to control the ballooning deficit.

"We can't make those judgments yet about exactly what it's going to take and how we're going to get there," he said on ABC's This Week. "But we do not have a choice about this as a country. If we want an economy that's going to grow in the future, we have to bring those deficits down."

No sooner had Geithner opened the door to a middle-class tax hike than White House spokesman Robert Gibbs slammed it shut.

"I am reiterating the president's clear commitment in the clearest terms possible: that he's not raising taxes on those that make less than $250,000 a year," Gibbs said.

He was emphatic. He left no wiggle room. One could almost read his lips.

"Read my lips," of course, was George H.W. Bush's famous challenge when he promised not to raise taxes during the 1988 GOP convention, only to reverse himself once in office.

Public Opinion

"George Herbert Walker Bush was thrown out of office because he said he wouldn't raise taxes and he did," said conservative activist Grover Norquist.

Norquist has built a career out of getting politicians to swear a blood oath against higher taxes and trying to draw blood whenever they backslide. For Norquist, who heads a group called Americans for Tax Reform, there is no war, hurricane or yawning budget deficit big enough to justify asking the American people to pay more.

"No, there's not," Norquist said. "Politicians have a hundred reasons to raise taxes. If you want to spend more on X, you can spend less on Y. There's no shortage of cash."

For years, that opposition to higher taxes — at least on the middle class — has defined the playing field for American politicians. The Gallup Organization has been asking people since the mid-1950s if they think their own taxes are too high, too low or about right. Almost no one ever volunteers that their taxes are too low.

"I don't think anybody is desperate to pay more taxes, except maybe a few very rich people," said Gallup's Frank Newport. "I guess Barack Obama always says, 'I make a lot of money and I'm willing to pay more taxes.' So maybe he'd be willing to do it. But most Americans aren't."

But Newport notes something unusual this year: Less than half the people surveyed — 46 percent — complained their taxes are too high. That's the smallest fraction since 1961. And for only the second time in decades, a slightly larger group of people actually thought their taxes were about right.

"So Americans, relatively speaking, are more satisfied with the amount of taxes they pay than they have been at most other times in history," Newport said. "Some people might say now's the time to pounce."

'Leadership In The Wrong Direction'

The Obama administration seems unwilling to test that, even though many experts think Geithner was right to leave the idea on the table. Their argument is that eventually, the government will have to raise taxes to get its fiscal house in order. And the sooner politicians start making that argument, the better.

"Saying that you're never going to raise taxes on people with income below $250,000 is leadership, but it's leadership in the wrong direction," says Bill Gale, co-director of the Tax Policy Center at the Brookings Institution. "It's telling people what they want to hear, rather than what they need to hear."

Gale suspects people are more willing to pay taxes during periods when the government is seen as playing an important role.

During World War II, tax rates for the wealthy soared as high as 94 percent. But poor and middle-class families also paid taxes at rates substantially higher than today's. Despite those high taxes, the vast majority of Americans surveyed by Gallup back then said the taxes they paid were fair.

Copyright 2023 NPR. To see more, visit https://www.npr.org.

Scott Horsley
Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.