Two Taxed Americas

By E.J. Dionne

WASHINGTON—Ask yourself which politician you trust more.

On the one side, a president who campaigned on a balanced-budget pledge, then dug the country hundreds of billions of dollars deeper into debt with huge tax cuts and an unpaid-for war, and now promises a balanced budget four years after he leaves office.

On the other side, a former senator who says that while he wants to contain the deficit, he has higher priorities than a perfectly balanced budget, specifically universal health insurance coverage and substantial investments in alternative energy.

That is the choice offered by George W. Bush and John Edwards, the North Carolina Democrat whose left-of-center presidential candidacy will have the salutary effect of challenging Barack Obama and Hillary Rodham Clinton to respond with specifics of their own.

Edwards’ ideas on the budget have the additional virtue of reminding us that the argument over arriving at a balanced budget by 2012 is largely phony. The real issue, given the burgeoning costs of healthcare and the retirement of the baby boomers, is how to put policies in place now that achieve sustainable fiscal balance—meaning low if not zero deficits—over the next 30 years.

What needs to be done? Hint No. 1: Extending President Bush’s tax cuts to eternity would make the long-term problem much worse. Hint No. 2: The hardest part will be how—simultaneously—to meet the fiscal need to rein in health costs and the social need to get health insurance to everyone. Hint No. 3: Most Democrats don’t like to talk about it, but taxes are going to have to go up for somebody.

Edwards, at least, is willing to say which taxes he would raise to keep the deficit from going through the roof. He would start by eliminating Bush’s tax cuts for the top 2 percent of income earners, which he defines roughly as those earning more than $180,000 to $200,000 a year.

He wants to increase the capital gains tax for an interesting reason: In an interview this week, he argued it’s wrong to tax income from work at a higher rate than income from capital—an extension of his longstanding theme that the country should not value “wealth over work.” He also favors a windfall-profits tax on oil companies.

But since health coverage and “transforming the energy economy of this country” are first on his to-do list, Edwards says he is prepared to disappoint voters who make a balanced budget their top priority.

Edwards deserves points for honesty and for stating the politically difficult truth that both fiscal and social balance demand a comprehensive healthcare fix.

But his argument doesn’t do much to help Democrats on Capitol Hill who have to govern with Bush for the next two years and produce budgets right now that don’t worsen the deficit or deepen inequalities. They also need to do something about long-festering social problems. These have been aggravated by declines in health coverage and in the number of families receiving federal help for child care. There is also evidence that many poor people aren’t getting the nutrition assistance they need.

Worse: Having watched a Republican president and a Republican Congress run deficits year after year, Democrats will now endure the false piety of born-again Republican deficit hawks who will say they care about a balanced budget more than anything—except, of course, their sacred tax cuts for the wealthy.

“It’s a huge mess,” Sen. Charles E. Schumer, D-N.Y., said of trying to pass a decent budget. “It’s one of the worst things we have to do.” Schumer, vice chair of the Democratic Conference, argued that even when Democrats propose increased spending for widely shared goals, such as homeland security, Republicans “are going to say, ‘You’re spending too much,’ even though it’s ... a mess they created.”

Democrats should first do no harm. That means they should resist the temptation of new tax cuts—including repeal of the alternative minimum tax. The AMT should be fixed, but only as part of a comprehensive tax reform that raises revenue. If, as is likely, Bush’s path to a “balanced budget” combines tax cuts with freezes or reductions in programs for the needy, Democrats should risk being accused of “class warfare” by pointing out that the president’s recipe would produce not fiscal health but further social decline.

And if they want to trump Edwards’ candor, Sens. Obama and Clinton should take the lead in showing now how they would begin to clean up the mess they hope to inherit in 2008.